Has this guy got a deal for you. Or is it an ordeal? Car scams are on the rise, especially among used car and small, independent dealerships.
Kyle G. Martz is outraged. In late 2007, Martz, 46, of Erie, Colo., purchased a 2007 Volkswagen Passat 4Motion with 1,200 miles on it for around $43,000 — several thousand dollars less than the sticker price. He was told it had been driven for only a short time by the owner of the Volkswagen dealership that was selling it. But that was only half the story.
"Within the first month, the car was back in the shop at least three times," says Martz, a national sales rep in the food business. "There were electrical glitches through the whole car — GPS, parking sensors, stability control. None of it worked." When Martz's mechanic stripped off some of the trunk's interior panels, he exposed a bunch of shoddy spot welds, indicating the car had been in a severe rear-end collision.
According to the Department of Motor Vehicles officials and state fraud investigators we surveyed, Martz had fallen prey to one the most common scams dealers commit — fixing a totaled car off the books and then reselling it "as is."
While experts say only a small number of dealers actually partake in such illegal activities, the number of consumer complaints from potential car buyers about the ones that do are on the rise. And while well-capitalized dealerships are less likely to deceive than small independents, they aren't innocent. "We've had some big dealers shut their doors for this reason alone," says Mike Marando, a spokesman with the California Department of Motor Vehicles.
For example, last September the California DMV had Shayan Rahbarian, owner of Suzuki of Sacramento, arrested on fraud charges, alleging that he failed to pay Brasher's Auto Auction more than $4 million for 192 new vehicles he bought wholesale and resold to consumers or other dealers.
To help you avoid getting scammed when purchasing a car, we've put together a list of the most common dealer deceptions being perpetrated today, along with what you can do to avoid them.
Scam: Selling Cars Without Proper or Clear Titles
Title fraud is on the rise because of the current recession and is often the result of poor business management on the dealer's part, says Willy Hall, detective supervisor for the Office of the Inspector General at the Arizona Department of Transportation. It mostly happens when struggling dealers without enough money to keep operations going can't pay off the liens on titles for the vehicles they've purchased and sold. Surprisingly, a lot of dealers don't technically own the vehicles they sell. They borrow money from financiers, called "flooring agents," to pay for them. Once a dealer sells a vehicle paid for by a flooring agent, he or she is supposed to pay off the agent to get the title — or clear the lien on the title — and pass it on to the buyer. The problem arises when the dealer doesn't pay off the loan. In such cases, car buyers will return to pick up their license plates and title, only to find that they aren't available and the dealer is nowhere to be found.
Have you ever been scammed by a car dealer? Tell us your story.
The same applies to trade-ins. The dealer is supposed to pay off the lien on a trade-in, but either is unable to pay or pockets the money and shutters the business after pulling this stunt a number of times. As a result, the original owner of the trade-in is left with a car payment on a vehicle he or she no longer owns, and the new owner, who bought the trade-in with a title that has a lien on it, now technically owns nothing.
Warning Signs: "People who say they don't have a title but they can get it — that's a warning sign," says A.D. Reeves, executive director of the dealer services division for the Indiana secretary of state's office.
How to Protect Yourself: You should always ask to see the title and examine it carefully, says Hall. If the dealership owns the car or is on the up and up, it will have the title on hand or be willing to produce it. If it doesn't or won't, then something's not right. And never trade in a financed car with a balance left on the loan. If you can't pay it off for any reason, insist that the dealer put in writing that he will pay off the trade-in within 10 days, recommends Jeff Ostroff, founder of CarBuyingTips.com, whose Web site receives several e-mails a week from disgruntled car buyers. If the dealer is trustworthy, he or she shouldn't have a problem with this request.
Take any used, “like new” or “sold as-is” cars to a trustworthy mechanic for a thorough examination. A trained mechanic will recognize shoddy repairs, parts that will soon fail and whether the vehicle has been in a wreck or flood.
Scam: Selling Wrecked or Salvaged Vehicles
It's one of the oldest tricks in the book: Patch up a totaled vehicle, make it look pretty on the outside, and sell it "as is" for full price. When things start to go wrong or don't work at all, the dealer hides behind the "as is" clause in whatever you signed. "Lemon laws" can help consumers recoup money wasted on vehicles damaged in wrecks and floods, but it can take years to prosecute offenders. Martz, who unwittingly bought the wrecked 2007 Volkswagen Passat, says the Colorado state attorney general's office told him his case would take about two years to get through the system.
Warning Signs: A car's title must designate whether the vehicle has been totaled or salvaged, so look at the document carefully. Be wary if the title looks as if it has been altered in some way. Experts also recommend steering clear of vehicles sold "as is." You'll be stuck if something is wrong with it. "The risks are too great," Ostroff says. Another warning sign is if a used-car dealer refuses to offer any kind of warranty.
How to Protect Yourself: Multiple experts recommend taking used cars to a trustworthy mechanic for a thorough once-over before signing anything. A trained mechanic will easily recognize shoddy repairs, parts that will soon fail and whether the vehicle has been in a wreck or flood. Also, when test-driving the vehicle, check to make sure that everything functions properly, including all electronic and power equipment.
