|
When I was hired at Porsche Calgary in 2012 we were sharing the facility on Macleod Trail with Volkswagen, and I inherited the business office which was also shared.
There was one item that they were selling that really annoyed me - an anti-galvanic corrosion modulator, or whatever they called it. The idea was that an electric current supplied to the body panels would stop the corrosion of dissimilar metals that contact each other. It was $500 and, "you don't want your new Porsche to rust do you?"... As somebody who owned Austin Healeys and Land Rovers I knew all about electrolytic corrosion. So did Porsche, and that is why they hot-dip galvanized their body panels-the same coating that is on chain link fences. The only way they would rust would be if you drilled holes into them - like to install a useless accessory.
We cleaned all that up, and had one of the best performing Finance Departments in the dealer network - without selling junk. So not every Finance Manager is out to rip you off, but sadly, many still are. Questionable practices are still rampant, particularly with the volume dealers dealing with unsophisticated buyers. But the truth is that most car dealers, and manufacturers, could clean some things up.
I'm helping a client buy his 5th new BMW. He has retained me to review documents, advise on maximizing his trade equity, and offer advice on his new order. He is far from unsophisticated, but felt he could benefit from my industry knowledge. Reviewing the Bill of Sale, the dealer missed some options, mis-priced others, inflated the Freight/PDI cost, and added a bunch of accessories and charged some extra fees. The usual, sadly.
I didn't complain about $400 for winter mats or a $600 Documentation fee. But the $600 CTEK battery charger could be found on Amazon for $180 (and that's the deluxe one), the $600 Anti-Theft is a goofy sticker package that offers no benefit to the purchaser whatsoever, and the Freight/PDI was $1,200 higher that what was advertised on their website. So I instructed the purchaser to just get a pen and put a line through those items. Plain and simple; the dealer advertised price has to include 'all-in' pricing with all the fees. You can't advertise one price, then charge another. Dealers can charge for anything they want, but they have to disclose and itemize the fees.
These issues are not limited to the dealers. I never liked Porsche Financial Services very much. In my opinion they were a bunch of lazy old boys with a captive market who took the position that they should eliminate all risk whatsoever but still be entitled to sky-high returns. I mean, it was only a few years back that we were submitting credit applications by fax because they couldn't be bothered to invest in an on-line system.
They always complained that they had to pay a lot for their money from institutional investors, and that is why their rates were so high. Porsche does offer competitive interest rates, but these are bought down by Porsche Canada, and Porsche Financial always got full price. The subvention from Porsche Canada came out of the marketing budget, which could have been put to better use if we didn't have to enrich PFS.
I never accepted this argument. Porsche cars maintained the highest residual values in the industry, the clients were some of the most creditworthy, and the lease residuals were so low that almost nobody returned their vehicles at the end of the term. The Porsche lease and finance portfolio would be envy on any leasing company. Unless I missed something rather large in my Finance classes, with the lowest risk they should pay the lowest rates!
On one file, I was having trouble with the numbers the computer spit out for a single payment lease. These are not very common, but for somebody who has the cash to buy the car, but wants the protection offered from an agreed value residual, they can make sense. The payment is straight forward to calculate: you pay all the depreciation for the term (Cap cost less Residual) and then interest on the Residual (the money that you are actually borrowing). If the numbers are round, you don't even need a calculator.
Anyway, the PFS numbers were off and not in the customers favour, and I couldn't figure out why. I was on the phone to one of the PFS guys and he was being a jerk. Finally I said something like, 'this isn't any better than just paying all the payments of a 0-down lease in advance". Silence. Then I realized that, in fact, that is what they were doing. They would offer the customer a small break on the rate, .5%, and then just add up all the payments of a $0 down lease. The problem with that is that a $0 down lease assumes you are borrowing the entire purchase price, and every month it charges you interest on the outstanding balance. So the customer thinks they are getting a .5% break on the rate, but they are paying interest on twice as much as they are actually borrowing. Worse, the lease contract lists the 'effective interest rate' as if it were a $0 down lease.
In my opinion this was fraudulent. I made a huge fuss about it, and talked to everybody at Porsche Canada and Porsche Financial that I could think of. I even stood up in a national sales meeting in front of everybody from both companies and told them that maybe after the Dieselgate scandal, they should really be trying to 'keep their noses clean'. They said something like, 'Thanks for bringing that up Lawrence, we'll have a look at it'. But they never changed it.
But the worst instance of F&I abuse came from a large GM dealer in Calgary. I was the Finance Manager at Hyatt Mercedes and a guy came to me to lease an ML. His application was denied because of a recent repossession. He was a new immigrant and his command on the language wasn't great. What happened is that he went to the GM store and bought a $50,000 Denali. He financed it through GM Credit. The loan amount was $60,000 + GST. The Finance Manager threw everything they could think of into the contract raising the price of the truck $10,000. 3rd party extended warranties, protection packages, etc. etc. The guy got home, reviewed the documents, realized he had been screwed, and then drove the car back to the dealership, gave them the keys, and put a stop-payment on his account. He told the dealership to take the car back and he wasn't paying for it. The dealership just parked the car. The customer ignored all the mail from GM. GM Credit repossessed the car, picked it up at the dealer, and sold it at auction 6 months later for $30,000. They came after the customer for $30,000. He didn't know what to do.
I told him he needed a lawyer, and I made an appointment for him at the firm that I used. He cancelled it and just paid the $30,000. He said he was too embarrassed to talk about it. It was a cultural thing. The dealer got away with it and probably bought the vehicle back for a healthy discount!
This is why I think the industry needs to move toward completely transparent on-line pricing for all the services that dealers offer. If a dealer wants to charge $1,000 Doc fees, $500 for electrolytic space modulators, or $600 for stickers they can put them up on their website and do their best to describe the benefits. If they want to mark up their rates 3% then they can advertise that. Consumers can read the reviews and pick the stores and products they want, like they do with everything else.
Dealers may have to work a bit harder to come up with products that add value to the customer, but this will benefit everybody.
I know some 'good' dealers that don't want to lose the personal connection with their clients (and the opportunity to sell them things), and who view the F&I process as an opportunity for relationship building. I can understand their position, and don't think they need to stop what they are doing. But in the interest of transparency, I still think they should publish all their products and pricing. A customer should be able to go through the traditional process of buying a car, but then be able to reconcile their Bill of Sale against the dealer website and find no discrepancies. That will go a long way to restoring consumer confidence.
As for consumer tips, I can offer the following guidance:
1) Choose the dealers with long-time staff.
2) Ignore over-the-top flattering Google Reviews (fake), read all the one star reviews - hopefully there are not too many.
3) Stick to Manufacturer Finance, Lease, Warranty, pre-paid service programs.
4) View with a healthy dose of scepticism any 3rd party warranty, service plan, insurance or protection scheme.
5) Get your pricing, and finance/lease programs on-line.
6) Reconcile your finance or lease paperwork with the Bill of Sale.
7) Inspect very carefully any vehicle that has been a service loaner or a demo.
8) Verify the in-service or warranty start date of your vehicle.
9) Get your purchase, lease or finance documents prepared ahead of time, giving you the opportunity to review them, before picking up the vehicle or signing anything.
10) Make sure any representation by the salesman or manager is in writing.
For those interested in a deeper dive into the inner workings of a car dealership, I included links to a series of videos that I did for Porsche Centre Calgary at the bottom of this email. The production quality isn't great, and I will re-do them when time allows - but the content will be the same.
Buy with confidence!
| 
