The plaintiffs' attorney who recently settled a class-action lawsuit against UnitedAuto Group Inc. in Memphis, Tenn., isn't done.
Jim Andrews of Knoxville, Tenn., accused the nation's second-largest dealership group of unfair finance practices. He says he intends to sue other dealers on similar grounds. Andrews told Staff Reporter Donna Harris that he wants to force dealers to make greater financial disclosure.
You intend to sue dealers over financial disclosures. What is your goal?
Dealers have a duty to tell consumers if they are paying for something, what it is they are paying for, and how much they are being charged. At the beginning of the process, you have to disclose that the customer is negotiating the (loan) interest rate with the dealership and the dealership might be paid for doing it.
As long as something is going to be negotiable, it is better that both parties know it's negotiable. Our ultimate goal is for dealers to disclose the amount (they mark up the wholesale interest rate that the dealership obtains from a lender).
Do many customers know the interest rate on a car loan is negotiable?
Most consumers today do not know the rate is negotiable, I would bet. Most think the dealer is negotiating with the lender on the consumer's behalf. Their contract is with the loan company. They don't make payments to the dealer.
Industry trade groups support disclosing that interest rates on car loans are negotiable and that the dealer may profit from handling the financing.
I think the disclosures don't go far enough. We hope to force car dealers to disclose the amount of money the customer is paying for the dealer reserve (the interest rate markup).
I don't have a problem with flat fees paid (to dealers) by a finance company. That's not coming from the consumer's pocket. It is reasonable to charge a referral fee.
Should dealers make a profit for handling financing?
Dealers don't borrow money to re-lend to the customer. It's not a profit - it's a kickback. A profit is where you invest something and get a return.
Dealers add (this and other) fees that increase the price of the vehicle after negotiation has taken place. If the fee is going into the dealer's bank account, it is part of the price, and it is a negotiable item. It is not mandatory.
Many dealers use menu selling, in which finance and insurance products are listed on a menu at fixed prices. Has that made car buying more consumer-friendly?
From what I have seen of menu selling, it's not a fixed-price program. It may be (that some dealers) are doing it fairly - that means everybody's paying the same amount for the same product.
I have seen two menus, and the prices were left blank. If the price is flexible and you are paying people on commission, it's a recipe for disaster.
Dealers say they are entitled to a finance profit. If it were not for F&I products, many dealers would not make money on new vehicles.
They are all building these huge dealerships. It doesn't ring true to me. Someone's paying for that, and it's the consumer. When car dealers cry that they are not making money and I look at those kinds of investments (in stores), that shows they are making a profit that is impressive.