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How to recognize some truths, half-truths and outright lies when dealing with car dealers

My Car Guru Podcast Aug 20, 2025 24 min

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About this episode

Navigating the world of car dealerships can be tricky, especially when it comes to understanding the truth behind their claims. Lenny Lawson breaks down common dealer statements, like 'we'll pay off your trade no matter how much you owe,' revealing the half-truths and financial pitfalls that often accompany such offers. He emphasizes the importance of recognizing negative equity and understanding financing contracts, encouraging listeners to approach car buying with a clear mind and informed perspective. The episode also touches on international car sales, insurance tips, and the emotional aspects of purchasing a vehicle.

Topics: negative equity financing contracts car dealer claims insurance tips international car sales emotional buying trade-ins advertising truths

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Hey folks, Lenny Lawson here, the car guru and the truth, half-truth and lie detector.

Well, when it comes to automobiles, when it comes to advertising, you know, claims that

car dealers make on a regular basis, now when it comes to teenagers, no, not too good

at that one.

But advertising claims, let's talk about one.

And I just heard this on an ad just moments ago.

That's what made me start this show off with this topic.

We'll pay off your trade no matter how much you owe.

Is that a truth?

Is it a true statement?

Is that a half-truth or is that a lie?

Well, unfortunately, that's a half-truth, let me tell you why.

They are going to pay off your trade.

Okay, so you go into a car dealership to trade cars and you have a $25,000 payoff

on a car that's worth $12,000, so you've got $13,000 of negative equity.

Why don't we say negative equity?

You've got, in the whole, $13,000.

So what happens to that?

What happens to the payoff?

Well, the dealership, when they trade with you, is going to write a check to the

bank, pay off your note.

But whatever the amount of that check is, is going to be added to your contract,

your finance contract, and you're going to be paying for that negative equity.

Just like you're paying for the car.

Well, how does that work?

That's not fair.

It is fair, because you owed the money to the bank.

The dealership was willing to pay you $12,000 for your car.

They're not paying your payoff, they're just paying the $12,000, so that extra

$13,000 doesn't just go poof, no?

Well, it goes poof as far as that bank is concerned.

It goes poof as far as the dealership is concerned.

Doesn't go poof for you.

Now if everything was done straight and above board, which it seldom is, you

would see it on the bank contract.

This is the actual financing instrument that is turned over to the bank, and

that's what they use to collect money from you.

And if you don't pay for the vehicle, then it gives them certain rights.

When you finally write a check, the last check in your payment book, then

they'll send you a copy of that contract mark paid.

So you're done, you don't owe anything on your car anymore.

But up to that point, you're on the hook.

And if your car depreciates faster, and your payoff goes down slowly because

you financed it for 84 months, then you're gonna have negative equity.

You're gonna owe more on the vehicle than it's worth.

And if any time during the next several years before you have it paid off,

you decide to trade it, then you have this certain amount of money

that you gotta deal with.

So where does it show up on the contract?

Well, like I said, if it was done straight forward and above board,

you would see a minus number on trade equity.

That would be in the down payment section.

But because banks don't like to see negative numbers in the down payment

section, then what they'll have the dealer do is jack up the sales price

and jack up the trade allowance at the same time.

They'll offset each other, the increases will offset.

But it will force that negative equity to be a positive number or

at least to be a break-even where it's zero, where there's no negative equity.

That may be a little bit hard to understand and

it's jockeying around with the numbers a little bit.

But you really do need to know what your negative equity is.

I think, quite frankly, I believe that would scare a lot of people off from

buying a car if they knew how much per month that they are paying in their,

the monthly payment on their brand new car.

How much per month they're actually paying just toward that negative equity,

getting rid of it.

And just keep this in mind.

Let's say you have $15,000 in negative equity that's carried over to

your new note because you still owe that.

You're paying interest on that as well.

Isn't that terrible?

And what the dealership may say is, well, it's just included in your monthly

payment, you'll eventually pay it off.

Yeah, you will, you eventually will.

But it's not a good financial decision though.

And that's why it'd be so much better if you would wait to buy a new car or

use car until you have enough down payment to where you could pay at

least 10% down, but better would be 20%.

Because that would get you pretty much even as,

that would keep you in an equity position or close, okay?

And I just think, people don't think about that.

All they do is they look at the monthly payment and they say, okay,

how many months do I need to stretch this out in order to be able to afford

the monthly payment?

So here's kind of a simplified way to look at negative equity.

Let's say you have $10,000 for easy math.

You have $10,000 in negative equity.

So the general rule of thumb on a 60 month contract is that for

every $1,000 that you finance, or for every $1,000 that you pay down in

down payment, it will cause a $20 swing either up or down.

