Why Auto Dealers Get Away With Bait and Switch so Often
By Aaron Crowe
Some auto dealers regularly use bait and switch sales tactics — where they deceive consumers by “baiting” them with a low price and “switch” to a higher price with a similar car — partly because the illegal practice is rarely questioned.
Among the Southern California auto dealerships that auto fraud attorney Pauliana Lara deals with, bait and switch practices happen at least once a day at each dealership, Lara says.
“Bottom line — they get away with it,” says Lara, of the Consumer Action Law Group in Los Angeles.
Bait and switch is illegal, though the term that the Federal Trade Commission uses is deceptive practices, says Duane Pozza, an attorney for the FTC.
Whatever it’s called, it comes in a few main categories:
These include undercoating, paint protection, wheel locks and other dealer add-ons that are only revealed when the consumer arrives at the car dealership.
Sometimes the dealer will say they’ve been added by the manufacturer and the dealer can’t remove them, and thus can’t remove the added fee of $1,000 or so.
They include a dealer or other third party adding to the vehicle sales, lease or finance agreement charges for other products or services, such as extended warranties, payment programs, guaranteed auto protection (GAP insurance), credit life insurance, road service and theft protection.
“The dealer is obligated to disclose them,” Pozza says of add-ons, which must be optional.
Douglas H., a Yelp reviewer of a Toyota dealership in Fairfield, Calif., wrote in June that after getting an initial price of $21,000 for a new Prius, $6,000 in add-ons and other services were added to the final price before taxes.
This included a $3,000 “pro-pack” of LoJack, wear and tear protection, and paint protection. He accepted and when the salesman passed him on to the finance person, $1,795 was added to get the car serviced, along with a $995 charge to sign the contract. If he didn’t agree to that price, he wouldn’t get the low financing terms they agreed to, he says in his review.
He bought the car and a week later the dealer called to make an appointment to install the LoJack tracking system and the paint protection that were supposedly already pre-installed.
Among the six FTC cases the agency announced in March was one charging National Payment Network, Inc., of San Mateo, Calif., of deceptively pitching consumers an auto payment program that it claimed would save consumers money. NPN didn’t disclose the significant fees it charged for the service that cancelled out any actual savings, according to the FTC. The enrollment fees for NPN’s program averaged $775 for a five-year auto loan.
Matt Blatt dealerships in New Jersey was accused of not adequately disclosing the fees for this add-on service. The dealerships received a commission for each of the more than 1,000 consumers they enrolled, the FTC said.
Three auto dealers settled charges by the FTC that they ran deceptive ads that violated the FTC Act, among other acts.
“Ads touted sales, lease or financing options that seemed attractive but were cancelled out by fine-print disclaimers,” the FTC says. Some disclaimers didn’t disclose relevant terms, such as required down payments.
The fine print, as anyone who has read a full-page ad for an auto dealer has seen, can be where auto dealers hide details. These include having only one car in stock at the advertised price, charging thousands of dollars more for a similar vehicle, and offering the deal to military members only.
Highlighting the higher prices and restrictions in fine print at the bottom of an advertisement doesn’t make it legal, Pozza says. It can still be a deceptive practice that’s illegal, he says.
“If you’re going to advertise a certain price, it must be clearly and conspicuously disclosed —not in small print,” Pozza says.
Lara, the Los Angeles attorney, says a common response from a salesman to a customer coming in with a VIN of a car advertised at a low price is, “We just sold it this morning.” And then they point them to a higher-priced, similar car with options they may not want.
“They get the client very excited, and the client is very emotional, and they end up buying the car,” she says.
Lara said she had an elderly client who bought a Toyota Prius for $3,000 more than the price advertised for the Prius he saw in an ad and originally went in to buy. When he got home, he checked the VIN number of the car he wanted in the ad, and it was the same VIN number on the more expensive car he just bought.
The law firm got the $3,000 extra he was charged back for him, along with court fees and its costs.
California law, for example, is very specific on regulating ads, says Robert Barrows, who runs an advertising firm in San Mateo, Calif., and once handled advertising for a car dealer who tried to counter bait and switch tactics with low pressure sales methods. When a dealer advertises a car at a low price in an ad, California law requires it to list the number of cars at that price and to give the car ID numbers, Barrows says.
“That price may still be on a car that is not very well equipped and that’s where people may feel they’ve been baited and then switched to a different car, but the rule is ‘let the customer switch themselves,’” he says.
Auto loan modification
Another deceptive and illegal practice is when auto dealers charge consumers upfront fees to negotiate an auto loan modification on their behalf, but then often are provided nothing in return, according to the FTC.
In the settlements announced in March, a U.S. District Court froze defendants’ assets after an FTC complaint that they misrepresented that they’d provide full refunds if they failed to obtain auto loan modifications.
Why bait and switch is common
Many auto dealers use bait and switch tactics “over and over,” Lara says, “because that’s just their business practice.”
“You have to prove that they can’t follow through with the ad,” she says.
It’s important for consumers who think they’re being taken advantage of to know “you don’t have to complete the transaction” for it to be illegal, Pozza says. Even if the car isn’t bought, the deception can still be illegal and reported to authorities.
The FTC received more than 88,000 complaints last year about auto sales, he says, and the FTC doesn’t have the manpower to investigate all of them.
How to avoid it
Bait and switch is common because it gets customers in the door. LeeAnn Shattuck, who runs a business called The Car Chick that helps women buy cars, says she has seen dealers quote a ridiculously low price on a vehicle they don’t have and can’t get just to get a customer to come into the dealership.
To avoid a long drive for nothing, Shattuck recommends asking these questions when getting a price quote:
1. Is the car in stock? Does it have the colors and options I want? If so, what is the stock number?
“Stock” means the dealer has the car on the lot, versus having to locate one and trading with another dealer for it, or waiting for it to be built and shipped. The stock number is the unique identifier each dealer uses in their system for each car in their inventory. It’s different from the VIN.
Asking for a stock number, she says, allows the dealer to prove the vehicle is in their inventory and lets her double check it on their website.
2. Are there “extras” on the car? These can include add-ons listed above, or options that can be removed before sale. They include pin stripping, mud guards and paint protection.
3. What is the total price? This should be the out-the-door price for your state, including tax in your county, tag and title costs, and documentation and administrative fees, if any.
4. Can I get a signed buyer’s order? When signed by a manager of the dealership, this document is legally binding in most cases, Shattuck says. This document can be ready for you when you arrive at the dealership to take delivery of the car, provided you already have financing in place.
If these still don’t lead to the price you’ve been given, the easiest solution is as close as walking out the dealership’s door or hanging up the phone.