BMW lease fraud

I was at a BMW dealership in San Diego with a friend, and caught them in a blatant fraud. In order to picture this fraud, I want you to think of a very simple computer calculator that did a simple calculation:

200 miles
5 gallons of gas
40 mpg

Now imagine you could change any two numbers on this screen, and you have to hit CALCULATE to determine the third number. Then you hit PRINT SCREEN to print the screen. If someone showed a PRINT SCREEN with the following information

900 miles
30 gallons of gas
40 mpg

You would immediately realize that the person forgot to hit the CALCULATE button. Because you know that 900/30=30 mpg, and not 40 mpg. You might think that the person did it deliberately to overstate the fuel efficiency of the car. But you would essentially have to be a near idiot not to catch the mistake in this simple example.
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But what if there were 5 variables on the screen, and the formulas were much more complex so that you couldn't easily do them in your head. Now you would have the means to commit fraud. You could overstate the mpg of the car.

Essentially this is what the salesperson was doing at the dealership. Although she wasn't committing the fraud, since it was painfully clear that she didn't have the smarts. She kept running back to her finance guy who kept printing a different screen dump. She would show us the paper, and say that we could look at it, but we weren't allowed to take it home. At the bottom of the sheet was something called "Money Factor". If you have never leased a car then

Money Factor = Lease/Rent Charge ÷ ( (Net Cap Cost + Residual) x Term )
To convert Money Factor to APR Interest Rate, use the following formula:
Interest Rate = Money Factor x 2400

But people who read about leases know to look at "money factor" as it is essentially the same as interest rate. What the finance executive was doing was changing all the numbers and not hitting the CALCULATE button to update the money factor. He would then hit PRINT SCREEN button to leave the incorrect number on the screen.

One big clue was using the PRINT SCREEN button. I mean why would anyone use that button? Normally software has a PRINT function. But presumably the PRINT function would automatically update the calculations.

The 'couldn't take it home' factor is the glaring big white clue... anyone who says that in a deal is hiding something.

Quote: thecesspit

The 'couldn't take it home' factor is the glaring big white clue... anyone who says that in a deal is hiding something.

Particularly since all BMW's have the same lease terms for the month. The finance office has a monthly Video meeting where they announce the terms for the following month to all the dealerships. So the paper would only have the month's rates which would be the same everywhere.

No, the dealership figured out that people would shop for low interest rates. So he was able to commit the fraud, and since most people are not going to overpower the agent and take the paper home, they won't have any proof. When the final paperwork is drawn up, the monthly payment is the same, but low and behold the interest rate has magically gone up.

So what is the bottom line that was the fraud? Charging too much, changing the mileage terms, cost of excess mileage, what?

Quote: AlanMendelson

So what is the bottom line that was the fraud?

They are understating the interest rate that you are paying. People are trained to look at money factor (which is basically interest rate) to see if the lease terms are reasonable. By understating the percentage, the customer is lulled into thinking he is getting a good deal.

With mortgages it is more difficult to fool people. Because most mortgages are for the same length of time, and the final value owed at the end of the term is ZERO. With leases there is a buyback percentage, and different lengths of time.

Banking regulations were developed so that people would not be bamboozled by terms like "interest rate calculated continuously". Everything is supposed to be transformed into the same terms so you even the dimmest customer can compare two kinds of financing.

Quote: AlanMendelson

So what is the bottom line that was the fraud? Charging too much, changing the mileage terms, cost of excess mileage, what?

Bait and switch with the interest rate basically.

Quote: rainman

Bait and switch with the interest rate basically.

Bait and switch with a fraudulently prepared and intentionally misleading depiction of the interest rate basically.

They are basically concocting a sign that shows various inputs and claims the mathematical result to be as depicted when clearly it is not but most readers will have implicit faith in that "equals" sign.

Time for a camera phone or to grab it and run to the newspapers.

Quote: FleaStiff

Bait and switch with a fraudulently prepared and intentionally misleading depiction of the interest rate basically.

They are basically concocting a sign that shows various inputs and claims the mathematical result to be as depicted when clearly it is not.

