WASHINGTON - A new assault on dealer finance profits is putting an end to the era of invisible markups on car loans.
The attack on dealer reserves is broader and more intense than in the mid-1990s, when lawsuits against dealers and finance companies alleged that minorities were being gouged on car loans.
The debate has spread from the courtroom to state legislatures and is getting exposure on national TV. It dominated many discussions last week during the National Automobile Dealers Association convention.
The CBS news show "60 Minutes" is scheduled to air a report this month on finance practices at a Memphis, Tenn., dealership owned by UnitedAuto Group Inc. A December "Dateline NBC" report also cast dealers in a bad light.
And Illinois Attorney General Lisa Madigan announced on Jan. 31 that she will urge legislation requiring dealers to disclose the profit they are making on loans.
The industry is feeling the heat.
NADA directors unanimously approved a resolution on Jan. 30 saying that dealers should disclose that they make money on car loans and that interest rates are negotiable.
Some consumer advocates are trying to dictate the amount dealers can make on car loans. And some want to eliminate interest rate markups - the most common way dealers make money on car loans. One California group proposes to restrict the finance profit to $150.
"Now it's a two-front battle against half-truths," says Tom Hudson, a Washington lawyer who represents dealers and lenders.
General Motors Acceptance Corp. was working last week to settle a class-action suit filed in federal court in Nashville, Tenn., that alleges racial discrimination in finance charges.
It was not clear late last week whether GMAC would throw out interest rate markups as part of the settlement. But that seems unlikely based on discussions at the convention. GM executives say that if GMAC unilaterally capped rates or profits, dealers would flock to other lenders.