A Dealership That Doesn't Want To Sell Cars That Badly

One of my closest friends told me today of a funny situation. He had just entered into a lease for a Lexus GS350 and the car has been his for a few weeks. He got a call from the dealership yesterday from the original salesperson who informed him that they had made a mistake on the lease agreement. Apparently they had collected the security deposit on a lower model class of car (I think it was the ES line) instead of what was supposed to be collected on the GS line. The difference over the four year lease was $2,200 if I’m not mistaken. So even though the signed contracts had stated the incorrect amount and had been signed and agreed to by both parties, the salesperson had called to ask for the $2,200 or for the car to be returned!

Isn’t A Contract A Contract?

As you can imagine, my friend is not too happy. I’m not a lawyer, but my mind is that if the contract has been signed by both parties, that’s it. As was brought up by someone else, what transpired is the equivalent of the customer going back to the dealership and saying, “Oh, geez. I just realized that the $550/month lease payment I signed up for was a mistake. I thought someone had mentioned it was going to be $450/month – do you mind sending me a cheque for the cumulative difference over the next 4 years of the lease agreement and we’ll call it even?”

Regardless of the letter of the law, what ever happened to doing the right thing? If the business made the mistake, perhaps they should suck it up and not upset a customer (especially in the current environment of auto sales), who until now was having a great customer experience. Now, he’s so upset he’s not even driving the car while waiting for a manager to call back and provide a decision (my friend indicated he would not pay the extra money and would be happy to have the car picked up and returned).

Was It Worth It?

The security deposit lease is refunded upon the expiry of the term of the lease. In this case, the dealership has potentially foregone a customer for life for less than $200 (the accumulated interest on $2,200 over four years at just over 2%). That doesn’t make sense to me. Anyone in the auto sales world care to enlighten us? Is there more to this than meets the eye? Comments appreciated.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 18 comments
  • Silicon Prairie

    They could always go with “The salesperson was clearly drunk when he printed out and signed the contract, it can’t be valid!” :)

  • Canadian Finance

    That’s amazing, that’s terrible customer service. If the contract is that straightforward, it should hold, but I wonder if there’s some fine print that covers them if they make a mistake?

  • Howie

    As a former investment advisor, you have probably seen errors that were made when trades are placed, anything from redeeming a mutual fund incorrectly to a simple data entry error. If there is a loss, who compensates for it? Probably the company (IA).

    I’m not saying that $2100 is not a lot of money (it’s a lot of money to me), but from a business standpoint… Do you honestly think a client would come back and do business with your company? Their friends and family? You are losing lots of future business here!

    I think the company should acknowledge the fact that they made a mistake on the contract, but still honour it. That’s value added to the dealership in terms of goodwill isn’t it?

  • Eric Arrr

    This is a variation of a well-known scam.

    In the typical example, the dealer sells (rather than leases) the vehicle to a buyer. After the buyer has taken the car off the lot, the dealer will call back and claim that the financing has fallen through, and that the car must be returned unless the buyer agrees to a new set of terms (– typically a higher interest rate.)

  • Eric Arrr

    Oh, by the way, this scam is known as the “Spot Delivery Scam.” Google it.

  • Brian

    Good heads up Eric,

    I would also be skeptical about the whole deal. Send his story to CBC’s Marketplace: http://www.cbc.ca/marketplace/about/contact/we_want_to_hear_from_you.html

    In calgary, a CTV reporter also investigates consumer mismanagement.
    http://calgary.ctv.ca/servlet/an/local/CTVNews/20080428/consumer_watch/20080602/?hub=CalgaryHome

    Hope your friend doesn’t get scammed here.

  • Mark Wolfinger

    I feel strongly that the dealer has the right to tell the customer that they made a mistake, as long as that is the truth. It’s up to the customer to agree to pay or keep his ‘good’ deal.

    But they have no right to tell the customer to return the car as the alternative. They must eat the loss – and should do it with a smile.

    If customer suspects a scam, he should threaten to prosecute.

    Mark

  • Ink-Stained Gorilla

    The dealership model of selling cars is one of the reasons the car industry is in the trouble it is. There’s a movement to get rid of the dealership model and create a direct-to-customer sales.

    I know some of the restructuring talks of the auto-industry have suggested mimicking the production models utilized by Apple or Dell Computers. If you cut out the dealership – which may take many years to do – you can avoid running into some of the costly oversupply and uneven pricing and service that hinder the industry.

    Right now they remain the only distribution model for car sales and therefore a necessity. Their days may well be numbered if one of the large automakers decides to sell directly to consumer.

