Vehicle quality and conditions for financing are better than ever, yet car dealers still find ways to take advantage of consumers.
Car sellers haven’t always been known for their honesty, and the Report on New Financing and Leasing found this reputation is still well-deserved.
“Vehicles last much longer than they did 25 years ago, interest rates are lower, and the laws protecting consumers are better. These things should work to consumers’ advantage, but dealerships have sharpened their business practices,” says George Iny, who directed the study carried out by the Automobile Protection Association (APA). “Some practices amount to extortion and false representation, but the laws protecting consumers aren’t being applied.”
The investigation is part of the APA’s watchdog mandate. For its field research, the association, which celebrates its 50th anniversary this year, sent undercover investigators to pose as ordinary shoppers. However, this particular study had a distinctive feature: rather than looking at vehicle quality, the APA looked into advertising and financing practices. “What we saw was even worse than we were expecting,” Iny said.
APA’s investigators saw that the automobile prices advertised in the media are rarely what consumers pay, even though the law requires them to be identical. Only a small minority of dealerships–three out of 20 in Calgary and 6 out of 21 in Montreal–offered the “all-inclusive” prices that are mandatory for car dealerships in these provinces, as well as in Saskatchewan, Manitoba, and Ontario. The majority of dealerships added $1500 or $2000 to the advertised price in extra fees for administration, transport or inspections, and these extras allowed them to double or even triple their profit margins on some models. “When 80% of dealers use the same practices, it’s not a coincidence,” Iny declares, “it’s a system.”
Financing as a Sales Tool
Investigators also uncovered a new practice: private sales, which take place by the hundreds, if not thousands, across Canada. Private sales, by invitation only, target dealers’ “best” clients. These customers, who have been making payments for 24, 36 or 48 months, are invited for a glass of wine or offered other perks. The goal is to get them to prolong their payments by buying a new car.
There are many reasons such practices have become common in auto sales. Cars provoke strong emotions among consumers, and these cloud their judgment. Plain old naivety and lack of education also play a big role in making consumers fall for such schemes. But the manufacturers themselves encourage the practices by forcing dealerships to shell out money for expensive showrooms and only giving dealerships slim profit margins on basic models. Feeling financially strangled, less scrupulous dealers are ready to do anything to increase their profits.
Dealers tell customers, ‘You can drive a new car for the same price you’re paying now.’ Except they end up with 72, 84 or 96 more monthly payments to make. I saw one case where an 82-year-old woman with only two years of payments left went home with a new car and 84 months of payment ahead of her. At the age of 82!”
George Iny, director of the study carried out by the Automobile Protection Association (APA)
The study showed what a powerful sales tool financing has become for car dealers. “Offering weekly payments has the effect of camouflaging the real price of a vehicle. Paying $150 every two weeks doesn’t seem like much to people, but over 96 months, it adds up to $31,200!”
Aided by very low interest rates and payment plans spread over 7 or 8 years, dealers are using financing to inflate prices by slipping in “extras.” There’s nothing illegal about proposing insurance plans, anti-theft systems or offering cash back with car loans. The problem is that with these extras, the total price of a car becomes exorbitant. A mere $24 a week for an “antirust treatment and Elite Choice Paint Protection” may not appear very expensive at first, but over 96 months, the payments add up to $4,992.
The investigation uncovered a number of differences from one province to another. In Alberta, dealers have taken to advertising vehicles they don’t even have in stock.
It’s bait-and-switch advertising. Retailers trick customers into coming to the dealerships. When they arrive, the car isn’t there ‘but as it turns out’ the dealer has ‘another model that might be interesting.’ A few days later, you see the original advertisement for the vehicle again.”
In Quebec, there are dealers selling counterfeit models. With a couple of hundred dollars’ worth of racing stripes, tinted windows and chrome hubcaps, dealers make a basic model of a car look like the more expensive “sports” model. Dealerships pocket huge profits with these fake models.
Laws Not Enforced
And there’s also the fact that governments in Canada simply aren’t doing their jobs. Most consumers are not well informed about the laws that protect them. “Some refinancing practices are strictly illegal. The law is clear about that. Sure, there is an information issue, but the government has to act,” says George Iny, who is flabbergasted by how lax public authorities are in enforcing laws. “Dealerships wouldn’t try to cheat people if there was a chance they’d get caught.”
Most Canadian provinces do have laws and official consumer protection authorities that apply specifically to the automobile industry. In five provinces it’s mandatory for car dealerships to offer all-inclusive prices. Quebec is the only province with a consumer protection law that covers practices in all three areas: financing, advertising and retail sales. In the rest of the country’s provinces, regulation of these practices is split between different government departments.
Fortunately, despite Canada’s loosely distributed legal framework, authorities have taken action to stop exploitative practices among car dealers. The Ontario Motor Vehicle Industry Council (OMVIC) has spoken out against illegal financing on many occasions – even though it has no authority over credit, which falls under the jurisdiction of another agency. In Alberta the APA’s study inspired CTV’s public affairs show W5 to do a 20-minute story on the subject. The show pushed the Alberta government to pass a reform (though it has been blocked since the election of a Conservative government in Alberta: the Motor Dealers’ Association of Alberta donated $800,000 to the Conservatives’ election campaign).
At the moment, Quebec has the strongest laws that protect car buyers. But Quebec’s consumer protection office doesn’t apply them. “The consumer protection office has disappeared from sight,” says George Iny, who received a prize from the same office in 2010 for his activism in consumer protection. “Everything about them is weak, including their media appearances, their monitoring activities and their legal action.”
Iny maintains there is an important question of social justice at stake: “Consumers should have been able to take advantage of low interest rates and the higher quality of vehicles. Authorities let this advantage go to waste by refusing to enforce the laws. Consumers are paying the price.”
The Report on New Financing and Leasing (available in French only), published in 2017, is based on a study produced by the Automobile Protection Association with financial support from the federal Office of Consumer Affairs. Taking advertisements found in local newspapers, APA investigators visited 20 car dealerships in Calgary, and 21 in Montreal, to see how dealerships’ financing practices affected the final price of vehicles.
In nearly 80% of cases, the final sales price didn’t match the advertised price. Particularly long terms of payment, up to 96 months, allow dealers to hide the real total cost of a vehicle behind what appear to be modest weekly or bi-weekly installments. Dealers capitalize on low interest rates to add extras that increase the final prices of vehicles to an exorbitant degree. The APA also noted the appearance of new practices such as the increasingly common “private sales” that result in customers prolonging their car payments. The APA is imploring public authorities to demonstrate greater diligence in applying existing laws.