This "how-to" manual on car buying touches on what to look for and the steps consumers should take when purchasing a new or used vehicle.
A new car is the single largest purchase of personal property that most people make. Although a variety of state and federal laws regulate some aspects of new car sales, the responsibility for making sound purchasing decisions rests squarely on the consumer's shoulders. When shopping for a new car, you may benefit greatly from reading a "how-to" manual on car buying, many of which can be found in bookstores and public libraries. Magazines such as Consumer Reports, Money, and Kiplinger's Personal Finance produce special annual issues on new cars and car buying.
This article covers the basics of advertising, oral promises, and deposits. If you are interested in the new car warranty law (also known as the "lemon law"), refer to the section on Autos: Lemon Law. New Hampshire does not have a "cooling-off period" during which a car buyer can cancel the deal.
Car dealers often print or show pictures of cars in their ads. Usually, ads are written in such a way as to avoid creating a promise to sell an unlimited number of cars at the advertised price. The dealer is not running a deceptive advertisement if it includes a "stock number" (a unique number assigned to a car when it comes into the dealer's stock) or states that a limited number of cars are available at the advertised price. Car dealers will frequently claim that their advertisements were in error due to mistakes by publishers or broadcasters. Ads, however, do occasionally create legally enforceable promises. For example, a picture of a car that clearly depicts certain features may be found to create a promise of those features to the potential purchaser. A car advertisement stating a price for a specifically described automobile has probably created a promise to sell that automobile at that price. A deceptive ad claim is strengthened, however, if the consumer can show that the dealer had no such car in stock at the time the advertisement was run or that the ad misstated the number of cars.
If a dealer refuses to honor an ad, you should try negotiating by using the good faith impression which the erroneous ad created. Refer to the section on Remedies: Effective Negotiation for some pointers on how to do this. If you cannot negotiate a deal, you may wish to contact the New Hampshire Consumer Protection Bureau, describing what happened and enclosing a copy of the ad. If the Bureau finds a pattern of "erroneous" ads, or the dealer runs the "erroneous" ad without any effort to correct the error, the dealer's claim may lose its credibility.
Example: Granhart Motors advertises the "Latest Moonshot for the incredibly LOW PRICE of just $12,995!" Wilma Byer reads the advertisement and goes to Granhart Motors. The salesperson tells Wilma that the last Moonshot was just sold, and that it's a "real dog" anyway. The advertised model was stripped down and "they even charged extra for the spare tire and seats!" The salesperson then tells Wilma that the Porcine Windmaker has "twice the value" of the Moonshot and sells for "only $19,999!" Although it is unclear what Wilma's remedies or damages would be if she goes ahead and buys the Windmaker, she would be in a good position if she holds out for the purchase of the Moonshot at the advertised price because she has a strong case that Granhart is running a bait and switch ad.
Like some other retailers, car dealers, unfortunately, have been known occasionally to engage in "bait and switch" advertising (for more information on this ad scam, refer to the DOJ section on Advertising). This type of advertisement is generally designed to increase "traffic" in the showroom with attractive prices on low priced cars that have relatively few features.
Often the car shopper learns that an advertised special is really not so special after all and buys a different car. The use of bait and switch advertising in such a situation is therefore probably of little practical importance. However, if you encounter such a situation and want to hold steadfast to the advertised price on the precise car that was advertised, you are probably entitled to do so.
Example: Granhart Motors advertises "This year's Moonshot for the incredibly low price of just $12,995!" Walt Byer reads the advertisement and goes to Granhart Motors. The salesperson tells Walt that "this year's Moonshot is just the car for you!" Byer purchases the car and later finds that the title documents and purchase order state that he bought a Moonshot manufactured in the previous model year and the previous calendar year. The advertisement and oral statement about "this year's car" along with the documentary statements about the date of the manufacture and information about the change in model year may demonstrate to a judge that the characteristics of the car were misrepresented, in violation of RSA 358-A:2,V.
Salespersons and managers often make promises to potential buyers during the sales negotiation for a new car, and consumers often complain that these promises are untrue or unenforceable. Although patterns of deceptive behavior often can be stopped because they violate the New Hampshire Consumer Protection Act, it is often difficult and very expensive to prove what was said during a sales negotiation. Few laws apply directly to the negotiation process. The decision as to whether statements made during the negotiations happened at all and therefore created enforceable promises is generally left to a judge.
Two strategies can help avoid this frustration:
- Do some research about the cars you may be interested in buying and then demand that the salesperson give you written proof confirming any claims made.
- Assume that nothing said to you about the car or the deal is enforceable and get any promises made to you in writing.
