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SERVICE AND WARRANTY SCAM

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MISLEADING SCARE TACTICS BY CAR DEALERS

When you buy a new car from a new car showroom, the dealer will always stress the importance of having your car serviced by him and infer that you should only use genuine branded spare parts, because if you don't, you may void the warranty. This is part of the system that new car dealers used and it even has a name - The Front Door-Back Door System.

THE FRONT DOOR - THE SHOWROOM

The Front Door is the fancy showroom where you go to inspect and even test-drive those nice shiny new cars. The salesman will negotiate a price with you and he may offer you a price that is many thousands of dollars off the recommended retail price of the car. In fact in many cases, the margin for which a new car is sold is very low. But there is method to the dealer's madness and it is called the Back Door - the dealer's extras, servicing and spare parts department, where he will do his best to gouge back the discount he gave you on your new car, plus a lot more.

THE BACK DOOR - THE EXTRAS SCAM

Once you have bought the new car and go to pick it up, the salesman will most probably introduce you to the dealer's After-market Person, who will most probably be a nice lady who will try to sell you all sorts of goods and services to enhance your new vehicle. You may be offered window tinting, paint protection, car body rustproofing treatment and upholstery protection treatment, all which will be very expensive and completely unnecessary.

If you really want window tinting, you will be able to get it applied by an independent window tinter for at least half the price that the After-market Person tries to sell it to you at the car dealer's premises. All modern cars are very thoroughly rustproofed, so an after-market rustproofing treatment is completely unnecessary. In any case, rust within many years of a car's manufacture is a warranty issue, even when the manufacturer's warranty has expired. In any case, a dealer who offered rustproofing treatment on a new car should be questioned as to the quality of the vehicles he sells.

As for paint protection, all modern cars have a rock-hard clear coat over the paintwork that protects it completely and if one would question the dealer about the quality of the car's paintwork if he promoted an after-market paint protection treatment, one would find that the dealer would become rather embarrassed. Modern cars just need a good wash and maybe the occasional waxing to add some shine to the duco, but certainly not paint protection treatment.

The dealer's upholstery protection treatment will be both extraordinarily expensive and completely unnecessary. Sure, upholstery waterproofing and other treatment is good, however one can simply go to a supermarket or a car accessories store and purchase a can of fabric or leather protection treatment for a few dollars and apply it, rather than pay a car dealer an exorbitant price for exactly the same thing.

The After-market Person will offer other products and services that to all intents and purposes are completely unnecessary, as well as being expensive. So the best thing to do at this point is to politely tell the After-market Person that you are not interested and then you will be led to the next part of the scam.

THE BACK DOOR - THE SERVICE AND SPARE PARTS DEPARTMENT

At this point, the salesman will take you over to the dealer's servicing department, where a very nice service manager will tell you how important it is to get your car serviced at the correct intervals and he will infer, or even blatantly state that it should be performed only by the dealer. Part of the routine is that you will be given the impression that if you get your new car serviced elsewhere, such as by your local mechanic, you may void your new car's warranty or that independent car mechanics will be inferior to the dealer's mechanics.

The truth is that the dealer's servicing and spare parts department is where the real ongoing revenue stream occurs, not the one-off car purchase in the showroom at the Front Door. Car servicing conducted by dealers is ridiculously expensive and completely unjustified, unless you want to factor in the cost of a pleasant waiting room with a TV and a free cup of coffee. But is it worth paying $475 for a standard 10,000km service on a Mazda 6 Luxury Sports Hatch at the Mazda dealer (quoted to me by a Sydney Mazda dealer), when the same service according to the service manual was performed by Adam, my expert local mechanic for around $100? I didn't get that cup of coffee (my friendly mechanic actually did offer one), but I saved $375, a substantial amount that will buy a lot of cappuccinos at a nice coffee lounge.

In July 2013, I rang a prominent Sydney Mazda dealer for a 20,000km service quote for my Mazda 6 Luxury Sports Hatch. The dealer quoted $370 for the service, but as usual, I took it to Adam, my friendly expert car mechanic and got it serviced for $125 as per the service manual. That's a whopping difference, nearly three times the price to get the same service performed by that Mazda dealer. One has to wonder from where those dealers pull those prices, because they are not just in the realms of fantasy, they are blatant ripoffs and deliberate gouging.

