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Car dealers ? lenders of auto loans. Guess why!

[Aug 1, 2011.]


J.D. Power and Associates last week published its 2011 U.S. Dealer Financing Satisfaction Study. As the name implies, researchers asked car dealers just how much they loved providers of auto loans. Regular readers are likely to be unsurprised that the relationship is as cosy as ever. In fact, "Dealer satisfaction with automotive financing lenders has increased notably in 2011," according to a press release issued by the company on Tuesday.

Auto loans and dealer kickbacks

The reason regular readers won't be surprised by this love-in is that this blog has repeatedly reported on the rip-offs on consumers that some dealers and lenders routinely perpetrate. What happens is that a lender quotes a particular rate for a consumer, and the dealer then marks that up to whatever he or she thinks the customer will stand. That mark-up is then either pocketed by the dealer alone or shared with the lender.

You might think that that's a rare con undertaken by a tiny minority of shady dealers. But no. According to an April 2011 estimate from the Center for Responsible Lending (CRL), "Consumers who financed cars through a dealership will pay over $25.8 billion in interest rate markups over the lives of their loans."

Twenty-five billion! How satisfied would you be with someone who gave you that sort of dough? The CRL went on to give more detail:

Analyzing 2009 auto industry data, the average rate markup was $714 per consumer with an average rate markup of 2.47 percentage points. Even though the number of vehicle sales declined by 20% from 2007 to 2009, total markup volume increased 24% during this period (from $20.8 billion to $25.8 billion) largely due to an increase in the level of rate markups on used vehicle sales.

Auto loans not the only complaint about dealers

On the day before J.D. Power and Associates published its survey of mutual backscratching, another study also reported on dealer satisfaction. But this one came from the other angle. The Consumer Federation of America (CFA) released its annual "Nation's Top 10 Consumer Complaints" for 2010. And guess who took, yet again, the number one slot. Yep. It was those car dealers.

Well, to be fair, it was actually the whole automotive business. But you judge which of the following complaints, listed by the CFA, are down to dealers: "Misrepresentations in advertising or sales of new and used cars, lemons, faulty repairs,
leasing and towing disputes." The number-two source of consumer complaints was credit and debt, and you probably won't be alone if you're wondering how much overlap there is between those first and second slots.

Auto loans without dealers

You may be starting to think that statistically you're less likely to be ripped off buying dope from a drug dealer (not that you'd ever do such a thing) than a vehicle from a car dealer. But it's worth remembering that there are countless car dealers across the nation who are models of honesty and integrity. The problem is in differentiating them from the unscrupulous and the borderline criminal.

You may decide that it's safer to organize your car finance independently, finding quotes for auto loans on this site and talking to your bank and/or credit union. Otherwise, you risk contributing to yet another improvement in next year's Dealer Financing Satisfaction Study.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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