Tin Men

As a follow-up to my post about an apparently sleazy car sales tactic a few days ago, I thought I’d point you to a fascinating undercover look at the world of car sales from Edmunds.com. The reporter spent 3 months as a new car salesman, part of it at a high-pressure showroom dedicated to a Japanese brand, and the other at a “no-haggle” dealership for an American brand. In general, the article reminds me of the movie Boiler Room, as well as my own brief career in high-pressure sales (don’t ask). The traditional car lot is a shark pit of deceptive maneuvers aimed at separating marks from their money. The “no-haggle” lot seems much better, but it also seems like it’s not doing a lot of business.

There’s evidence the Internet is changing the whole business:

I was already beginning to see the impact of the Internet because of something that happened during my first few days there. [The reporter talked to a man waiting in the maintenance area, who tells him he got an “awesome deal” on one of the dealership’s new SUVs — $300 below invoice.] I asked how he did it. He said he checked prices on the Internet. He then called the fleet manager and made the deal over the phone.

I had a schizophrenic reaction to this. Part of me admired the fact that he had outfoxed the dealer. But the car salesman side of me was angry that I never “got a shot at him.” It seemed like just a matter of time before people who, in the past, walked onto our car lot, would be on the Internet making deals.

The salesmen are only vaguely aware of this developing trend. I was standing on the curb next to George and we saw one of these high-demand SUVs ready for delivery.

“Another damn Internet sale,” George said. “Why don’t they turn that car over to us? We’d get a grand over sticker. Instead they’re selling it at invoice. Does that make sense?” As the days passed I noticed more and more cars marked “carsdirect.com.” And as I approached people on the car lot they often informed me that they were here to see the fleet manager. More Internet customers.

This indicates that wealthier, computer-savvy customers may be circumventing the sleazy sales tactics, leaving the sharks to prey only on poorer, less-informed customers. It could develop into yet another element of the “poor tax.”

HT: Consumerist

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13 Responses

  1. Dylan says:

    It’s not clear how you can separate savings from avoiding “sleazy sales tactics” from simple disintermediation. Even good, upright salesmen are a wasted expense if you can cut them out and deal directly with the wholesaler.

  2. John Armstrong says:

    I’m generally a rather progressive sort, but something about the notion of a “poor tax” sticks in my throat. Yes, car dealers (in this example) are aptly described as sharks and con artists. Yes, there are those who lack the ability (or who have the ability but don’t realize its availability) to get around the system. Yes, the poor are more likely to lack the ability or be unaware of it. I’d love it if the situation were different, but it isn’t and there’s really nothing to be done about it. So does that mean that I shouldn’t avail myself of the tactics to get around the system just because (a) someone else can’t do the same and (b) that someone is likely to be less wealthy/educated than I am?

    To look at a more common element of this so-called “tax”, the poor are more likely to lack the basic understanding of statistics, probability, and rational deduction which shows that buying a lottery ticket is (almost always) a losing proposition. I know better, so I don’t buy lottery tickets. Should I be required to buy lottery tickets to assuage some sort of guilt over who gets taken in by a bad deal I don’t have anything to do with?

    Yes, the car dealers end up taking in more poor marks than rich ones. The problem with calling it a “poor tax” is that they’re trying to sucker everybody, and it’s just the poor who fall for it more often.

  3. Ack says:

    “I’m generally a rather progressive sort …. I’d love it if the situation were different, but it isn’t and there’s really nothing to be done about it.”

    You’re an odd sort of progressive, John. Most progressives would recognize some fairly obvious possible solutions (other than making you buy lottery tickets), including narrow solutions (stricter regulation of sales tactics and/or contract terms), broader solutions (assuring equality in education, including computer literacy, and assuring equal access to the web) and super-broad solutions (redistribution of wealth so as to eliminate the whole rich/poor distinction). Others might suggest non-legal solutions having to do with public deliberation about the cultural values that cultivate the shark-style sales tactics. So my guess is that when you say “there’s nothing to be done about it,” you mean “there’s nothing to be done about it that won’t offend my (non-progressive) views about freedom of contract, government regulation, tbe welfare-state, capitalism, and so on …”

  4. Kate Litvak says:

    Bruce: I suspect you got it exactly backwards. Comparison-shopping on the web is just a glossy equivalent of clipping supermarket coupons from the Sunday paper. Both are the tax on people with high opportunity cost of time and high marginal utility for leisure (that is, the tax on the rich). The only additional piece here is the Internet, which is now increasingly available to the price-conscious via public libraries, community centers, schools, and such. If you seriously think that the poor aren’t savvy in deal-hunting, you haven’t met a lot of poor people.