So you pay $1,000 down, you're saving $20 a month.

That's a general rule of thumb on a 60 month contract.

It's gonna be less on a 72 month contract or an 84 month contract.

Just think, if you have $10,000 in negative equity, $200 a month of

your monthly payment is paying that negative equity.

That's not very comfortable.

So think about that.

Look at that number.

Look where you are before you finally make a commitment.

Look at the whole deal.

We talk about hitting the four targets.

That's a big one when it comes to the financing terms and

what you're facing as far as negative equity and

what that's doing to your future and your ability to afford other things.

Would you like to have another $200 a month in your family budget?

Of course you would.

You might blow it, but then again, you might just save it.

I'll be back in just one minute.

Okay, I am back.

You know, one of the things that the finance manager,

the guy that's working in that office,

he really doesn't want you to notice.

There are, I think, five boxes at the top of every bank contract or

credit union contract.

It breaks down several different things, the annual percentage rate,

the total of the monthly payments.

And there's this really big number there that has the total purchase price,

including everything, taxes, basically what you will pay for

that vehicle over the term of that contract.

Holy smoke, I've actually had people look at that number,

showing it to them because you're supposed to disclose all of those boxes.

There's not one out of 20 dealerships that will disclose all of those boxes.

What they do is they cover that with their left hand and

point out all the other stuff.

You just watch.

But yeah, you look at those numbers like my customer did one time.

He said, you know, I'm gonna have to think about this.

I had no idea it was gonna cost me that much.

With interest and with taxes, and

that's the total that I'll pay out of pocket over that period of time,

including my trade, holy smoke, and then they leave.

Guess what?

They made a good decision because they needed to do that.

They needed to absorb that.

I wish more people would do that.

I don't want people walking out of my finance office.

I want them to leave happy, you know, with the keys to the car and

their owner's manual and going over to pick up the car and drive it home and

brag about it to their neighbors and go on vacation in it.

That's the way it's supposed to happen.

And it should happen that way if the customer is really prepared and

knows all the facts.

But we're in this, I see a lot of people just kind of in a state of denial.

And they just, they get so caught up in the emotion of buying something and

being excited about it, getting rid of that old car, getting into new car.

You know, just everything is tied up and then it is exciting and it should be.

But they lose sight of the financial side of things.

And that's what I'm trying to help you with here.

And it doesn't matter where you live.

I got a letter from a guy or an email.

He wants a copy of the guidebook, the CarGuru guidebook.

It's PDF and I can send it to you to your email address.

And he's in UK somewhere.

He's in the old country somewhere in Great Britain.

So, do they do it differently over there?

Well, I've watched this show for many years called Wheeler Dealer.

I just love it.

This guy named Mike has been in the car business all his life, I suppose.

And he decides what he wants to buy and then he goes searching for

it online and he finds a car, he'll go to somebody's house.

He'll drive it, he'll test drive it.

How about that for a novel idea?

He'll test drive the vehicle so

that he can find out basically what the faults are, if there are any.

And then he'll come back, negotiate a purchase, and then he'll fix the car up,

do everything he wants to do to it to make it more sellable, and

then he'll advertise the vehicle, and then he'll sell it.

You get to see the transaction from beginning to end, but

I don't care if it is in England.

It's the same thing.

It's the same process that people go through when it comes to buying and selling.

Now most of his buyers are cash buyers, apparently.

Really most of the cars that he sells are not high dollar cars, but

occasionally they are.

But how those transactions happen, it's different.

When you're selling a car off of your front porch,

somebody comes by your house and sees the car and

writes you a check or whatever, it brings you cash.

I mean that's a little different transaction than going to a new car

dealer who has all these processes and

most of which are designed to squeeze as much money out of you as possible.

You just gotta be prepared for it, and going with your eyes open,

ears open, and when you get to that position in the dealership where you're

looking at the numbers when you're negotiating the deal,

that's when you really have to have a laser-like focus, squeeze out the

emotion and be prepared to walk out.

I don't care whether you live in Australia, California, or

Scotland for that matter.

They still have outlets where they sell cars,

you have your new car dealers and you use car dealers and it's the same thing.

It's negotiating a deal and it's paying attention to the details.

I don't know how they handle financing in other countries.

I'm sure it's very similar to what we do.

Maybe their terms aren't as generous as the terms are in the United States.

And I see the necessity of that because of the pricing of new vehicles are

very expensive.

So just watch out.

Read the paperwork.

Read the contract.

Don't let the guy cover the important numbers with his left hand while he's

explaining other things with his right hand.

Move that hand.

What's under that?

What's under your hand?

Well, you mean this?

Oh, this isn't important.

Yeah, explain it to me.