This gets much worse if you own a so-called luxury vehicle such as a Mercedes Benz, BMW or Audi. Then there seems to be no limit to the ridiculous servicing cost ripoff, with some BMW owners telling me that they paid $1000 for a service by a BMW dealer that should have cost no more than $150 at the local garage. Over the lifetime of any car, getting it serviced by a local mechanic can save many tens of thousands of dollars, which is far better off in your pocket than in the bank account of a car dealer.

THE ABC EXPOSES THE SCAM

The ABC shows how misleading car dealers are

This short video clip uses Mazda as the target of the investigation, but all new car dealers operate in the same way. They deliberately mislead new car buyers into believing that if the dealers do not perform all the servicing, then the warranty is at risk. It's a blatant scam, designed to fill the dealer's pockets with your money for no good reason.

CLASSIC EXAMPLE OF THE SERVICING SCAM

In April 2013, Mali Hannun was hit with an extraordinarily high account for having her Hyundai i30 car serviced by Barton's Hyundai at Wynnum Queensland. The car dealer claimed that the highly inflated bill was due to a typographical error, but it is obvious that the charges listed were blatantly fraudulent.

Inflated servicing account
Part of the highly inflated service account

When the items charged for are examined, the outrageous and unjustified costs are plain to see, as follows:

Hannun accused the service centre of attempting deliberate fraud, quoting around $700 of unnecessary repairs, including replacement tyres, a brake fluid flush and a power steering flush, which she only discovered after going to two other mechanics for a second opinion.

According to Hannun, Barton Hyundai's response was completely inadequate and the charges could not be justified. Obviously some of the charges were completely outrageous, such as the $83.05 cost for wiper inserts and the power steering flush that could not have been performed anyway because the car has electric steering. But the response from Hyundai Australia chief operating officer John Elsworth was just as bad and unconvincing.

Elsworth tried to excuse Barton's Hyundai by claiming that there was a breakdown in staff communication at the service centre. What has communication got to do with this? A mechanic is assigned to service a car and he has a checklist of tasks to perform, such as the scheduled items to check, consumables to replace and to ensure that there are no obvious faults.

The mechanic should perform the service, check off the items, hand the checklist to the accounts clerk who generates the invoice. So how can Hannun's outrageous bill be attributed to a communication breakdown? That's just utter baloney.

Elsworth tried to excuse the tyre replacement by saying that Hyundai had a policy of replacing tyres due to Hyundai's long service interval. What utter nonsense. Tyres are replaced when the tread is worn to a certain point, not because of service intervals. If this is Hyundai's policy, the best thing to do is to steer clear of having anything to do with Hyundai dealer servicing.

But for every Mali Hannun who questions an outrageous and fraudulent servicing account, there are thousands of gullible motorists who take their cars to dealer service centres and are ripped off mercilessly. They simply do not know any better and they blindly accept whatever the dealers tell them and just pay those highly inflated accounts. This example is not isolated. Car dealers make most of their money from spare parts and servicing and selling cars is merely the hook to get customers in the Back Door and gouge them for every dollar possible.

THE SPARE PARTS SCAM

The spare parts division of every car dealer is a very lucrative operation and ties in with the warranty routine. One of the great lies pushed by many car dealers is that a car's warranty will be voided if the car is serviced and non-original parts are used, such as after-market oil and air filters, brake pads and even some major components such as constant-velocity joints. Of course the idea is to scare car owners into paying through the nose for branded parts from car dealers, rather than purchasing cheap consumables that may have even come out of the same factories as the branded parts and are completely identical.

The truth is that car manufacturers do not actually make most of the parts that go into their cars. These parts are subcontracted out and the car manufacturer merely assembles them into the finished vehicles. For instance, many Ford cars used gearboxes from Borg Warner. Mercedes Benz, Porsche and BMW have used gearboxes and transmission parts manufactured by German company ZF. External rear vision mirrors for virtually every make of Japanese car are made by one company. The same goes for door handles. Head and tail lights, seats, steering wheels, audio systems and most other parts are made by outside companies, not the car manufacturers themselves.

