Auto Dealers Inflate Prices With Add-Ons

The California car lemon law aims to provide protection to buyers of new vehicles.  While there are consumer protection laws in place that address various issues related to car purchases and car operations, unfortunately buyers are still largely at the mercy of car dealers who are not always honest and who often do not have the best interest of consumers at heart.

Just recently, for example, USA Today provided information on efforts made by car dealers to jack up prices of new vehicles.  The information came from a study conducted by the National Consumer law Center.

Car Dealers are Jacking Up Prices on Vehicles

The National Consumer Law Center is a nonprofit organization based out of Boston which released a 58-page study called Auto Add-Ons Add Up. The group looked at transactions involving the sale of approximately three million add-on products that were sold between September of 2008 and June of 2015. A total of around 3,000 dealerships nationwide were included in the study.  

The study revealed that add-on products such as extended warranties, credit insurance, and dent protection were sold at prices far above dealer costs. For example, there was one car dealer who sold approximately 1,000 window etching products that had cost the dealer $16. The dealer charged the customer a total of $189 for the window etching products, which was a 1,081 percent markup that provided the dealer with a $173 profit. 

The study looked at many different add-on products including key protection plans, tire protection plans, dent protection plans, extended warranties, prepaid maintenance plans, credit insurance, and guaranteed auto protection or GAP insurance that will pay off the outstanding debt on a vehicle if the car is totaled and the vehicle is valued at less than the outstanding balance on the loan.  The inflated pricing was discovered for all of the different add-on products that were included in the study.

The study also revealed that companies which provided financing to consumers helped dealers to increase their profits through over-pricing add-ons.  Creditors made it possible for dealers to use excessive and discriminatory tactics when issuing credit, discriminating specifically against Latino customers.

Dealers were also found to be inconsistent in the pricing that they applied to add-on products, including charging higher prices for many different add-on items to Latino customers. There were certain dealers who obtained products with fixed costs who charged some consumers much more for products than they charged other consumers who purchased the same items.  In many cases, dealer incentive programs in which automakers incentivize sales through the use of cash prizes for meeting goals ended up causing substantial price discrepancies among different dealerships.

In addition to providing information on the discriminatory and inflated pricing, the study authors also provided public policy recommendations including measures that would increase the transparency of pricing.  It remains to be seen if any additional consumer protection laws pass to provide more protection for consumers. 

Consumers do need to understand consumer protection laws such as the California car lemon law and need to understand the limitations of those laws so they can do their due diligence when shopping for vehicles.    Consumers whose new vehicles turn out to have unexpected problems should consider contacting an attorney for assistance.