  • Preet

    From a reader via email: The story of the car lease reminds me when I bought a new BMW awhile ago. I went into the dealership with a printed copy from their website the car I wanted with all the options and colors printed out for them. No selling was required, they just had to transcribe the information into their ordering system. I get a call back 8 weeks later saying the car had arrived but there was a mistake, it did not have the automatic transmission that I ordered. They had another car on the lot that I would have bought but I wanted the wheels and tires that I ordered. I thought it would be simple to just exchange the tires. They would not do it. The only way they would do it was for me to buy the wheels from the parts department at retail prices and sell them my wheels at wholesale prices. I would have to pay the difference. They did nothing to try to help me out for an error they made.

    I canceled the order, and went to another dealership and bought the identical car from them. Of course every one I talked to about the new bimmer, I would relay them my story and they were mostly the type of people who would buy BMWs. Sometimes businesses are too shortsighted when they piss of their customers.

  • Mark Wolfinger

    “Sometimes businesses are too shortsighted when they piss of their customers.”

    That arrogance comes from making too much money and assuming the good time will never end.

  • Xenko

    IANAL but as far as I know, a contract that has been signed without duress is legally binding, no matter who made the mistake. There are plently of cases where people mis-read a contract or put a stupid clause in that eventually came back to bite them.

    Imagine the reverse scenario where the customer realized he signed a contract for more than was agreed upon. Do you think the dealership would refund the difference? I highly doubt it.

    The only thing I would be concerned about is some sort of retribution upon the termination of the lease where those pesky fees for damages/dirtiness etc. might need to be paid up (and exaggerated).

  • Preet

    @Silicon Prairie: lol – then I would recommend going back and saying he should be thrown in jail because he just took them for a test drive before they signed the contract – must’ve been DUI! :P

    @Canadian Finance – I hope that’s not the case. Legal-ease is not my strong suit, but that’s just plain mean!

    @Howie – Yes, correct: the IA would be on the hook for the loss if it was the IA’s error, but any mistake that results in a profit goes to the company coffers if I’m not mistaken. If not, then imagine all the rogue traders/IAs that would be running amok… :) I agree that the company could’ve called to indicate they made a mistake, but then offered to honour the deal. Turn it into marketing for them. Then the consumer would be tempted to spread GOOD news about the dealership acting in good faith.

    @Eric – good tip on some scams. In this case, it sounds like a genuine mistake followed by a serious error in judgment on what to do about it…. I hope.

    @Brian – thanks for your links. I believe he has contacted CBC marketplace. I will urge him to contact Ellen Roseman as well.

    @Mark – I agree completely. And there would be some people who would pay the difference, I’ll bet, if offered the choice to do so or not without any threats.

    @Ink-Stained Gorilla – I know there is an exotic car maker that does something like this already. You can pick up your car right at the factory and watch it being built to your specification – all entered on a touchscreen interface. Somewhere in Europe. The environment now (changing everyday though), might have lobbied too hard against a direct model. The auto industry needs a Muriel Siebert(sp).

    @Xenko – good point. Hopefully four years would be enough time to soften the sting, but I could imagine a few extra costs on routine maintenance along the way could also crop up…

  • Thicken My Wallet

    Have your friend point out the “entire agreement” clause in the agreement. The dealer has no legal remedy for their, ahem, “clerical error” if the lease has gone through and your friend has a leasehold interest in the car.

  • Riscario Insider

    Doesn’t the contract require a review and signature from the dealership’s management? As a consumer, that would seem to make the contract binding. The dealership is in the business of selling/leasing cars.

    An increase in the security deposit of $2,100 seems high. If the car is damaged, the client is liable for the cost. In that sense, the deposit is redundant. It’s refundable if there’s no damage. Each time I’ve leased, the security deposit was one lease payment (much like paying the first and last month’s rent on an apartment).

    When car shopping last year, I went to Lexus first by mistake (took a wrong turn on the way to BMW). I spoke to a rep for a few minutes then got turned over to a different (less nice) rep!?! Since I just started comparison shopping, I clearly wasn’t ready to buy. Even so, the rep explained complicated lease options that centred around paying a much larger security deposit to lower the lease payments. Why not make a larger cash payment up front instead? I could not follow the explanation and left in a daze. The only consolation: they took a shiny GS out of the showroom for my test drive.

    No one at Audi, BMW or Mercedes recommended overpaying the security deposit (which is essentially a tax-free loan).

  • Jack Maehauffer

    If Lexus did call your friend’s bluff and recall the car, they would be stuck re-leasing a USED car – which would have depreciated immensely!

    If they do, here’s a little hint from Ferris Bueller’s Day Off:
    Jack the car up, and peg the pedal to 240km/h. Set your cruise control (and maybe put on some Chemical Brothers through the optional IPod interface).

    If you return the car at it’s next payment date (say 14 days), you’ll have accumulated over 81,000km. Well within the lease terms for mileage. Then they’ll REALLY have a used car to re-lease! I’ll even supply the gasoline just to see their faces!

    Jack M
    (don’t try this at home kids)

  • Nicolas

    I would ask the dealership to put their request and complete explanation (an applicable contract clauses if any) in writing before making any kind of decision. They might just forget about it.

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