As a major car dealer falls foul of the Office of Fair Trading, we expose the tricks of the trade.
Last week used-car seller Carcraft was humbled by the Office of Fair Trading (OFT). The consumer watchdog criticised Carcraft, which owns 11 car supermarkets in England and Wales, for poor business practices in its before- and after-sales service.
The regulator launched an investigation after some Carcraft customers complained that their cars developed serious faults shortly after purchase. The OFT found that Carcraft's 120-point pre-sale vehicle inspections were not always carried out properly.
As a result of unsatisfactory cars not being repaired or replaced, the OFT criticised Carcraft's after-sales guarantee. Also, the watchdog slammed the dealer for:
- not properly explaining finance agreements, including the level of monthly payments;
- not making it clear that its after-sales guarantee was not free, but came with a fee; and
- allowing customers to drive vehicles away without valid Vehicle Excise Duty ('road tax' discs).
Clamping down on Arthur Daley
In 2010 more than two million new cars were sold in the UK, as well as 6.8 million used cars. Despite being one of Britain's biggest industries, the OFT is clearly unhappy with the growing number of complaints against car dealers, especially concerning used vehicles.
Cavendish Elithorn, Senior Director, Goods and Consumer Group at the OFT, warned, "The industry should take note of our action against Carcraft, as it shows that dealers will face enforcement action where their practices cause serious problems for consumers."
The OFT's report into the used-car market in March 2010 found that "the market was often not working well for consumers and that more needed to be done to ensure dealers were aware of the law and that those who failed to comply faced a real threat of effective enforcement action."
Hence, the public image of car salesmen (and, to a lesser degree, women) remains the 'Arthur Daley' type -- a reference to the greedy, dodgy businessman played by George Cole in hit ITV drama Minder. Indeed, grumbles about second-hand cars often top Consumer Direct's list of consumer complaints.
Sharks in the showroom
When you go looking for a new car, you need to stay sharp and watch out for sharks with sharp teeth in the showroom.
You must understand that the salesman doesn't only want to sell you a vehicle. He wants to sell you a CLIO (but not a Renault), which is my acronym for Car, Loan, Insurance and Other add-ons. In other words, he wants 'four-play' -- making money from you in four different ways!
So, what tricks and fiddles should you watch out for on the forecourt? Here are 10 common cons, based on my decade of working with several of the UK's biggest car dealers:
1. Ankle tapping
Ankle tapping is when a salesman offers you a low value for your trade-in vehicle, purely so he can lower the price of a new car. In other words, he gets back that extra £500 off the list price by giving you at least £500 less than your part-exchange's true market value.
2. Bad ads
All car adverts are aspirational, showing beautiful models in sleek vehicles effortlessly zooming down country lanes. However, the vehicle you see in the ad won't be the one shown in the financial example on screen.
[SPOTLIGHT]Instead, to show the lowest repayments, manufacturers tend to produce worked examples based on the cheapest models in the range. In other words, that £12,000 on-the-road price certainly won't be for the lovely convertible flashing along in front of your eyes.
3. Loss leaders
Dealers know that low advertised prices get punters through the doors. Hence, most dealers keep a couple of 'loss leaders' on their forecourts -- models being sold at genuinely low prices.
However, once you cross the threshold, you won't end up buying one of these bargains. Rather, the salesman will 'upsell' you by steering you towards a more desirable, but more expensive, model. Only the most hardened negotiators will bag these loss leaders.
4. Low balling
When you view a new car, a sneaky salesman names an unrealistically low price that you should aim to match.
When you can't find anyone to match this mythical price tag, you return to the same salesman, who promptly sells it to you for more than his unattainable price.
5. The time of the month
Another trick is to claim that this 'special, one-off' sale price is only available today because the salesman:
- needs this sale to get his month off to a good start;
- has a specific mid-month quota to hit; or
- is one sale away from hitting his month-end target.
Funny how there's always a special deal for you, no matter what time of the month it is, right?
6. Short-term sales
Dealers know full well that most buyers go shopping for cars at weekends. As a result there is a remarkable number of one-off sales campaigns which "start this Thursday and finish next Monday". These short-term sales deliver punters through the door and into the hands of eager salesmen.
7. Interest-free credit
With new-car sales well below their 2003 peak of 2.58 million, many dealers lure drivers into their dealerships with offers of 0% finance.
The problem is that this interest-free credit comes with strings attached. Indeed, if you take the 0% deal, the salesman will promise that you've got a great bargain and refuse to offer a sensible discount from the list price.
As a result, the total amount repayable (TAR) for your dealer loan or hire-purchase deal could be greater than that from shopping around for both car and finance, perhaps using a market-leading personal loan. Check out The cheapest loan around for a comprehensive guide to the best deals in the market today.
8. Flat rates
When dealers sell finance, they do so by quoting 'flat' rates of interest of, say, 6% a year. These are not the same as the APRs (Annual Percentage Rates) quoted on other forms of credit.
In fact, to turn a flat rate of interest into an APR, the rule of thumb is to double it and subtract half a percentage point. Thus, a flat rate of 6% converts to around 11.5% APR. To avoid being fooled by flat rates, always ask to see the written APR, which must be shown by law.
9. Rip-off insurance
Would you buy a package holiday from your doctor? Of course not, because that's not his/her speciality. Likewise, why buy any form of insurance from a car dealer?
In particular, you should say no to hugely overpriced payment protection insurance (PPI) covering you against accidents, sickness and unemployment. Similarly, the motor insurance and breakdown cover sold by dealers are sure to be inferior to five-star policies.
Also, buying an extended warranty in the dealership could cost you up to five times as much as a table-topping stand-alone plan.
10. Expensive add-ons
Lastly, don't buy add-ons such as metallic paint, alloy wheels and other bits and pieces without haggling on price. The margins on these additional sales are huge, so there is plenty of room for further discounts.
Have you ever been fleeced by a car dealer? Tell us your tale in the comments box below!
More: Get quality quotes for car insurance | Ten rip-offs that drive motorists mad | Save a fortune on broadband, phone and TV