Thursday, July 10, 2008

District Attorney Charges Car Salesmen with Multiple Counts of Fraud

When negotiating the sale of a vehicle, just how much disclosure is really required?

A common sense ruling by a California Superior Court judge resulted in the dismissal of theft charges against three Toyota salesmen. The question that lingers, however, is why the charges were brought in the first place.

The case hinges on the difference between a lease deal and a finance deal when selling a vehicle. A vehicle lease may often carry a lower monthly payment than a straightforward car loan on the same vehicle. Yet, internally, the “price” of the vehicle, or “cap cost” in industry jargon, may be higher for the lease.

The judge had to decide: Are dealership sales reps obligated to disclose the difference to their customers?

According to a report in the Cerritos City News Service, a Los Angeles assistant district attorney said “yes” and indicted the three salesmen on charges of grand theft of personal property.

In dismissing the charges the judge said in a five-page ruling, "There is no evidence that the defendants' actions were illegal or were prohibited by state or federal statute. Defendants owed the victims no duty to offer them a lower price, or a particular price."

The prosecution claimed the men, while assistant sales managers with a Toyota dealership in Cerritos in 2004 and 2005, used misrepresentations - including the amount of monthly payments in a purchase - to persuade customers who wanted to buy vehicles to enter into higher-priced lease agreements instead.

"Although the prosecution introduced evidence that the defendants inflated the projected cost of the monthly purchase payments versus monthly lease payments, defendants were free to inflate the price in order to negotiate with the victims," the judge wrote in his ruling.

Link to source article:

AFI's Take on This:

When I was first trained to "sell" leases to customers two main advantages were given. First, it puts the customer in a shorter trade cycle. That idea seemed like a good one. Second, you could "hold more money" by increasing the price. The customer would not understand this. I did NOT feel comfortable with this because the lease was being used to get a higher price without the customer's knowledge. When I did a lease, I used the same price to the customer as a purchase price. We need to make higher grosses but I don't think we should play games or appear to be playing games with the customer. It is not just a question of what is legal but also one of what is ethically right.

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