Why commission on ALL car sales credit agreements was bad for consumers

Savvygranny_2

Martin suggests that we should think twice about complaining about commission to salesmen - I know the FCA will probably go for a no-claim approach IF the supreme court holds up the appeal court ruling, but the way commissions were applied absolutely disadvantaged consumers, and his stance disappoints me.

We used to be able to negotiate hard on a car deal, especially if we were able to pay cash, even if that cash was actually coming from a directly-agreed bank loan that cut out the car salesman.

The introduction of commission payments to salesmen lead to them holding back on discounts to cash payers, and reserving the best deal for those where they were getting kick-backs from the credit suppliers.

I hope the supreme court continues to recognize that bias in the market.  Whilst payment of commission may not have been explicitly denied in credit laws, any practice that incentivized a third party (the car salesman) to inflate a price for a cash payment to ensure a credit sale ensued because it gave them an undeclared commission, and also allowed the companies providing the car finance firms affiliated to the dealership to then charge an inflated rate of interest against a "discounted" price in the dealership was basically unfair and distorted the market.

Fingers crossed the appeal is denied.   

Hoenir

Wave goodbye to BNPL.  Motor is only the tip of the iceberg. 

Grumpy_chap

Should we also ban the commission on the actual car sale?

While not necessarily specifically stated, I think the fact that there was commission on the finance deal is fairly obvious.  Firstly, the Dealer is selling a profit.  Second, the opportunity for "incentives" linked to the purchaser taking finance is widely known, not hidden in any way - even manufacturer websites will market these packages - and often recommended in these forums for someone able to be a cash buyer to take the finance to gain the "incentive" and then clear the finance to avoid the costs (interest) associated with the finance.

DullGreyGuy

Savvygranny_2 said:

Martin suggests that we should think twice about complaining about commission to salesmen - I know the FCA will probably go for a no-claim approach IF the supreme court holds up the appeal court ruling, but the way commissions were applied absolutely disadvantaged consumers, and his stance disappoints me.

We used to be able to negotiate hard on a car deal, especially if we were able to pay cash, even if that cash was actually coming from a directly-agreed bank loan that cut out the car salesman.

The introduction of commission payments to salesmen lead to them holding back on discounts to cash payers, and reserving the best deal for those where they were getting kick-backs from the credit suppliers.

I hope the supreme court continues to recognize that bias in the market.  Whilst payment of commission may not have been explicitly denied in credit laws, any practice that incentivized a third party (the car salesman) to inflate a price for a cash payment to ensure a credit sale ensued because it gave them an undeclared commission, and also allowed the companies providing the car finance firms affiliated to the dealership to then charge an inflated rate of interest against a "discounted" price in the dealership was basically unfair and distorted the market.

Fingers crossed the appeal is denied.   

You still can just as you could always take the credit for the discount and then settle it straight away. I've negotiated substantial discounts on both cash and credit purchases in the time periods covered. 

Personally think the CoA decision was ludicrous and wouldn't be surprised if legislation didnt follow were the Supreme Court to uphold it. 

Everything has markup and commissions, thats how for profit companies make their money. Where do you draw the line? Do store staff that get commissions have to wear a badge to say they're on 10%? Do labels in shops have to show the wholesale and retail price? This website have to point out the £50 they get for each person that clicks through a link and buys insurance from their recommendation? 

Do people really think that companies and staff arent financially incentivised to upsell or cross sell products? That they are offering you GAP insurance out of the kindness of their heart rather than the 30% commission? 

ManyWays

I think many people would have thought that a car dealer makes its profit from buying and selling cars, not on commission finance deals. 

And I agree that people would have negotiated if they had known there was a lot of commission involved. "Could you throw in a service package, or free MOTs?" After all, why else would the dealers not want to disclose the commission amount? 

DullGreyGuy

ManyWays said:

I think many people would have thought that a car dealer makes its profit from buying and selling cars, not on commission finance deals. 

And I agree that people would have negotiated if they had known there was a lot of commission involved. "Could you throw in a service package, or free MOTs?" After all, why else would the dealers not want to disclose the commission amount? 

I mean I've never conducted any official poll on the matter but everyone I've ever spoken to has known that dealers get a kickback on all the financial services products they try to sell... if you stop for half a second it makes sense else why would they go through all the hassle of being authorised to sell insurance or loans etc if there is nothing in it for them? 

Have you ever asked the dealer about the commission amount? Last time you bought a TV in a shop did you ask the member of staff what commission they are getting? 

I personally have asked, and been told. The correct answer is sometimes "its complex" because commissions are tiered or have a profit share etc so how much they'll get ultimately is dependent on matters they dont yet know

Grumpy_chap

ManyWays said:

And I agree that people would have negotiated if they had known there was a lot of commission involved. "Could you throw in a service package, or free MOTs?" After all, why else would the dealers not want to disclose the commission amount? 

But that is what happens. 
You go to buy a car.  The Dealer will agree one price for cash or another price (maybe less, or cashback, or warranty service plan) for finance.
Those incentives for taking the finance must obviously be linked to the commission on the finance.

It's the same in Supermarkets when there is a BOGOF deal on Aerial but not on Bold.  Aerial are giving a kickback (commission if you will) to fund the deal 

Silvertabby

I hope this doesn't lead to a blanket ban on all finance deals when the 'problem' was more likely to be mis-buying rather than mis-selling.

We will be picking up our new car* next month, using a PCP deal which gives us a further discount of £1,650.  We've used PCP in the past, but have always paid off the balance during the 14 day cooling off period, thus avoiding the silly% interest charges.  The first time we did this, being a firm believer in the saying that there is no such thing as a free lunch, I asked the dealer how the finance company could afford to make these offers.  He replied that those of us who settle up in the cooling off period are very much in a minority, and that the losses are more than covered by the majority, who pay interest for the full 3 or 4 years.

* Yes, I know that buying a new car isn't very MSE, but horses for courses.  Instead of £3K holidays every year (been there, seen that) our luxury is a new car every 5 years.  The pleasure of being able to choose exactly the car we want, by model/extras/colours/etc - and knowing that it won't stink of wet dog/kiddie sick/cigarettes - is priceless.

MattMattMattUK

Silvertabby said:

I hope this doesn't lead to a blanket ban on all finance deals when the 'problem' was more likely to be mis-buying rather than mis-selling.

It might not be a blanket ban, but there will be both greater restriction and lenders are going to be much more wary going forward. It is the same with loans and being described as "irresponsible lending" rather than "irresponsible borrowing", there is a clear shift to try and put the blame on business for doing things that pretty much every business does (make a profit, within the law as it exists at that period in time), rather than having to second guess how it might be interpreted in the future.

DullGreyGuy

Silvertabby said:

I hope this doesn't lead to a blanket ban on all finance deals when the 'problem' was more likely to be mis-buying rather than mis-selling.

DCA is already banned but it will result in a change in paperwork, likely you will have to do a special signature right next to the bit that says the dealer is getting commission for introducing you to the finance company so there can be no future doubt that "you didnt know" because you signed 2 pages of terms without reading any of it. 

If the CoA decision is upheld it has much wider potential implications than just car finance as its a fundamental shift away from the basic premise that if someone has signed something to say they have read and agreed to the terms its no longer sufficient evidence that they have actually read and agreed to it and that the consumer can now dispute knowledge of the term even though its on the bit of paper they signed.