It's all the same in the end, you think your getting (x) and BAM!!! you get (y). :)

I don't know how anyone can live with stealing for a living, which is what these tactics basically are.
Then once the money is handed over, they lie to cover their butts, making it even worse. Normally they get away with these things even if caught red handed.

Quote: onenickelmiracle

I don't know how anyone can live with stealing for a living, which is what these tactics basically are.
Then once the money is handed over, they lie to cover their butts, making it even worse. Normally they get away with these things even if caught red handed.

I think they are basically safe. Because even if a customer would grab the piece of paper out of the salesgirl's hand, push her down and run out of the dealership, then what could he do? Show a policeman that the numbers are not consistent on a piece of paper? The CFO of the dealership could say, Whoops, I forgot to hit the CALCULATE button. But the payment is correct, officer. And that is assuming you could even find a sympathetic policeman.

You would have to show consistent, systematic abuse. Even then it would be tough since a screen dump is not a contract. I doubt that they lie on the actual contract. It is just that most people will see the same payment, and then realize that what they thought was 7% interest is really 11%. Most customers will just swallow their pride and take the deal anyway. I am not sure that money factor (a.k.a. interest) is on the final contract anyway.

I briefly considered writing to BMW to tell them what their dealer was doing. But in the end it seemed like a lot of trouble since they would have to conduct an investigation, which they may not think was worth the trouble.

Don't see any difference here when I've bought a car.

Unless you're paying off the whole thing at once, no salesperson want's to give a clue what the total cost is, until the last possible moment.

Any cost they suggest ends up higher when the things shows up on paper.

Example:

If monthly payments are low, there's an extra 12 payments now, or the down payment is larger now when the paperwork is finally on the table to sign.

It they talk about 20,000 (for instance) when the paperwork shows up, it's 23,500, tax title license, prep, dealer shipping, new car smell added, , anti-rust package, jerk off tax....etc. But you'll likely never see it, until the final paperwork. Try to pin them down -- but they try to avoid it as long as possible.

Quote: rxwine

Unless you're paying off the whole thing at once, no salesperson want's to give a clue what the total cost is, until the last possible moment.

I admit that sort of BS is common. It's like the ad that says $100/night per person for a resort room. In the fine print it says assumes double occupancy. It would be just as easy to say the room is $200 + 12% tax + 15% service fee or $254 per room per night.

But this whole per person thing is a known gimmick.

I still think that there is a difference between leaving terms like "plus fees" undefined to the final minute, and outright pushing fake calculations in your face.

I had a REALTOR say to me that adjustable rate mortgages were no big deal since the mortgage increase was capped at 2% per year and your salary normally goes up at least 2% per year. I dismissed her comment because I didn't think she was smart enough to know what she was saying. Since people often purchase a home for 4-5 times their salary, and salaries often have taxes taken out, you often need a 12% increase in salary to balance out a 2% rise in mortgage rates. But if you do know that you saying, and are being deliberately misleading to people, that is criminal.

Who owns BMW now anyway? Would they care?

Quote: FleaStiff

Who owns BMW now anyway? Would they care?

I don't know. In the mid 80's before desktop word processing was commonplace, one of the men that I work with took a file off the central computer. He changed three lines in a 100 page document. He removed the original author's name and inserted his own, and he corrected two minor typos. The woman in charge of the computer took it to our boss, and his first question was, since it wasn't distributed there is no harm done.

I was shocked. Here was a guy who stole an entire manual, and put his own name on it (not even as a co-publisher), and the only thing my boss cared about was if it was public enough to get the boss in trouble.

It isn't what they taught us in school about integrity.

Quote: pacomartin

I had a REALTOR say to me that adjustable rate mortgages were no big deal since the mortgage increase was capped at 2% per year and your salary normally goes up at least 2% per year. I dismissed her comment because I didn't think she was smart enough to know what she was saying. Since people often purchase a home for 4-5 times their salary, and salaries often have taxes taken out, you often need a 12% increase in salary to balance out a 2% rise in mortgage rates. But if you do know that you saying, and are being deliberately misleading to people, that is criminal.

But I will wager she could calculate 1.5% of any large number as fast as she could say her name.