Making A Deposit
A deposit is typically used to "lock in" the buyer to the deal. You probably should not make any deposit if you:
- Plan to shop at other dealers
- Do not have the dealer's promises and assurances in writing
- Think that you might change your mind for any reason
You have no legal or moral obligation to make a deposit until you are ready to enter a legally binding contract. Therefore, you should resist any pressure to leave a deposit. Only put a deposit on a car when you are absolutely sure that you are satisfied with the deal and want to buy that particular car. Be especially suspicious if you are pressured to leave a deposit to "hold" a car for you. If you think that you might change your mind for any reason, get the salesperson's written promise to refund the deposit.
Your deposit should not be more than $100, unless the dealer is making special preparations or installing special equipment. The deposit is intended to cover the dealer's cost of preparing the car for you in the event that you break the deal. The deposit should be reasonably related to the cost connected with the process, such as typing up loan forms, odometer disclosure statements and similar paperwork.
Watch out for Spot Delivery Sales
A "spot delivery" occurs when a dealer turns possession of a vehicle over to the buyer immediately after the buyer signs the purchase agreement. In the rare case where the buyer pays cash, this practice is unlikely to cause any problems. But, since most of us cannot afford to purchase a car without help from a bank or finance company, spot delivery can lead to abuses.
Why Dealers Use Spot Delivery Sales
A customer may decide to purchase a car while at the dealer's shop. The customer signs a purchase agreement, leaves a down payment, and later changes his or her mind. This causes lots of trouble for the dealer. So, dealers have been trying for years to find a way to eliminate this practice and to keep prospective customers from changing their minds.
By allowing the customer to drive away in the new car, the theory goes, the dealer can dramatically reduce the likelihood that the customer will decide to cancel the purchase. Also, by delivering the car to the consumer immediately, the dealer has "taken the customer out of the market." This means the customer will not go across the road to the competition and possibly find a better deal there.
How a Spot Delivery Sale Works
Usually a "spot delivery sale" starts out like any other sale. The customer picks out a car, takes it for a test drive, and then sits down with the salesperson to negotiate a purchase price. When a price is agreed upon, the dealer fills out a purchase order which the customer signs. The customer then fills out a loan application, which is submitted to a bank or a finance company. If financing is approved, the customer drives home in the new car.
When a Spot Delivery Sale Goes Wrong
If the spot delivery transaction takes place as described in the previous paragraph, then there should be no problems. Often, however, these transactions do not follow that scenario.
- The dealer may turn the car over to a buyer without knowing if the financing is going to be approved in a spot delivery sale.
- Finance companies may not be able to make a quick decision about financing. It can take days for a finance company to decide to approve a loan.
If the finance company approves the loan, there is no problem. But if the financing is not approved, then there is trouble. The customer has possession of a car with no loan to help pay for it!
The car sale is completed when the dealer and the customer sign the sales order. Typically, the finance agreement has nothing to do with whether the sale takes place. The finance agreement only relates to how the car will be paid for. So, the dealer has sold and delivered a vehicle and now the dealer has no way to be paid for that vehicle.
Note: The customer can pay the dealer for the vehicle in the same manner as outlined in the finance agreement (so much per month over so many months). But this will probably not be a good option for the dealer. The dealer wants to be paid quickly, and for as close to the full price of the deal as possible. When the finance company agrees to make the loan, it will pay the dealer up-front for the car. The dealer will be paid somewhat less than the agreed-upon price of the car, but to the dealer, that is a more attractive option than is getting a few hundred dollars a month for a period of years as the consumer pays off the debt.
To eliminate the problem of financing falling through, many dealers who practice spot delivery now insert a clause in the sales agreement which makes the sale contingent on financing. This means that if the finance company denies the loan, the deal is off. By making this addition to the contract, the dealer tries to reserve the right to have the car returned if the financing deal falls through.
Example: Carl and Katie think it is time to trade in their old car for a newer one. They drive past Honest Bob's Real New Car Emporium one Sunday afternoon and see just what they are looking for – an Acme Buckaroo SUV. They take a test drive and decide they like the vehicle and are interested in buying it. Honest Bob sits them down to work out a price. Carl tells Honest Bob that his credit is not the best, but Honest Bob says, "Don't worry! I can arrange financing for just about anybody!" Honest Bob tells Carl and Katie that he can get them financed at $379.95 per month for five years with their trade-in and $1000 down. While this is more than they want to spend, when Honest Bob tells them that he can put temporary plates on the Buckaroo right then so they can drive it home today, Carl and Katie decide they can cut back on some other things. Honest Bob draws up a bill of sale and a retail installment sales contract. Everybody signs, and Carl and Katie leave in their new Buckaroo.
Three days later, Carl gets a call at work. It is Honest Bob who says he has bad news. The finance company has turned down their credit application. Honest Bob tells Carl, "I can still get you financing, but the best I can do is $435.50 per month payment, plus I'll need another $600 in down payment." Carl tells Honest Bob, "I can't believe it. We had a deal. We signed papers! We' can't afford a higher payment, and we don't have $600. We gave you every penny in our savings account on Sunday!" Honest Bob says that if Carl doesn't return the Buckaroo by 5:30 that evening, he will repossess it that night. And, if Carl doesn't cooperate with the repossession, he will report the car stolen. Carl says, "OK, I'll bring the Buckaroo back after I get off work. I will expect you to have my old car and my down payment refund waiting for me. And I won't be looking at buying another car from you – ever!" Honest Bob replies "Heh, heh, I am afraid I have some bad news for you there. I sold your trade-in yesterday. And your down payment? That is a non-refundable deposit. You don't get that back. You just get the Buckaroo back here by 5:30." Carl returns the Buckaroo, and walks home.