So in most cases, the oil or air filters that you find in a discount department store may have come out of the same factory as the filters fitted as genuine parts to new cars and be completely identical, but at a fraction of the price of those filters sold by dealers as genuine parts. Often the only difference between the so-called "genuine" part and the after-market part may be the printing on the box. Most car dealers charge premium prices for these so-called genuine parts that are exactly the same as the cheapest parts found in discount stores. Sometimes, after-market components will even be better than the genuine parts.

For instance, many years ago I discovered that the constant velocity (CV) joints on my Subaru Liberty wagon became defective when the rubber sealing boots broke. Subaru dealers quoted huge amounts for replacement CV joints and their associated shafts. However, ZF, a German company that was famed for its excellent gearboxes manufactured CV joints and assemblies for Subaru vehicles that were not only about half the price of the genuine CV joints, but were actually stronger and more durable.

THE MYTH OF HAVING TO USE MANUFACTURER'S PARTS

For example, here are the most commonly replaced Mazda-branded consumables for my own 2013 Mazda 6 hatchback, as quoted to me by the largest Mazda dealer in Sydney, compared to after-market consumables found on the Internet in car parts stores and other vendors.

The difference in price between the Mazda-branded parts and the after-market parts is staggering, especially items like those brake pads. But the truth is that under Australian consumer laws, a car's warranty will not be voided by using after-market parts, provided that the parts are suitable for the task. So if new oil or air filters for any vehicle are needed, those after-market parts can be purchased from a discount store or car accessory store for a fraction of the price of the branded parts, saving a lot of money and still retaining the new car warranty.

MASSIVE MARK-UP ON SPARE PARTS

Spare parts form a key part of the profit chain in the automotive industry and can be subject to mark-ups of 2000% or more by the time they reach customers. Mitsubishi marketing boss Tony Principe stated that a race to the bottom with new car prices meant that profitability was pretty much shot, with manufacturers making as little as $100 on the sale of budget-priced new cars such as the Mirage hatch. They were making up the shortfall by boosting profits on servicing and follow-on sales.

Industry insiders provided the true cost of common parts for mainstream manufacturers. For instance, an alloy wheel for a popular new vehicle costs car makers $165 but retails for $600, with a power window switch for the same brand marked up from about $91 to $290. Those costs don't take into account the mark-up of the manufacturer of the part, as car makers outsource the production of most parts to smaller component makers, with the component possibly already having a mark-up of 100% or more by the time it reaches the vehicle manufacturer.

Headlights and taillights that cost the manufacturer $125 and $65 were marked up to about $650 and $350 respectively. A set of door locks for a popular car costs manufacturers less than $55 but are sold to the public for $840. An airbag actuator that cost the manufacturer $50 ends up closer to $450 from the parts supply counter. Some parts are ridiculously expensive. Audi A6 LED headlights cost a whopping $5000, while just one Mercedes Benz S500 LED headlight costs nearly $3000. The same goes for the Chrysler 300 headlight costing a massive $4000. Budget brand Hyundai owners don't fare much better, with one i40 Premium headlight costing a massive $2800 and the Santa Fe's diesel fuel filter costs $350.

Owners of sporty cars pay through the nose for parts. Lexus IS-F front brake pads cost over $1000 per set. One completely ludicrously expensive item is the Toyota Prius driver's side wiper blade that costs $135. One would think that for this price, it was gold plated, but no, it's just a wiper blade. The Ford Kuga's driver's side wiper blade is the same price as the one for the Prius. It's insane, but people fork out this sort of money for parts.

Of course with the advent of the Internet and on-line shopping, original manufacturer's spare parts can be purchased at much lower cost than buying them from the dealer's Back Door operation, thus saving a lot of money over the life of a car. It may not be as convenient or as quick to wait for on-line purchases to arrive, but if your car has a long warranty, it will need a certain number of oil and air filters and other consumables that can be purchased on-line and stored until required, thus cutting down on running costs considerably.