Okay, I want to get back to this wheeler dealer show.

If you want to learn a lot about vehicles and the sales transaction,

what it takes to buy a vehicle and how to properly buy one and

evaluate a car, how to get it ready to sell, making all the changes.

Well, you'll see them pull engines out, completely disassemble them,

then put them back together.

That may sound boring to you, but I'll tell you what, it's a great way.

Just to watch four or five episodes.

They're, I don't know, 30 minutes, 45 minutes.

But it's called wheeler dealer.

It's a British show.

And it's just, I've learned so much about cars and

a lot about vehicles that I didn't even know existed.

Vehicles that are sold over in Europe that aren't available here.

And just also about the passion that people have for cars.

It's not an American phenomenon.

It is a world phenomenon.

Anywhere you go, cars are important.

Well, unless they don't have any cars.

But that's pretty important too.

They'd love to have them.

And, you know, just look at different types of racing and

how important racing is in this world that we live in.

Formula One, for example, is the biggest form of racing from a

spectator standpoint of all of them combined.

You think NASCAR is big.

Formula One is way bigger.

But Formula One isn't a big deal in the United States, but

they're trying to make it so because, well, you can tell

that because they have the Miami Grand Prix now.

Let's see, that was Indy cars that they tried in Nashville.

They have these at the circuit of the Americas.

I think it's in Austin, Texas.

They have the US Grand Prix there.

And, oh yeah, the Las Vegas Grand Prix that they just

started a couple of years ago.

So they're trying to spread the word as far as Formula One.

What does Formula One mean?

Anyway, what is that?

Well, it is the most expensive form of racing.

You know, your average NASCAR race car now is

somewhere around $300,000 if you look at a Formula One

race car that Lewis Hamilton or Max Verstappen drives

for Mercedes.

Lewis Hamilton is now with Ferrari.

The average car is somewhere in the neighborhood of $15

million just for one car seat.

When you see them lose control and slam into a wall,

that's $15 million.

Go grab another one.

You can see why the average budget for a Formula One

team, they're maxed out.

That's part of the formula.

There is a, that's where the term formula comes from

anyway, it's because the cars have to be built

under a certain formula.

And those are specifications that every team has to meet.

And they all use the same tires.

They all have very similar suspensions,

but they do tweaks to them.

They all have very similar engines.

As far as engine displacement and all of that,

it's exactly the same.

They are hybrid vehicles.

They do have an electric component,

an electric motor that supplements the engine.

Next year, everything's changing.

They're changing the formulas.

All the teams have to develop new cars.

But surface area, the weight of the car,

the weight of the driver and the car,

all of this is clearly specified.

It is in NASCAR too,

but it's to a much greater extreme in Formula One.

And then they have a maximum budget.

You know what it is?

300 million is what the budget is.

And it's interesting that there are no American teams.

There are some American drivers, not many,

but there are no American teams

until the upcoming season, Cadillac.

Yes, Cadillac is coming up with a team.

It is, I think the Andretti family

is behind the management of the team,

but General Motors is kicking in millions of dollars

to be able to participate in Formula One.

So there are a lot of unique characteristics

of automobiles that are sold in different countries

and the laws are different.

That's why you just can't have a universal car.

You cannot take a vehicle

that meets all of the requirements for Australia

or for France or for any other country

and sell it in the United States

because we have different guidelines, safety guidelines.

A lot of those are dictated by the feds, emission guidelines.

So Porsche, for example, the one that I ordered,

it was made specifically for the U.S. market.

It cannot be sold in Europe.

It can be driven in Europe.

You can go to the factory and pick it up

and drive around for a little while,

but you can't register it there.

It's made to be registered in the United States.

There are BMWs that are built in Spartanburg, South Carolina.

Those cars that are destined for Europe,

they won't qualify to be driven on American roads.

So that complicates things.

If there was some type of a universal standard for vehicles

which will never happen, then cars could be cheaper.

The same thing applies to emissions.

Like right now, if you buy a vehicle in the United States,

they have California rules,

and then you have everybody else.

Now there are multiple states.

I think there's, I don't know, 10 or 12 states

that have adopted California's emission guidelines.

So if you wanna sell a vehicle in New York,

it has to have California emissions on it.

Isn't it weird?

But if you wanna sell a vehicle in Tennessee,

it can have either the 49 state emissions

or California emissions.

But you can't order a new vehicle at a dealership

in, I don't know, Santa Rosa, California

with federal emissions.

It has to have California emissions.

That makes cars more expensive.

You know, California dictates certain types of fuels

and certain blends have to be burned

in the state of California.

They cannot sell gasoline in California

that doesn't meet those standards.

But those standards do not apply

to vehicles that are sold in Ohio or Michigan.