If the customer has to return the new car, the dealer should be prepared to return the customer to the same position that customer was in before the deal was made. This means the dealer must return all down payments, any vehicle that the customer traded in, and any other money or goods turned over to the dealer in the transaction.
Potential For Abuses
When the car dealer gives possession of a new car to the new car buyer, but makes the sale of the car contingent upon financing, a host of opportunities for abuse arise. A dealer who wants to increase profits will call the customer a few days after the sale and try to change the deal.
- The dealer may tell the customer that financing was denied and the customer needs to either pay more per month and/or make a larger down payment.
- If the customer refuses to pay more, the dealer can then invoke the contingency clause in the sales agreement and tell the customer the sale is void and that the car must be returned.
- Sometimes, the dealer will also tell the customer that his or her trade-in car has already been sold, and/or that the deposit is non-returnable.
All of these tactics are designed to make the customer believe that he or she has no choice but to pay the extra money demanded by the dealer.
What You Can Do
- Refuse to participate in a spot delivery sale.
- If the dealer tries to make you take delivery of a new car before your financing is approved, just say no.
- You will have nothing to lose, and by keeping your old car, you make it impossible for the dealer to sell it before you own the new one.
If you decide to participate in a spot delivery sale, be sure you understand the terms of the deal. Find out if there is a contingency agreement. Make sure the dealer understands that if financing is denied you want to get your old car back and your down payment back.
If you have purchased a vehicle as a spot delivery, and the dealer has informed you that financing was denied, and that you need to pay more, there are a few things you can do.Find out whether your sales contract contains a contingency clause.
- If it does not, the dealer may not demand the return of the new car
- If the contract does contain a contingency clause, call the finance company to verify that your loan has been denied
- If the finance company verifies the denial, you can try to get your own financing through another lender.
- If you are unable to do so, you may want to turn the car back in to the dealer, but if you do, you should demand your old car and your deposit back.
- If the dealer threatens to repossess the car, again check the sales contract (NOT the financing agreement). Unless the sales agreement allows the dealer to repossess if financing is denied, the dealer may not do so.
- If the dealer is allowed by the sales contract to repossess the vehicle, the dealer must still obey the laws related to repossession. Most notably, the repossession must not "breach the peace." Refer to Credit: Debt Collection for more information about repossessions.
Points To Remember
Do your homework
Know everything about the model or models you are interested in before going to any dealers. Know what features you are looking for and about what price you are willing to pay.
Test drive each model you are considering
Test drive the actual car you will be purchasing before taking possession of it. Do not accept a car that has mechanical or cosmetic problems. Be cautious of oral promises that the problems will be fixed later. Get all promises in writing.
Know your financing options
Compare financing from different sources. The dealer may not have the best financing deal. Check with local banks and credit unions to see what terms they are offering.
If you don't understand something, ask for an explanation. If the explanation is unsatisfactory, do not sign the document. Wait until you are ready to buy to sign anything.
Make a 'Final Decision'
Only make a deposit on a vehicle that you are absolutely certain of purchasing. Do not buy on impulse or because the salesperson is pressuring you to close the deal "now.
If you take possession of a new car on a spot delivery plan and you are later told that you have to return the car because financing fell through, call the finance company to verify that credit was denied. If you have to return your new car because financing was denied, you are entitled to get your down payment and your trade-in back.
Know your documents
- Read all documents you are asked to sign carefully, making sure that you understand what you are being asked to sign.
- The sale of the vehicle and the financing agreement are two separate agreements.
- Unless the sales agreement specifically states that the sale only takes place upon the buyer's obtaining financing, the sale takes place regardless of whether financing is obtained.
Where To Go If You Have A Problem
If you have a problem with a new car purchase, contact the Better Business Bureau:
Click on "Tips for Business and Consumers" for articles about new car buying.
Click on the "Dispute Resolution" tab under "Tips for Business and Consumers" for information on the BBB AutoLine.
Click on the "Complaints" tab under "Tips for Business and Consumers" to file a complaint about a new car online.
For information on arbitrating a new car warranty dispute, contact the Motor Vehicle Arbitration Board (refer to Autos: Lemon Law for more information):
Motor Vehicle Arbitration Board
33 Hazen Drive
Concord, NH 03305
If your problem is with a dealer, and is not a warranty issue, the automobile dealers' trade association in New Hampshire has an arbitration service called the Automotive Consumer Action Program (AUTOCAP):