NEW YORK–Auto dealers are requiring customers to finance their vehicles rather than pay cash or otherwise pay a higher price, according to a new report.
As an example, the Wall Street Journal cited the experience of one customer, Fred Hebert, who was seeking to buy a Lexus sport-utility vehicle in late 2021 with cash, but he said the dealership gave him a proposition: Finance it or it will cost you almost $2,000 more.
Hebert told the Journal the dealer was “very open” about the fact it collects nearly $2,000 for arranging the financing, and “they were not going to give up that fee.”
Hebert isn’t alone. According to the Wall Street Journal report, car buyers increasingly say they are hearing from dealers that cash and financing from outside the dealership aren’t welcome. Dealers tried to get some of them to finance by quoting higher prices for cash sales or refusing to sell if they couldn’t arrange the financing, according to interviews with buyers conducted by the Journal.
The ‘Upper Hand’
“The hot car market, where heightened demand is meeting thin supply, is giving dealerships the upper hand, allowing them to wrangle more money and drive up their profit,” the Journal reported. “Some have been selling cars for more than the sticker price, raising the eyebrows of industry executives.”
Citing J.D. Power data, the Journal noted that in the years leading up to the current supply crunch, financing and insurance have driven more profits per new vehicle for dealers than the sale itself.
According to the report, auto lenders extended $734 billion of loans in 2021, a record high in Federal Reserve Bank of New York data going back to 2004.
Some 55% of car buyers used dealer-arranged financing last year, the greatest share in records going back to 2005, according to car-shopping website Edmunds. The share using cash, check or outside financing dropped to less than 18%, its lowest on record last year, the Journal reported.
Complaints to FTC
The report further found the Federal Trade Commission has also received at least a half dozen consumer complaints in the past few years regarding dealers refusing to accept cash or outside financing, according to complaints provided through a Freedom of Information Act request.
For his part, Hebert, a retiree who lives in New Harbor, Maine, told the Journal he took a a 60-month loan at an interest rate of 3.69% from Toronto-Dominion Bank, reasoning that paying a few months of interest would be less than the extra dealership charge. He said he recently sent a check to pay off the loan, the Journal added.