DECEITFUL LONG WARRANTY PERIODS

The introduction of long warranties many years ago was a way of locking new car buyers into expensive long-term dealership servicing. At that time, what many people didn't realise and still don't understand was that the exorbitant cost of a dealership servicing program spanning a 3-5 year period was likely to far outstrip any financial benefits offered by the extended warranty itself and any discount on the purchase price of a new car.

Keep in mind that it was - and still is - highly unlikely that a new car would require an expensive repair within a long-term warranty period. When these long-term warranties were first introduced, the marketing strategy was deceitful in that the advertisements subjected audiences to a diatribe about the manufacturer's confidence in the quality and durability of their products. The long-term warranty was a way of convincing a gullible public that the particular auto manufacturer really did believe their product was more durable than the opposition's, which had a lesser warranty period.

But long warranties do not mean that you have to get your car serviced by the dealer who sold it to you. If for instance the warranty is for three years and you opt to get your car serviced by your local mechanic according to the service manual at a fraction of the dealer's service price, the long warranty still applies. If you buy a car and the usual warranty is one year and the dealer offers you an extended warranty on the condition that you have your car exclusively serviced by him, don't fall for it. This will cost you a packet.

In any case, an Australia-wide statutory warranty applies, regardless of the manufacturer's warranty. So for instance if your car's engine blows up at a reasonable time outside the warranty period and you have had it serviced by your local mechanic according to the service manual, you will still be able to demand the repair under warranty from the dealer who sold you the vehicle.

CAR WARRANTIES ARE THE SAME AS FOR ANY OTHER APPLIANCE

One of the great misconceptions is that motor vehicle warranties are different from warranties for items such as washing machines, toasters or any other goods. In fact, many car dealers have pushed this nonsense onto their customers after they bought a lemon and demanded reparations. The fact is that a new motor vehicle falls under the same statutory warranty as any other new item. Despite a new car having a manufacturer's warranty, there is a nationwide statutory warranty that has to be complied with.

Like any other new item, under national consumer laws, a new motor vehicle must be of merchantable quality and be fit for the purpose for which it was purchased. These laws state that goods are covered if they were sold by a person or business in trade or commerce in the course of their business or professional activity and bought by a consumer. This is a person who buys any type of goods, including a vehicle or trailer used mainly to transport goods. The cost of the vehicle or trailer is irrelevant.

So if a motorist is sold a lemon with persistent defects that the car seller cannot repair in a reasonable time and a reasonable number of attempts, that motorist is entitled under the law to demand and receive either a new replacement vehicle or a full refund and that is the buyer's choice, not the choice of the car seller. Motorists who buy new vehicles with problems should never misled by car dealers that motor vehicles are not covered by consumer laws. New cars are no different than any other other new consumer product.

CAR WARRANTY PROBLEM - A TRUE STORY

In October 1998, I purchased a brand new Holden Berlina VT station wagon from Suttons Motors in Waitara, a suburb in northwest Sydney. After only a month or so, I noticed a strange vibration and shuddering coming from the automatic gearbox at around 1600 RPM. So I took it to Suttons Motors service department to have the problem rectified. To cut a long story short, Suttons Motors made six attempts at six different times to fix the problem, without success.

By that time, I was sick and tired of taking my new car back and forth to Suttons Motors. It was a colossal inconvenience that deprived me of the use of my car for days at a time. So after these six instances of failed repairs, I decided that I had to draw a line in the sand and have this issue resolved. I contacted the manager of Suttons Motors and told him the problem and stated that under NSW consumer laws, my car could be considered to be a lemon of unmerchantable quality and that I was entitled to either a brand new car or a full refund.

The Suttons Motors manager literally laughed in my face and told me that cars were covered under completely different laws and that he had the right to effect repairs on my car as many times as necessary until it was fixed, but that I was not entitled to a refund or a replacement car. I told him that he did not have a clue about the law and that if he did not agree to do something to fix my car's problem properly for once and for all, he would find himself in front of a court or tribunal. I said that Suttons Motors would not only be forced to do what I wanted, but it would cost the company substantially much more money in costs and damages.

