Car Buying: An American Nightmare
Consumers consistently experience challenges when purchasing cars
Buying a car can be a daunting experience.
Cars are expensive and also lose value over time.
They are typically the second-highest source of debt behind housing.
While there are some urban areas with robust public transportation, for most Americans, a car is essential - a way to get to work, school, and social events.
Despite (or perhaps because of) the ubiquity of cars, the process of purchasing one can be incredibly unpleasant.
In fact, car dealers top the list of consumer complaints on a regular basis.
From 2022:
The Consumer Federation of America (CFA) has released its annual list of the Top 10 consumer complaints by industry. This year - for the sixth year in a row - auto sales and repairs topped the list of financial transactions that led to consumer complaints.
Cars also represent a top source of debt.
Auto loan debt is the second-largest category behind mortgages. Overall, Americans owe $1.644 trillion in auto loan debt, according to the Federal Reserve Bank of New York, accounting for 9.2% of American consumer debt.
Americans took out $184.2 billion in new auto loans in Q3 2024.
Additionally, Americans typically spend nearly six years paying off a car loan.
What makes the car buying experience so bad?
Tricks and outright deception by car dealers.
Two recent examples from Maryland and Illinois illustrate the frustration faced by buyers when purchasing from a car dealer.
In the Maryland case, Lindsay Automotive Group is alleged to have used bait-and-switch tactics to lure customers to the lot. Once on the lot and ready to purchase a car, buyers were hit with “mandatory” add-ons and fees that jacked up the price by as much as $2000.
Additionally, the dealership increased the price if the consumer wanted to pay in cash or to use their own bank financing.
The situation in Illinois with Leader Automotive was similar:
. . . the company would advertise low prices and then require add-ons costing hundreds or sometimes thousands of dollars. The dealership would indicate the add-ons were "pre-installed" and so the increase in price was required. Leader made as much as 99% profit on these non-essential add-ons. In fact, in some cases, the add-ons were not even installed, even though the customer was charged for them.
In both cases, regulators found that customers paid millions in unnecessary and often illegal charges - all accruing to the profit of the dealer.
When I post stories like this, the comments suggest this type of experience is familiar - many people have run into car dealers that use bait-and-switch tactics. Many also run into dealers aggressively pushing their own chosen financing partners.
If you run into a situation like this, walk away.
It doesn’t matter if that’s the car you really want or if you finally found a car you like after a long search. If a dealer is acting shady about add-ons or pushing their financing scheme or raising the price on you because you want to pay in cash, you should find another dealer.
The financing, by the way, is another source of consumer frustration. The case of Toyota Motor Credit offers an example of how customers can lose money in the finance office - and sometimes not even realize it until payments come due.
The CFPB found that Toyota Motor Credit packaged product bundles amounting to between $700-$2500 into car financing agreements without customer knowledge or consent. The investigation further found that when customers attempted to cancel the packaged products, Toyota made the process extremely difficult.
Toyota’s scheme cost customers $48 million. Thanks to the CFPB’s efforts, those customers were refunded.
While it is good to see regulators taking action against bad actors in the car sales space, the familiarity of these stories raises concerns.
Regulators should be more in tune and more aggressive. And consumers should refused to deal with shady dealers.
MORE CONSUMER NEWS
FTC Takes Action Against Junk Fees for Tickets, Hotels