This is a problem with how we teach math in schools. Even if you do learn Algebra and even above, the way we teach it in the USA you do not learn how these things affect your cost. Not when it is taught in high school anyways. So many folks do not know how even basic Finance works.

Then you add in that in cars and homes, 50% of the public are payment buyers. There is a YouTube video of a newscast of some girl who wanted to pay say $300 per month for a car. She got on the news because she was "surprised" when she got home and found it was a 6 year loan and not a 5. My reaction is that the only 3 factors you have are rate, time, and principal. How on earth do you think the payment went down by 20%? Magic?

When I last bought I had my financing in place. Salesman asked if I needed financing. Said I was set. Asked to allow him to see if he could do better. No harm trying so said, "sure, but just tell me the rate. (pulled out finance calculator) I'll figure my own payment." Or translated, "You can try to make a better offer, but I know how a payment is calculated, so if you are going to play games play them with some lump that doesn't know any better."

Quote: pacomartin

I briefly considered writing to BMW to tell them what their dealer was doing. But in the end it seemed like a lot of trouble since they would have to conduct an investigation, which they may not think was worth the trouble.

An investigation? The fuzzy math could've originated at the top rung in BMW USA management and verbally discussed with individual dealerships.

Most individual franchises are owned by some Area Franchise Owner ... and most cars often come from a Car Broker rather than the Manufacturer anyway, but at some point in time at some level of play, the policies have been reviewed and approved of.

In this instance its known as Screen Refresh Integrity. If you ignore it and administer therapeutic radiation, you pay through the nose. If you ignore it and manufacture an electronic roulette machine, either you pay through the nose or your casino-customers do. If you lease cars but ignore it, ... you seem to make money and get away with it. For now.

Quote: pacomartin

But people who read about leases know to look at "money factor" as it is essentially the same as interest rate. What the finance executive was doing was changing all the numbers and not hitting the CALCULATE button to update the money factor. He would then hit PRINT SCREEN button to leave the incorrect number on the screen.

I really don't understand your post. Why would the money factor change? Every BMW I have leased the money factor is based on the model of the car.

On my current BMW the money factor is 0.0013. That number equates to about 3.2% interest rate. These money factors are dictated as the "buy" rate from BMWFS. I believe BMW dealers are allowed to add at most 0.0003 to the money factor buy rate to increase their profits.

Changing the cap cost of the car, the cap reduction, etc doesn't change the money factor. It is a fixed amount in the calculation. Now if you are saying that they aren't disclosing the proper interest charged on the deal, that is wrong but isn't the same as the money factor.

Quote: pacomartin

Everything is supposed to be transformed into the same terms so you even the dimmest customer can compare two kinds of financing.

I certainly hope that this is not the regulatory mindset but I am afraid that you are right. It is this mindset that has motivated a lot of stupid legislation like this new rule regarding signage around pools. We get the pleasure of reading this every time we enter a pool:

Quote: Absured California Legislation

DIARRHEA. A sign in letters at least 1 inch (25 mm) high and in a language or
diagram that is clearly stated shall be posted at the entrance area of a public pool
which states that persons having currently active diarrhea or who have had
active diarrhea within the previous 14 days shall not be allowed to enter the pool
water. (Section 3120B.11)

Quote: DRich

On my current BMW the money factor is 0.0013. That number equates to about 3.2% interest rate. These money factors are dictated as the "buy" rate from BMWFS. I believe BMW dealers are allowed to add at most 0.0003 to the money factor buy rate to increase their profits.

If your dealer used the PRINT SCRN function on their computer to deliberately hide the fact that they had added 0.0003 to the money factor, then they would be committing fraud.

That is the point of my post.

Quote: pacomartin

If your dealer used the PRINT SCRN function on their computer to deliberately hide the fact that they had added 0.0003 to the money factor, then they would be committing fraud.

That is the point of my post.

Ok, I think I get it now. The dealer changed the money factor but didn't recalculate all of the totals so the total interest due would not be reflected properly.

Although this is very misleading I don't think it would be fraud unless it was reflected incorrectly on the final lease form that you executed. Always double check all of the numbers on your final lease before signing it. I once had a dealer print out my lease contract for 39 months after we had been discussing 36 month terms all along.

