Car retailing in 2022: a barrel of rotten apples

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The 2022 model year shaped up to be the worst year in decades to buy a new car. Pandemic driven shortages saw discounting evaporate and a spike in deceptive practices and price gouging by car dealers. In the second half of the year, interest rates to finance a vehicle jumped by almost three percent. In the first year of the pandemic, provincial regulators responsible for ensuring that auto dealers remain compliant largely stayed out of sight, and by the time they returned (timidly) in 2022, the markets in Ontario, Quebec, British Columbia, and Alberta, which are the ones the APA is most familiar with, were out of control. Here’s a round-up of some of the complaints the APA received.

The price changes before delivery

In normal years, when you order a vehicle for future delivery the price is protected from the day of signing until delivery, as are the terms for financing. 2022 was different. Automakers like Jeep and Toyota provided wildly incorrect delivery estimates to their dealers and then did not protect customers from price increases. In some cases, the promised 2022 model was never assembled, and customers found themselves in a new line, waiting for a 2023 model at a higher price, with a higher interest rate for financing.

Only Quebec’s auto dealer regulator, the Office de la protection du consommateur has stated that dealers must abide by the original price and financing offer they agreed to, even if it means taking a loss on the sale. In Quebec, the Small Claims Court recently ordered a Chrysler Dodge Jeep RAM dealer to compensate a customer for increasing the price of a minivan by $2,797 after signing the contract. The dealer explained that it was a common practice. That did not convince the court, which determined that a unilateral price change is prohibited in Quebec. The judge did not appreciate the fact that the client was required to sign a new sales contract at a price higher than the original, and a written undertaking that he would not file a complaint!

Regulators in other provinces mostly consider that price increases are permissible; consumers who don’t agree are entitled to a refund of their deposits.

Mandatory Extras

Several dealerships made their sales conditional on the customer taking additional dealer extras and add-ons not included in their advertised prices. These included wheel locks and a tire warranty, masquerading as a “Green Tire Levy,” a “Winter Package” consisting of deluxe rubber floor mats and a glasses case ($725 at a Volvo dealership), $1850 for “Certification” of a used Jetta advertised as “VW Certified” by a Volkswagen dealer, and mandatory used car detailing or reconditioning charges up to $699 for vehicles advertised as inspected and “ready-to-go.” Customers quickly realized they would lose these vehicles if they didn’t swallow the extra charges, and most chose to pay up.

Deceptive Advertising

Enticed by an ad for a vehicle they cannot find in inventory anywhere else, the customer goes to the dealership for a look, but – too bad – the advertised vehicle already has a deal pending! Bait-and-switch ads are nothing new in auto retailing, but the practice became more widespread in the last year. In one case, the dealer was indeed able to deliver an advertised Hyundai Ionic 5 EV quickly, even though it is in very short supply across Canada with a one-year wait-time. However, to obtain the Ionic 5 quickly, (it turned out to be someone else’s cancelled order), the dealer wanted an additional $5,000 for “Expedited Delivery.” Their ad didn’t say that.

Dealer regulators need a new strategy

Auto dealer regulators focus on warning letters and fines to enforce compliance. The fines are small compared to the profits dealers can make using deceptive practices, and they are paid years after the actual dealer non-compliance took place. In essence, the current enforcement strategy that sees a dealer pay a fine of, say, $5,000 two or more years down the road for a deceptive practice that earned them $250,000 or more, can act as a perverse incentive to continue cheating.

During the pandemic, new car dealers attained high degrees of compliance with legal requirements for signage about distancing and handwashing (nearly 100% of dealerships visited by the APA’s secret shoppers posted signage), mask wearing (over 80% compliance indoors), presence of hand sanitizer (over 95%), and the cleaning and wiping down of test cars after each road test (100%). The consequence for non-compliance or an outbreak of Covid-19 at a dealership was the suspension of the dealership’s sales operation for a couple of weeks, and a mandatory requirement that all showroom staff be tested before returning to work.

Consider how strange it is that auto dealers attained significant public health expertise almost overnight during the pandemic, but cannot figure out how to write honest ad copy decades after the current rules came into place. The APA believes it’s time compliance with standards applicable to All-In pricing, and price advertising generally, became a condition for license renewal, with the risk of a temporary suspension for offenders. Dealers would become compliant quickly if they saw that some of their competitors who cheat were suspended for a couple of weeks.

George Iny
Executive Director

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