    I should add that the “what about the poor?” knee-jerk reaction here is truly hilarious. People who buy new cars aren’t poor. They normally can afford Internet access, or can get access through friends, or know how to walk into a public library. Next item for concern: people who buy engagement rings at Tiffany’s can get free engraving, but only if they request so on the Internet. What about the poor who have no Internet?

  5. Paul Gowder says:


    The fact is, however, that the poor *aren’t* doing very well at deal-hunting in a lot of areas. There are numerous business models that exist only to prey on the ignorance of people whose need for money outweighs their ability to determine its real cost.

    I’m going to go outside the car topic for a bit to illustrate the whole poor deal-hunting thing.

    Consider, for example, the check-cashing industry. Perhaps there are some people who can’t get bank accounts, or have a semi-legitimate fear of getting bank accounts (undocumented immigrants?), but how many more pay a regular fee to cash their paychecks because they don’t know any better? (fannie mae report on the subject. Or how about money transfer services that take advantage of poor immigrants who don’t know the relevant exchange rates, offering significantly below the market rate?

    Or how about the predatory home mortgage industry? For some people, perhaps, high-interest home loans are making economically rational decisions. However, the people selling those loans obviously don’t think so, as they often do their level best to conceal the true cost.

    This is only an anecdote, but it represents real practices that exist out there, and it’s a painful one for me (because all my best-theories were time-barred before the client got to me, and the court bounced my creative make-do on summary judgment). The last case of my legal aid days was a lawsuit on behalf of a woman who, due to her own cluelessness (possibly mental illness) and the rapacity of a mortgage broker and a series of private lenders over a 3 year period, had managed to turn:

    (a) About ten grand of unsecured debt, much of it at the (below-market) judgment rate, and a house owned free and clear and valued at abouty $50,000.00 (this was rural)


    (b) Living in her car, with all of the equity in the house sucked dry and foreclosed, notwithstanding two last-ditch bankruptcy attempts.

    You tell me this was savvy deal-hunting. Go ahead. Incidentally, the mortgage broker (who was very poorly prepared by his lawyer) flat-out admitted at his deposition that he’d left his first job (sadly taking my client with him) because the brokerage in question had a proclivity to “fuck people.”

    And what ABOUT lottery tickets?

    So lets bring this back to cars. How likely is it that the class of people who fall prey to the stuff I just listed are making fully informed decisions about their car purchases? “Comparison-shopping via the web” might, indeed, be easier for those who CAN afford new cars (and thus take advantage of fairly standardized goods). But comparison-shopping via the web is much harder for used cars, and the same sleazy sales tactics are at play, plus a whole slew of new sleazy sales tactics relying, e.g., on concealing the true condition of the car. Then, pushing the sleazy sales tactics aside, how about financing tactics? Car dealers often get “dealer points” (a.k.a. “kickbacks”) from financiers for doing in-house financing. How many of the consumers who get suckered by payday loans are going to know to seek outside financing in addition to seeking outside prices? Etc. etc. etc.

    It drives me up the wall when people insist that the poor and uneducated are doing just fine navigating the minefield of grasping hands just dying to rip them off, against the mounds and mounds of evidence to the contrary.

  6. Paul Gowder says:

    More generally (now that I’ve calmed down a little), I think you really have to work on these issues to have a real sense of it. I’m sure the opposite is also true, that the fact that I did poverty law for a couple years gives me a bias (both because the people who I saw were the worst victims, and because of my emotional investment in, e.g., the predatory lending case mentioned above, which I’m still angry and bitter about 3 and a half years later).

    But at the same time, there’s no way that I, or anyone else who has experience doing poverty law, is ever going to be convinced that poor people get a fair shake from the marketplace, or that poor people are out there using high-level skills to find deals. It just ain’t happening. I’ve seen, we’ve seen, too much. When you’ve had to file suit against a cellphone vendor to return a $500 deposit (A $500 deposit! For a cellphone! Some litigation over penny-ante stuff is worth it just because of the outrage.) against a customer who doesn’t speak english, or scores of people living in a dilapidated trailer park where, on a regular basis, the landlord evicts people who can’t afford to move their personally-owned homes — which means, hey, free mobile home for the landlord! Not to mention scores of tenants — many with perfectly good income and credit — who are living in above-market-rent slums. Ripoff after ripoff after ripoff.

