TheMoneyGeek Unplugged

The red flags in this story point to a few lessons to heed when buying a new car. (©iStockphoto.com)

By Sam H. Fawaz

Anyone who has bought a new car is familiar with the hassles of going to the dealer, finding the right car with the right options, negotiating the deal, and pushing back on all the extras the dealer tries to sell. The last thing you would expect to find out, months after you bought the new car, is that the new car you bought was really a used car.

A family member told me a tale of woe that can serve as a warning for others buying a new car from a dealer. This story began when he stopped at a local Cadillac dealer with a specific request for a 2009 Cadillac CTS with certain options. Though the dealer did not have the car he wanted on-site, they told him that they had located one at a dealer in a neighboring state. While negotiating the deal, he told the salesman that he is a savvy buyer and would not pay the dealer’s document preparation charges or marketing surcharge, which were customary for this dealer to charge. The dealer agreed and the deal was signed. The car would be at the dealer’s lot in a day or two.

When the car arrived, the car buyer went to the dealer to inspect and pick up the car. While inspecting the car and test driving it, he noted that it already had 425 miles logged on the odometer. This seemed odd to the buyer, so he asked the salesperson about this. The salesperson told him that these miles were incurred to transport the car to the dealership and that this was pretty normal.

This was the first red flag for the buyer, though the car was almost exactly as he wanted it and was consistent with the deal he signed. Normally, new cars have less than ten miles registered on the odometer, but driving it from an out-of-state dealer seemed to be a reasonable basis for the number of miles (though elevated) logged on this vehicle.

Back at the dealer, and ready to sign the prepared paperwork, the buyer noted that both the document preparation and marketing charges were added to the purchase price. In addition, a dealer added undercoating treatment had been added to the invoice that was not previously disclosed.

This was red flag number two in the transaction. The salesman explained that all buyers pay these amounts and that they were customary charges. In addition, the dealer option was unknown at the time of negotiation and that they could not delete it. The buyer explained that he told the salesman that he would not pay such charges when he negotiated the deal, and if the dealer didn’t remove them and honor the original deal, he would walk out without the car. The salesman pled with the buyer and told him that they brought the car from out-of state for him and that it wouldn’t be fair if he walked away. The buyer stuck to his guns and walked out. Of course the salesman followed him out the door and told him that those charges would be removed. They were indeed removed.

Signing the final paperwork while the car was being prepped for delivery, the buyer was happy to be getting the car he wanted at the price he had negotiated. As is customary with new car purchases (when you don’t transfer a license plate), he received a temporary license plate for the car and was told that he could pick up the permanent one within a month. The dealer would call him when it was ready.

A month or so went by and the dealer hadn’t called him to pick up his permanent license plate, so the buyer called the dealer. He was told that there were some issues with the paperwork and to come by and pick up a 30-day temporary plate. The buyer did so.

Another month went by and still there was no call from the dealer to pick up the permanent plate. Concerned, the buyer called the dealer and was told that they were still having issues with the registration and to pick up another temporary plate. The dealer could not give him any further information. This process repeated for a few more months, and the buyer continued to make payments on the car even though he still had not received a valid title for the vehicle.

This was red flag number three.

Suspicious that something was amiss here, the buyer made a phone call to the Secretary of State to find out why registration had been delayed. He was told that the vehicle identification number (VIN) of his car was not registered to him and that they therefore could not give him any information about the vehicle. Of the few facts he was able to garner from the representative was that the vehicle was still registered in the name of an out-of-state dealer and that the buyer would not, when a new title was issued, receive a new original vehicle title. In other words, the car had been previously registered to another buyer and he would therefore receive a used car title.

Apparently what had happened is that the out-of-state dealer had itself purchased the vehicle for another potential buyer from yet another out-of-state dealer, and, to bring the car across state lines, had to register the vehicle in the dealer’s name (normally, dealers are not required to title vehicles purchased for resale in their name). However, that deal had fallen through, so the dealer was stuck with this car and kept it in its new car inventory system. This explained why so many miles were already registered on this vehicle even though it was transported from an adjacent state less than 200 miles away. In any case, the buyer had essentially purchased a used car under the guise of a new car purchase.

Needless to say, the buyer was not happy about this. Since he wanted to know his rights, he consulted with an attorney who advised him, that even though he had driven the car for several months, he could essentially drive the car to the dealer, demand a refund of all monies paid (including the payments made to the dealer’s financier) and “walk away” from this purchase. Alternatively, he could demand restitution from the dealer for selling him a used car at a new car price.

The buyer called up the dealer and told them that he pretty much knew what was up with this car and let them know that unless they negotiated a settlement with him, he would turn in the keys and they would once again “own” this car. The dealer inquired about the number of miles on it (about 8,000) and asked the buyer to come down to the dealership to talk. In any case, they had finally procured the plate and he could pick that up as well.

The dealer, needless to say, did not want to have to take this car back into inventory and take a large loss on it. The buyer held most of the cards here, so he asked for a settlement of $8,000 cash to keep the car. The dealer of course, low-balled him an offer which the buyer flatly rejected and let the dealer know in no uncertain terms that they would not want the media to hear about his experience with this purchase if they didn’t deal with him in good faith. In the end, the buyer ended up negotiating a $6,000 cash payment plus a $1,800 bumper repair the car had needed. He walked out with a repaired car and a check that day.

This story obviously ended well for such a savvy buyer, but most people would either not know their rights in these circumstances or would not be aggressive enough to push the dealer to settle on their terms. The red flags in this story point to a few lessons to heed when buying a new car:

1) If the dealer adds new charges to an already negotiated deal at signing, walk away and find a more scrupulous dealer.

2) Always inspect, test drive the car and check the odometer before signing the final paperwork. If the mileage on the odometer is more than 10-20 miles, find out why and ask yourself whether this is indeed a new car. Always match up the VIN on the paperwork to the one on the vehicle itself.

3) If it takes more than six weeks to receive a title or license plate, start digging deeper to find out why. When you receive the title, inspect it closely to ensure that you are getting a new car title (original owner) rather than a used car title.

4) If you find out that a new car you have purchased was actually used, consult with an attorney with experience in this area to find out your rights in your circumstances.

I can’t say how many times this kind of story happens to buyers, but I imagine that many more people would not even be aware that this type of thing goes on. Even a savvy buyer as I have described didn’t quite catch on at the time of purchase, so I imagine less experienced buyers would never suspect anything either.

Hopefully, this tale will help you avoid being a victim of this kind of transaction and you’ll be able to assert your rights. While the majority of new car dealers are honest and straightforward, this demonstrates that some clearly can be somewhat shady, even those we think have a pristine reputation.

Sam H. Fawaz CPA, CFP® (a.k.a. TheMoneyGeek) is a fee-only personal financial planner and a registered member of the National Association of Personal Financial Advisors. He has been working in personal finance since 1980 and has been writing about it since 1999. Sam’s website is http://ydfs.com.