Quote: DRich

Although this is very misleading I don't think it would be fraud unless it was reflected incorrectly on the final lease form that you executed. Always double check all of the numbers on your final lease before signing it. I once had a dealer print out my lease contract for 39 months after we had been discussing 36 month terms all along.

I agree that it would be difficult to make a court case. Even in contracts there is "errors and omissions" insurance.

The dealer could easily claim that he forgot to hit the calculate button. He might also say he uses the PRINT SCRN function since it is faster than the PRINT command built into the software. I am sure that he is within his legal bounds to say the paper cannot leave the office.

But by normal definition he is deliberately deceiving me. He is showing me a piece of paper that says he has not exceeded the BMW base interest rate.

I have only bought two new cars in my life and a minor scam was attempted both times. These were very simple scams that only idiots would fall for. They must work sometimes or the dealer wouldn't try them. In the first case they just put a higher price on the contract before printing. When caught they claimed it was a mistake and did lots of hemming and hawing about how they were going to lose a ton of money on the deal. The other time the "finance officer" sold me an extended warranty with terms that were too good to be true. When I got home and read all the fine print it turned out she was out-and-out lying so I simply returned it for a full refund (I had verified the ability to return in the fine print before I paid.)

I think scams are just a fact of life with the auto industry. I don't understand why someone doesn't open "no scam" auto dealers with the price known up front and then actually live up to it. Once word got around they were actually honest they would take all the business in their area for that auto brand. They could also fire all the con artist salesmen and "managers" and just have low-paid associates to set you up with test drives, saving the dealers a lot of money.

CarMax.com are meant to be a no haggle shop with one price.

Quote: jml24

I don't understand why someone doesn't open "no scam" auto dealers with the price known up front and then actually live up to it.

Wasn't that true of all Saturn dealerships? Personally, I would applaud such a policy. To play the devil's advocate, I image dealerships would say that the flexibility on the price may vary depending on the inventory and any promotions going on at the time.

To change the topic, let me tell you my own dealership scam story. It happened at Toyota of Garden Grove, 1992 I think.

It was the first new car I ever purchased and I planned to pay cash. However, the salesman produced figures to show me that I would actually come out ahead if I financed the car at a higher interest rate than what I could make in bank. How is that possible, you may wonder? It look me a while to figure out the trick, but he assumed that money to pay off the car would not come out of the bank account, but some other source of money. Had I done this I would have indeed paid less interest on the car than I earned in the bank. However, the bank account interest would have been based on the purchase price of the car the entire term, while the interest on the car would have been based on a shrinking amount. The trick amounted to confusing the customer with the time-value of money.

Quote: jml24

I think scams are just a fact of life with the auto industry. I don't understand why someone doesn't open "no scam" auto dealers with the price known up front and then actually live up to it. Once word got around they were actually honest they would take all the business in their area for that auto brand. They could also fire all the con artist salesmen and "managers" and just have low-paid associates to set you up with test drives, saving the dealers a lot of money.

Ahhh, the no-dicker-sticker. Seems like a scam in itself; convincing customers they can't negotiate and just take the price offered.

Everything's negotiable.

No haggle prices in competitive new car markets, I don't think work because people find out the price, then throw themselves at the other dealers for a few hundred less and the competitor gets the sales.

As a challenge to Wizard (or anyone else).

Quote: Wizard

The trick amounted to confusing the customer with the time-value of money.

Leasing vs Buying a BMW: When is it right for you? By Manny Antunes.May 17th, 2011

In this blog the writer goes on and on generically about the pros and cons of leasing vs puchasing vs. buying. He then does a hypothetical comparison.
(1) Purchasing has a higher down payment
(2) Purchasing has a higher monthly payment
(3) Finally he concludes that the time value of money slightly favors the lease. His concluding statement is:
{For 5 year finance option} the total of payments with interest and down payment; $62,860. Pretty close to leasing the car at a total of $62,048. The car in discussion is a (BMW 525i) and costs $59,125.