  7. Bruce Boyden says:

    My throw-away line at the end got way more attention than I thought it would, but I don’t understand what’s wrong with it exactly, even if Kate has met more poor people than I have. Anyway, there’s lots of interesting issues here to choose from; the effect of the Internet on car sales (and sales in general) is one — as Dylan notes, there are benefits to cutting out any middle men, but I think they’re particularly notable here. But also, there’s the effect on the salesmen themselves, who (as indicated in the article) are not raking in money hand over fist. Hence the title of the post. I highly recommend reading the whole article, if you have time and are interested, because there’s a lot more detail in there.

  8. Kate Litvak says:

    Bruce: your last line is wrong not because you haven’t met enough poor people, but because you haven’t figured out that price discrimination is almost always a wealth tax, not poverty tax.

    Paul: as much as I like to flaunt of my ADD, I just can’t fit every hot issue into one blog comment. We weren’t talking about confusing credit transactions, evictions of non-paying tenants, or long-term service contracts. We were talking about spending time and effort to get a clearly stated rock-bottom price. The poor are experts at this. I spent years living in an immigrant ghetto in LA, so I know whereof I speak. My neighbors always knew which store had what on sale; how long each sale will last; and which combination of discounts, coupons, and cards produces the most savings. Everyone knew it. Nobody ever paid full price.

    Incidentally, everyone also knew that the interest rate at a local furniture store was huge, and yet some people took credit anyway. The rest rolled their eyes. Just like everyone always knew that smoking caused disease, but smoked anyway. And everyone knew that learning English would help get a better job, but many didn’t even try. Give poor people some credit, Paul. They may not be able to calculate compound interest, review tables in a medical journal, or understand employment statistics, but they know that pawnshops should be avoided, smoking is bad, and English proficiency is good.

  9. Orin Kerr says:

    “as well as my own brief career in high-pressure sales (don’t ask).”

    Pretty please?

  10. Paul Gowder says:

    Kate: fair enough. I’m just scatterbrained enough to succeed at fitting all those issues into one comment, but I certainly don’t expect an answer to them all.

    Hey, speaking of compound interest — you’re the finance whiz, maybe you can answer this. In the article that Bruce linked, there’s a little discussion of interest rates on leases.

    Also, it’s easy to disguise the interest rate in a lease because it is expressed as a decimal multiplier instead of a more recognizable percentage rate. For example, a 9 percent interest rate becomes .00375.

    Do you, perchance, know what that second number actually means? Is it some kind of ratio, and if so, between what? What’s the formula for turning it into a percentage? (Is my suspicion correct that it probably requires taking some funky intergral of some function with e all over the place?) I’ve never leased a car (and have no idea how it works), and it came as quite a shock to me to read that people were actually expressing interest rates as numbers that bear no immediately visible relationship to the numbers that are ordinarily understood as interest rates.

  11. Paul Gowder says:

    Never mind my last question. Some work with google and a calculator revealed that all you have to do to turn this freakish decimal into an interest rate is multiply it by 24. No calculus! (Kind of a let-down.)

    Which, of course, leaves open the question of what possible legitimate financial reason there might be (other than ripping off people who don’t know the secret) to take the actual interest rate and then divide it by 24 before telling the customer. I presume they don’t say “this is your bimonthly interest rate.”

  12. Bruce Boyden says:

    Kate, it’s anecdotal evidence of course, but the report I linked to seems to indicate that the people being taken most advantage of are not the most well off. (They’re probably shopping at the Mercedes dealer down the street, where the saleswoman is rude instead of sleazy.) It’s also possible that your former neighbors were atypical in some respect.

    Orin, only if I get a free beer out of it. But for now I’ll say, you know those signs you see all the time that say “No Solicitations”? I know why they’re there. I should also point out before you shell out any money that my experience was exceedingly brief–1 week, IIRC.

    That same summer I had a weird job interview where I answered an ad in the paper but was adamant not to get another sales position. I couldn’t figure out how the company made money, so I asked. It was like pulling teeth. The interviewer refused to tell me. I asked several different ways (my final try was “Do you get grant money?”). I had some uncomfortable law firm interviews, but never anything like that.

    Anyway, it all ended well; I wound up working most of that summer order-picking in a warehouse. It was the most relaxing job (in a mind-numbing sort of way) I’ve ever had.

  13. AcK says:

    “I spent years living in an immigrant ghetto in LA, so I know whereof I speak. My neighbors always knew which store had what on sale; how long each sale will last; and which combination of discounts, coupons, and cards produces the most savings. Everyone knew it. Nobody ever paid full price.”

    Now, I wonder what scathing thing someone proficient in statistical analysis would say about this use of annecdotal evidence, if it were offered against her position?