The Star-Ledger

What Do Car Dealers Make On Auto Loans?

Group wants full disclosure of financing

The Star-Ledger — Thursday, February 24, 2005

Star-Ledger Staff

Auto dealers should be required to tell consumers if a portion of the interest rate they pay on a car loan is a markup that compensates the dealership for arranging the financing, a consumer advocacy group said yesterday.

New Jersey Citizen Action issued a report estimating that New Jerseyans pay millions of dollars annually in such markups. For example, a dealer might tack 2.5 percentage points onto a 7 percent base rate so the consumer ends up paying 9.5 percent for the loan.

"The best solution is full disclosure of any added finance costs," said Phyllis Salowe-Kaye, New Jersey Citizen Action's executive director.

Genene Morris, spokeswoman for the state Division of Consumer Affairs, said, "We are going to review the report and take any appropriate action."

Citizen Action's report is based on research done for plaintiffs in a suit against Primus Automotive, an arm of Ford Motor Credit. That case is set to go to trial March 1 in federal court in Nashville, Tenn., according to Meredith Libbey, spokeswoman for Primus.

Libbey argued that auto finance companies such as Primus are the wholesalers, and the auto dealers are the retailers of automotive credit.

"The dealers are entitled to make a profit," she said. "We are the wholesalers, and they are the retailers and they should be compensated."

Asked if the dealer should disclose the markup, Libbey said: "The auto dealer is just like Wal-Mart. When you buy a lamp, Wal-Mart doesn't share with you the price they paid for the lamp."

Last July, Primus, which has $20 billion of loans on its books and works with thousands of auto dealers nationwide, imposed a 2.5 percentage-point cap on the markup a dealer could impose; a previous cap of 3 percentage points had been in effect since March 2003, Libbey said.

Car buyers don't have to use dealer financing; they can shop the auto loan market independently to try to get a better deal, Libbey noted. "But we know that we lend to some people that other lenders would not," she said. "The only reason we are in business is to help people buy vehicles, and we lend money more broadly."

Citizen Action also cited data from the litigation that indicates minority car buyers in New Jersey have been charged higher markups than white customers, even in cases where their credit histories were the same.

"For many African-Americans, buying a car is their largest single purchase, and they must be given a fair playing field," the Rev. Reginald Jackson, executive director of the Black Ministers Council of New Jersey, said in a statement issued by New Jersey Citizen Action.

Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, said Citizen Action's discrimination claims are unfounded.

"Discrimination is legally and morally reprehensible, and moreover, in a super competitive environment like auto retailing, as a business proposition it is incredibly stupid," Appleton said.

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