Having all three of these conclusions at once should seem impossible to an astute reader. There is a massive error in this blog and some small errors (.6%). Can you find it?

The blog seems like it was written by a shill, and is designed to persuade that you are crazy to turn down a lease in favor of purchasing.

It is a good example of what the Wizard is talking about. It is very misleading mathematics.

Quote: onenickelmiracle

No haggle prices in competitive new car markets, I don't think work because people find out the price, then throw themselves at the other dealers for a few hundred less and the competitor gets the sales.

An answer could be you make your choices online with the manufacturer and the dealer simply gets a spiff for the sale. Dealer would not be Lowed to change any terms. Like the notary who comes to your house to sign refinancing paperwork. Those who do not want to do this could still swim in the showroom shark tank.

Auto dealers are looking askance on the success Tesla motors is having selling electric automobiles DIRECTLY with no dealerships... trying to stop it legally in Virginia, I think.

I don't know who Manny Antunes is.... I knew a musician/actor named Antunes.... his nick name was of course "Tunes".

I surely know that the "analysis" is likely to be a partisan one though. Too much is these days. There are certain fields wherein there simply are no neutrals: there are biased experts at each end of the spectrum but no neutral academics in the middle. Its a sad state of affairs.

Europe has long had a tradition of corporate sponsored professorships .... but I expect a Toyota Professor of X to be an independent expert with no ties to Toyota. Sadly my expectations would fail me as many times experts exist only at the extremes.

UK courts used to have the concept of an expert hired to assist the court. In the USA even expert witnesses although often shrouded in false statements about assisting the court are really advocacy witnesses for one side or another.

Try finding a neutral witness about breast cancer research? Same thing with automobile leasing these days. You get different answers depending upon who is being paid.

PS: One of the best feelings is when you hear of a car salesman who is cheated by his dealership... the salesman knows all the tricks that have been used and if just a few dollars are preventing the deal, the dealer may take the money from the salesman's commission since he is as willing to cheat his salesmen as he is willing to cheat his customers.

Quote: FleaStiff

I surely know that the "analysis" is likely to be a partisan one though. Too much is these days.

A partisan analysis would be that "Go with the lease because the down payment is much smaller, and the monthly payments are lower. The long term cost of money is higher, but you get a better car, more women, and you look better in business. You will want a new car in 36 months anyway."

A fraudulent analysis would be that "Go with the lease because the down payment is much smaller, and the monthly payments are lower. And look: the long term cost of money is slightly lower for the lease. You get a better car, more women, and you look better in business and you are more savvy in managing the time value of money."

The challenge is if you can see how he pulled off the fraud, and made it sound believable.

HINT Part of the fraud is the statement in the blog:
The important part in that figure is that you paid BMW FS $2,923 in finance charges for borrowing their money for 3 years. 

Now $2,923 is 4.94% of the purchase price of $59,125. So the potential buyer thinks WOW!. What a deal! With the lease I am only paying 4.94% total over three years, but if I finance, I must pay 4.9% for each year.

The lease in the blog was for $56,500 with a $771 monthly payment for 36 months with a residual value of $34,292. The blogger does not specify the interest rate, but it calculates to 4%.

In comparison a 7 year loan @4% for $56,500 requires a monthly payment of $772.29 with the loan balance specified in the table.

As you can see the loan balance after 3 years is almost identical with the residual value of the lease. If you keep the car in good condition (as specified in the lease term), you should be able to get at least the loan balance in trade-in.

YRS	-Loan Balance
2	-$41,934
2.5	-$38,108
3	-$34,204
3.5	-$30,221
4	-$26,158
4.5	-$22,013
5	-$17,784
5.5	-$13,471
6	-$9,070
6.5	-$4,580

The big advantage of the loan over the lease is you can trade in at any time, and not be restricted to exactly 36 months.

In addition if you have taken exceptional care of the car and have low mileage, you might be able to get more in trade-in than the loan balance. In a lease you are only penalized for dings and extra mileage, you don't get money for taking exceptional care of your vehicle.

Even if you get a slightly higher interest rate for the 7 year loan compared to the lease, I think it is worth paying a few extra bucks for the flexibility.