There was shock and amazement today as a front-page story in a national newspaper accused car dealers of being less than honest with their customers. In other breaking news, the Pope is reported to be Catholic.
The Daily Mail, Britain’s paragon of balanced reporting and nuanced journalism, (although it sounds better when you call it “undercover reporting”) at a number of car dealers across the UK.
They found that: “Ruthless salesmen are offering customers Audis, Vauxhalls, Suzukis and Fords worth up to £20,000 for no deposit – even if they admit they are unemployed, on low wages or have a poor credit rating.”
The newspaper has tried to link car dealers mis-selling finance products (usually personal contract purchases or PCPs) to a potential stock market crash, but it has added two and two together and ended up with about seventeen.
Shock – Daily Mail reporting is not honest!
Of course, the irony of a trashy tabloid accusing car dealers of making reckless, false and misleading statements to boost their sales is simply hilarious…
So, what actually happened? Firstly, the above quote from the Daily Mail is misleading. This is important because it conveys the wrong impression about how car finance is actually sold.
The average car sales executive cannot make finance offers; they can only try and sell you on the idea. A formal finance offer is made by the finance company, via an accredited person at the dealership (normally the business manager or possibly the sales manager), and only after a formal finance application has been made. So the process is:
- Sales executive convinces customer to buy a car, in the form of a signed contract to purchase the vehicle at a given price (nothing to do with finance).
- Business manager puts together a finance quote, based on information provided by customer, and submits a formal application for finance to the finance company.
- Finance company approves or rejects the application. There may be a conditional approval, based on additional or different requirements from the customer.
- Finance company makes an offer of finance to the customer in the form of a formal finance contract. The terms of this offer may or may not be the same as what was originally quoted by the sales executive or business manager.
Of the 22 car dealers visited by the Daily Mail, precisely zero finance applications were submitted and, correspondingly, zero offers were made to customers. No-one was “offered a £20,000 new car for no deposit” or anything else.
What clearly did happen was that a number of the car sales executives tried to lure the customers (sorry, “undercover reporters”) into buying a car through misleading information, outright lies and possibly even conspiracy to commit fraud. So there is definitely a newsworthy story here, but it’s not the one that the Daily Mail is trying to tell.
Shock – car salesmen are not honest! (nor are car saleswomen)
Dodgy sales tactics are nothing new – it’s one of the reasons this site exists. Sales executives are paid hefty commissions based on how many cars they sell, how many finance deals they sell, how many GAP insurance policies they sell, and so on. They also have pretty tough targets in terms of how many of these products they sell, so they are often desperate to get your business – especially if they’re struggling.
It’s very clear that some car dealers will bend the truth (or worse) to get a customer’s name on a contract. We’ve been banging on about it for years, and the Financial Conduct Authority (FCA) has opened an investigation into the way that car finance is being sold by car dealers.
It’s important to point out that there are many ethical car dealers and sales executives across the country who will do the best they can for their customers – like most industries, everyone gets tarred with the same brush. However, it’s probably also fair to say that car dealers have more bad apples in their barrels than most other industries…
According to the Daily Mail, their reporter was told by a Suzuki salesman in Staffordshire to lie about his employment history on the finance application to help his chances of being approved by the finance company. This is a serious accusation (the salesman is potentially assisting a customer to commit fraud), but it was only mentioned four pages into the report by the Mail’s “Investigations Unit”. The first three pages were all about why PCPs are terrible and how reckless selling of PCPs is going to crash the economy.
The car industry has created its own mis-selling mess
Buying a car on a PCP or other forms of dealer finance is a bit of a convoluted process. The dealership is usually an independent company that has a franchise licence to sell a car manufacturer’s vehicles. The dealer also acts as an agent for the finance company, which may be the manufacturer’s finance company but is still a completely separate business. So an employee from Company A is trying to sell you a car from Company B and finance from Company C (and usually extras from Companies D, E, F and G) – and make the whole thing look like an integrated and seamless package.
The car companies and the finance companies can swear blind that they are ethical organisations whose employees will always act with the highest possible morals, but their employees are not the ones who are selling these products to customers. The salesman in the showroom is not an employee of the manufacturer or the finance company, despite the logo on his name badge*. And there are hundreds of thousands of sales executives across the country, acting on behalf of these companies but not employed or actively monitored by the companies.
*Occasionally, some car manufacturers do own some of their dealerships via a subsidiary company. But it’s very much an exception rather than the rule.
Over a decade in car sales, I worked with some excellent, impeccable and hard-working individuals. And I also worked with some properly dodgy con artists who epitomise everything the public hates about car salespeople. The logo over the showroom door was no guide to the moral standing of the sales staff – some of the worst I met worked for some very posh brands.
As companies start to move into online selling, gradually taking traditional dealerships out of the equation, the situation may improve for new car sales. Used car sales will take much longer to change, as there is much less pressure from car manufacturers to conform to brand values.
Will car dealers PCP sales tactics cause a financial crash?
There is concern that the continued growth in car finance debt could adversely affect the most vulnerable in society. The Bank of England is investigating the car finance sector to determine whether lending rules need to be tightened to stop finance companies loaning ever-increasing amounts of money to people who are at high risk of not being able to pay it back (known as sub-prime lending).
But this is a big-picture analysis. The Bank of England isn’t interested in whether a Suzuki dealer in Stoke-on-Trent is misleading customers; it’s looking at the cumulative effect of millions of PCP agreements on the overall economy.
The Financial Conduct Authority, on the other hand, will be interested in the mis-selling allegations made by the Daily Mail. Its current investigation into the car finance market is aimed at precisely this sort of thing, and car dealers should be concerned about what may come next.
The car manufacturers and finance companies have had plenty of warning that the FCA is concerned about mis-selling of car finance, but they have clearly failed to manage the problem themselves. It can only be hoped that the FCA will come up with some concrete ways to clean up the car dealers.