The manager literally dared me to do this, so I decided to attack the problem in a different way. Instead of dragging Suttons Motors to the Consumer Claims Tribunal, I sat down and drafted a Supreme Court Statement Of Claim that demanded not only a brand new Holden Berlina station wagon to replace my defective car or a full refund, but also a whopping amount in actual damages to compensate me for the wasted time and inconvenience of dragging myself and my car to Suttons Motors for all those failed repairs and also exemplary damages to make this car dealer pay dearly for trying to mislead me about my rights as a consumer.

I wrote a letter to the manager of Suttons Motors and enclosed a copy of that Supreme Court Statement Of Claim and told him that if he had just one more chance to fix my car properly or the next time that he heard from me, it would be when I slapped him with a Supreme Court summons and that I would sue the crap out of him. I told him that I was most familiar with consumer laws and that I could not fail to win and when I did, I would set the legal precedent against car dealers and publicise it, leading to a flood of new car buyers who had purchased lemons demanding new cars and having the law backing them.

Suttons responded by flying in a Holden engineer from interstate, who apparently had brought with him a brand new automatic gearbox that had allegedly been "blueprinted" to ensure that it was perfect. The gearbox was installed in my car and it worked without a fault for 13 years until I sold the car in January 2012. But the disgraceful thing about this was that I had to go to such lengths to have a fairly simple issue resolved. Having to threaten Suttons Motors with Supreme Court action merely to get a gearbox problem properly rectified was an extreme measure, but it was the only thing that worked.

So now I know what to do if this happens again. If any new car I buy has a problem that cannot be fixed after three attempts, I won't waste my time taking the car for further attempts to fix it. I will demand either a new replacement vehicle or a full refund and if that is refused, I will immediately launch either a Consumer Claims Tribunal action or a Supreme Court civil suit against the dealer. I advise all new car buyers to do the same if they wind up with lemons. We have legal rights under national consumer laws and we should damn well exercise them and not take any crap from car dealers who refuse to honour their legal obligations.

PS: Just in case anybody wants to take issue with my story or even try to sue me for defamation, I still have all the paperwork and correspondence pertaining to this incident, so I can prove exactly what happened.

THE MAN-HOUR SERVICING SCAM

Another scam new car buyers need to be aware of is the fact that car dealership service departments often overstate man-hours on scheduled services. A new car service book will usually display the manufacturer's expected labour hours for every scheduled service. People who foolishly have their car serviced at a dealership should compare the invoiced hours of labour with the hours listed in their service book for the particular scheduled service.

Motorists should not be surprised if the invoiced hours of labour charged is unjustifiably higher than the allotted time shown in the service book. However it doesn't end there. Say the auto maker allows 0.50 hours labour for a 10,000km service. It's likely that a seasoned mechanic will easily complete the service in 0.30 hours. The customer is then served a "standard template" invoice charging them 0.75 hours labour for a service in which only 0.30 physical man-hours was applied. In this example the dealership will pocket 0.45 hours of unaccountable charged labour for every 10,000km invoiced service for that particular model of car.

Whether you take your car to your local mechanic or opt to pay the outrageous servicing costs of car dealers, you should always check the invoiced labour hours against the allocated labour hours in the car's service manual and question any anomalies. For low kilometre services, there should not be any variance in labour hours if there are no problems with the vehicle. Of course if something is wrong with a car that is still under warranty, all repairs should be covered completely by that warranty and no additional money should be paid.

THE OBVIOUS WAY TO AVOID THE SCAM

Australian consumer laws now apply uniformly in every state. Car servicing can be performed by any competent mechanic, as long as it is done according to the car's service manual. If so, the car's warranty is not voided. In fact, even if a car's warranty expires, there is still a statutory warranty that states that a product, including a car, has to work in accordance to normal expectation. So if your car's warranty is one year and the gearbox fails after two years when maintained in accordance with the service manual, you will have a valid warranty claim against the dealer.

The best way to avoid being ripped off by a car dealer is to find a good reliable local mechanic and get your new car serviced by him, according to the car's service manual and make sure you keep the service records and invoices. Then your car's warranty is valid, no matter what garbage and lies that the new car dealer tries to tell you.