I don't know, they're pretty liberal state.

Okay, I'll take my last break

and I'll be back here in just a minute.

Okay, I'm back.

There is one exception to being able to take a car.

Let's say it's made in Japan or made in France

or whatever.

You can bring it to the United States

and you can register it after it's 25 years old.

That's one of the things that's happened right now

with Japanese cars.

You know which side of the road Japanese drive on?

Same as England,

they drive on the right-hand side of the road.

And so you'll see a lot of vehicles that are being sold,

especially on the websites that I go to,

bringitrailer.com and cars and bids

and there's multiple others.

But yeah, there's a lot of Japanese,

really small vans and trucks

and things that are being sold.

They're really cool.

They have like motorcycle engines in them.

And they're really popular.

I saw one going down the road in Greenville, Tennessee

not too long ago.

And I knew when I saw,

I mean it's so much smaller than what we have here.

It wouldn't meet any of the crash standards

or the emission standards for that matter.

The steering wheel's on the right-hand side of the road.

How did that get registered?

It's 25 years old.

So there are ways to get around the rules.

You just have to be patient and wait.

You know if you own an antique car,

I don't know what it's like in other states,

but in Tennessee if you own an antique car

which is considered any car over or 25 years old or older,

then you can buy your license plates

and never have to renew them.

They're permanent.

So that's pretty cool.

Are you supposed to limit your driving

if you own an antique also?

If you've got it basically insured

by your regular car insurance,

you're wasting money.

You need to contact Hagerty, H-A-G-E-R-T-Y insurance

or one of the companies

that specialize in vintage car insurance.

And I've got three different vehicles

and it's completely insured for collision and comp.

The values, I guess if you add them all up,

it's probably right down $100,000

for $1,064 a year.

That is pretty cheap car insurance.

Now there are restrictions.

Not supposed to drive it more

than I think it's 10,000 miles per year.

And it's kind of a limited use,

but that's okay because I'll never put 10,000 miles

per year on any one of these cars.

I'll be lucky to put 500 miles on any one of them.

But I do want them insured

because if something happens,

some mechanical failure and it burns up,

you know, I always keep a fire extinguisher

in each of my antique cars as well.

But, you know, something happens,

some type of comprehensive claimant.

Plus when you buy that type of insurance

it will cover you based on stated value.

So if you want to insure the car for $50,000,

that's what it's insured for.

It's not like if you have an accident

then you have to deal with some adjuster

and you believe your car

and based on all the research and everything,

you think your car is worth $50,000

and they say nope, it's worth $15,000

based on the book.

Well that car's not in the book.

So you don't have to go around and round with them.

You just agree on what value you want to insure it.

Now there are some limits to that.

They're not gonna let you go too crazy.

They want you to provide some degree of proof for that

if it's too outrageous, but most of the time

they'll just say okay, you're insured.

So if you have questions about this kind of stuff,

you know pretty much anything automotive.

I've been doing this for a while, 47 years

and my whole family history is nothing but the car business

other than, well, I mean it's more than that.

We have a lot of experience in the car business.

Let's just put it that way.

And in everything from antiques

to service related issues, we've run body shops.

I've been involved or owned, let's say one,

two, six different dealerships at the same time.

And bought and sold dealerships, built buildings, sold.

You know, I don't even know how many cars

I've sold in my career.

Sometimes I lay in bed at night.

Instead of counting sheep, I'll try to add up

some type of an estimate of the number of cars

that I've sold over my career.

But it's in the somewhere I would say between 100,000

and 150,000, I know that's a pretty big range.

And I didn't sell every one of them personally.

You know, they were sold through my dealerships

by my people, but I can tell you this,

I was involved in a lot of them.

And I've seen every possible scenario

that you could possibly imagine when it comes to

somebody making a purchase decision,

some weird circumstance, you know,

as far as their trade ends are concerned.

We've traded for burial plots.

I've traded for visible gas pumps.

We've traded for campers, motorcycles.

You know, we trade for just about anything.

My dad traded for a lot at a ski resort many years ago.

10 years after that, the ski resort went bust.

So that was not a good trade.

So if you wanna pick my brain about something

or if you just want to read a brilliantly constructed

guidebook, then you can just send me a text

423-552-2020 for the My Car Guru guidebook.

And it will give you, well, pretty much everything

you need to know when it comes to negotiating

and buying and selling and servicing cars

and maintaining vehicles.

And there's gonna be some additions to that

coming pretty soon.

So the more things that I can think of

that you need to know, then I'm gonna pass it on.

Again, 423-552-2020 or send me an email

to LennyLawson2020 at gmail.com.

And I'll see you on the next edition of My Car Guru.

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