Scam: Bogus Warranties
The practice is not necessarily illegal, but dealers will often try to slip in extended-warranty coverage while you're sitting in the finance manager's office going over the paperwork. You might not even notice it as a line item in the plethora of paperwork you're told to sign. Or you might be told that the bank requires it in order to loan you the money to buy the car. Another type of warranty scam occurs when a customer is sold coverage from a third-party firm, only to find out when the car breaks down months later that the warranty provider is bogus.
Warning Signs: Be leery of warranty coverage that is "required" for one reason or another. Extended or added warranties are usually optional.
How to Protect Yourself: If a salesperson says the bank financing your vehicle requires you to purchase an extended warranty, ask him or her to put it in writing. If the dealer is misleading you, they'll usually back off at this point. As far as avoiding fake warranties, verify that the company actually exists before paying for the coverage.
Have you ever been scammed by a car dealer? Tell us your story.
Scam: 'Acquisition' Fees and Other Mysterious Charges
Some dealers try to take advantage of consumers with bad credit by charging an extra fee to finance a vehicle. This happened to Carlos Laguardia at a Hyundai dealership outside Chicago when he went to look at a Hummer H3. The shenanigans started when the dealer's financing department found out Laguardia had a low credit score. "All of a sudden the price went up $3,000, from $17,495, to $20,495," says Laguardia, a restaurant owner and retired police officer. The salesman told him that the bank was charging the dealer an extra $3,000 because of his bad credit, and that this "fee" had to be added to the price of the car. "If I was someone illiterate or indigent, he probably would've gotten away with it," Laguardia says.
Warning Signs: If the price of a car suddenly goes up by thousands of dollars while you're sitting in the finance office and the salesperson says it's because you have bad credit, something is up. High interest rates are the norm for bad credit, not thousands in upfront fees.
How to Protect Yourself: Know your credit score and secure financing before you start shopping. And, once you're in the back office, don't sign anything before carefully reading every line item and the fine print.
Unless the dealer is financing the vehicle you’re buying, you are under no obligation to let him or her run a credit report. It's important to safeguard your private information at all costs.
Scam: Financing Falls Through
Unscrupulous car dealers might fiddle with your financing as a way to jack up their profits. It can happen several ways. One that CarBuyingTips.com's Ostroff hears about a lot involves car buyers getting called back into the dealership a week or so after purchasing a car, or so they thought, under the premise that the financing fell through. Once you're back, the dealer tries to renegotiate the interest rate based on whether you buy extra services, warranties or accessories. They might also try to focus on the amount of the monthly payment to divert attention from the fact that the total amount being financed has gone up. Another variation on this scam involves dealers letting you drive off the lot without finalizing the loan papers, promising that they'll work it out. But when they call after several days, the terms of the loan have changed or the monthly payments are more than the buyer can afford, which opens the door for the dealer to "refinance" the vehicle and increase his or her profits.
Warning Signs: Dealers who offer to let you take a car home but don't finalize the loan terms might not have your best interests at heart, especially if you've already agreed to leave your trade-in with them. If you get a call about a problem with a loan several days after signing an agreement, be suspicious. Also, a dealer shouldn't increase or lower the loan interest rate based on whether you'll buy extra warranties or dealer services.
How to Protect Yourself: Line up your own financing before going to a dealership. Compare the interest rate of the loan you already have with what the dealer offers and go with whichever one is better. When negotiating with dealers, experts recommend focusing on the total cost of the car, not the monthly payment. Dealers can sometimes monkey around with the total amount being financed if you're too focused on the monthly payment.
Scam: Credit/Identity Theft
Some dealers might want to run your credit report even if you have your own financing. They might tell you that it's required, perhaps because of the Patriot Act. You are under no obligation to let a dealer run a credit report for this reason. Reeves, of the Indiana secretary of state's office, has seen cases where a dealer secured multiple loans under a consumer's name for the same vehicle, without the consumer's knowledge.
Warning Signs: If you already have a loan to purchase a vehicle and the dealer insists that you need to fill out a credit application, something is wrong.
How to Protect Yourself: It's important to safeguard your private information. "It would be a good idea for consumers to run a credit check a couple of months after purchasing a vehicle, just to make sure that there aren't any other loans that they don't know about," says Reeves.
Have you ever been scammed by a car dealer? Tell us your story.
Scam: Misleading Advertising
Of all the scams on this list, misleading ads are perhaps the most innocuous. We've all seen deals listed in the paper that seem too good to be true, only to read the fine print that says only one model is available at that fantastic sale price.
Warning Signs: "Be very cautious of any ad where there is only one vehicle listed at a given price," says Chris Denove, vice president at J.D. Power and Associates, "because if that's the case, you may go in and find a similar vehicle in a different color that is not available at that price."
How to Protect Yourself: Read the fine print, and call the dealer ahead of time. If you are going to respond to a 'too good to be true' ad, call to verify the availability and the price of the vehicle you want to look at. "And do it immediately before you go into the dealership to minimize the chance that it's sold when you get there," Denove says.
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Matthew de Paula wanted to be an automotive journalist ever since reading his first car magazine in grade school. After a brief stint writing about finance, he helped launch ForbesAutos.com and became the site's editor in 2006. Matthew now freelances for various outlets.
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