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North Carolina Hopes to Clean Up Car Sales

March 19, 2006
North Carolina Attorney General Roy Cooper says he has reached agreement with Sonic Automotive to reform its sales practices in the Tar heel State, the opening salvo in what may be an extended effort to reform car sales practices in the state.

Cooper said the company has signed an agreement to improve sales and financing practices so that consumers get more accurate information about the costs of buying a new car and pay less in finance charges.

"Dealers need to make sure they're clear with customers about the true costs of buying a car. Consumers will now get better information before they make their purchase," said Cooper. "We want to set a higher standard for all car dealers and this agreement is a good start."

Cooper said Sonic has agreed to a series of reforms at its six North Carolina dealerships including limiting what it charges consumers to arrange loans for new cars and clearly disclosing the cost of "back-end" options like extended warranties and service contracts that dealers often add to a car when arranging financing. Sonic has also paid $975,000 to the Attorney General's Office to provide refunds to eligible customers who purchased one option, ETCH anti-theft warranty.

Car Loans

When arranging loans for new car buyers, many dealers profit off the loan by adding percentage points to the interest rate. Currently, North Carolina law does not limit the amount a dealership can add to the cost of purchasers' loans. Through this agreement Sonic is the first dealer to agree to cap interest rate mark-ups on cars it finances to no more than 2.5% of the principal.

In addition, Sonic will provide a disclosure form that explains that consumers are not required to finance through the dealership, that the dealership makes money for arranging loans, and that consumers do not have to buy "back-end" options in order to finance through the dealership or get a better interest rate.

Back-End Options

Prior to closing on a sale, Sonic will also disclose the price of all "back-end" options to consumers. When presenting consumers with a menu of options, Sonic will include the total price for the car without any extra options and the cost of each option. If the consumer plans to finance the car through Sonic, the dealership must also give the total monthly payment they would owe without any added options and the increase in that monthly payment for each option.

Cooper's Consumer Protection Division began looking into sales practices at Sonic dealerships in December of 2003. That investigation uncovered that the dealerships failed to adequately disclose to consumers the cost of "back-end" options such as ETCH, among other things.

Consumer Complaints

Sonic has also agreed to better address consumers' complaints by appointing a single point of contact at its corporate headquarters and establishing a task force to work with Cooper's office to resolve complaints. A total of 67 consumers have filed complaints with the Attorney General's Office about Sonic dealerships over the past 3 years.

Sonic will put these reforms in place at all of its North Carolina dealerships by June of this year. Sonic operates the following dealerships in North Carolina: Town and Country Ford of Charlotte, Arnold Palmer Cadillac of Pineville and Charlotte, Infiniti of Charlotte, Freedom Chevrolet-Oldsmobile-Cadillac of Monroe, and Town and Country Toyota of Charlotte.

"We'd like to see all car dealers make the changes that Sonic has agreed to make, and many of them are already taking positive steps," Cooper said. "My office stands ready to work with dealers, legislators and consumer groups to make sure that North Carolina consumers get treated fairly when they buy a new car."

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