By Ryan Velez
With the year coming to a close, car dealers are currently busy trying to clear out room in their showrooms and lots for the models coming next year. It’s a tempting time for consumers to try and take advantage, but Charlene Crowell of the Center For Responsible Lending points out that not every deal on the table is to a consumer’s benefit, especially when you put add-ons into the equation. EURWeb shares more on the story.
This insight comes from a new policy analysis by the National Consumer Law Center (NCLC), which examined sales and financing practices widely used by car dealers. This showed that many consumers were being charged huge mark-ups for purchases that include products that can be questionable in their usefulness. In fact, these same products and services are usually available for consumers to purchase more cheaply on their own.
“Our analysis demonstrates the negative consequences of opaque and inconsistent pricing of auto add-on products and the urgent need to bring transparency and consistency to this market,” said John W. Van Alst, the report’s primary author and director of NCLC’s Working Cars for Working Families Project.
But how does this end up coming into play? Crowell walks us through the process:
“After a consumer settles on a price of a vehicle, he or she is then told to see the finance and insurance (F&I) representative to review terms and sign the purchase. What few consumers know is that many dealers pay its F&I personnel on a commission basis. Hence, the more costs added to the vehicle purchase, the more these employees earn. Other dealers, according to NCLC, pay a higher percentage commission as the F&I profits increase per vehicle sold. Sometimes car sales representatives receive a commission on the cars sold and additionally, a portion of the add-ons, sometimes known as “back-end” products.”
If consumers follow this, there is the chance that they end up paying more than the vehicle is actually worse. This report also cited previous research by the Center for Responsible Lending (CRL) that determined car buyers who financed vehicles at the dealership in 2009 paid $25.8 billion in interest rate markups. Black consumers are also being disproportionally targeted. More than half of black loan purchasers, 54%, were charged these loan kickbacks compared to 31% of whites.