If you’re buying a car and you don’t have a firm grasp of car finance models, aren’t inclined to ask probing questions and are happy to let dealership staff handle everything for you, you’re going to have a lovely experience. You’ll zoom in on your monthly car loan repayment figure, sign in the places pointed out to you, pose for photos with the shiny, ribbon-draped car, feel thankful for the amazingly friendly service you’ve received, and be merrily on your way.
And for the next six, seven or even eight years, you’ll most likely pay far more every month than you should or could be. Those “on the road” fees aren’t the only legal rip-off you should push back on. Letting the dealership arrange your finance, insurance, tracking device contract and installation, scratch and dent policy, and the rest — and lump the lot onto your contract, rather than acquiring those extras yourself or checking to see that you’re getting the best deal — will cost you plenty.
The industry refers to those extras as “VAPs” — value-added products. And they certainly add a lot of value to their bottom line.
In February, teacher Nicole Barnett, who is in her 20s, bought a new car from a Hyundai dealership in Randburg, which is part of South Africa’s leading automotive group, Motus. Her mother approached me last month on Barnett’s behalf, as the panic remote, which was marketed as being a feature of the Matrix tracking system she opted for, had yet to be provided to her despite repeated requests. The missing remote materialised days later, but by then I was far more interested in how Barnett is paying for the tracking unit and the tracking service itself.
The cost of the tracking unit, plus three years’ service fees was added to the contract: R7,635. That means she’s paying interest on that amount every month. Intrigued, I quizzed Bartlett about how that financing option was chosen.
“The dealership’s finance person wanted to use another tracking company, but I said I’d prefer Matrix, as that’s what I had in my old car,” she told me. “I was then asked which Matrix package I wanted — basically one with a remote panic and one without.
“I was happy to let the finance person do all this for me as I didn’t know there was another way of doing it,” Barnett said. The dealership’s documentation outlines two payment methods for tracking hardware and service: the budget plan where the unit and tracking fee is paid monthly via debit order, or the “cash plan”, requiring the customer to pay for the unit and installation on the day of installation, followed by a lower monthly tracking fee via debit order. Plus this version of the “cash plan”: “Service fees may be bundled, either annually or into a single upfront cash payment covering one or more years.”
The most common tracking-related complaint I get is from people wanting to end their contracts prematurely — because their car’s been written off, or they’re emigrating, or they want to switch to a competitor — and then being hit with a massive early cancellation penalty.
I queried the deal with Motus’s corporate affairs executive Berenice Francis, asking what was done to ensure customers have all the options fully explained to them, including the fact that if the full amount is added to the finance agreement it will attract a fair amount of interest over the financed term. I asked for the precise amount Barnett will pay in interest on that R7,635, but Francis revealed only that total interest for the full debt is R100,000 over the 72-month term.
Motus tries to be “as transparent as possible” in offering and selling “value added products”, Francis said. “Although our documents alert the client that Matrix and other tracking devices are not financial products, and thus not governed by Financial Sector Conduct Authority, we still add the non-insurance products to our record of advice, making a range of disclosures to clients to enable higher compliance with the principles and spirit of treating customers fairly,” she said. It also means the commission which the tracking companies pay dealerships for signing these deals does not have to be disclosed.
Motus dealerships offer more than six tracking options in combinations of monthly and upfront, cash or financed and varying levels of telematics, Francis said. “Our client chose to enter a 36-month subscription upfront payment — which includes the installation of the unit — and then finance it as part of her finance agreement. “We have found that clients often prefer to include this as part of the finance as the amount over three years is relatively low and it’s convenient to have one debit order.”
Not so, Barnett insists. “I was not offered six options. I was told which tracking device they could put in. I said I would rather go with Matrix and the finance woman said they work with Matrix and can get the installation done for me. No finance options were discussed.” And of course there is no proof of that exchange.
Paying for the tracking device upfront means you don’t have to enter into a contract with the tracking company — you can cancel with a month’s notice and pay no cancellation penalty. But most people baulk at paying for the device, choosing to commit to a three-year contract to pay it off over the term, as one does with a cellphone contract.
The most common tracking-related complaint I get is from people wanting to end their contracts prematurely — because their car’s been written off, or they’re emigrating, or they want to switch to a competitor — and then being hit with a massive early cancellation penalty.
Francis said someone who’d paid everything upfront on a vehicle finance contract still had the option to cancel. “The tracking company would need to refund money to the bank — minus cancellation penalty — and that would reduce the debt.”
Ah, a cancellation penalty. Should Barnett now wish to cancel her “upfront plan”, get a refund and pay via monthly debit order, Motus would facilitate that, Francis said.
“I’m just going to stick with it,” was Barnett’s response. “I think to try and change it now will be such a process and I don’t have the energy or time for it. But I’m glad I know now for any future purchases.”
Francis pointed out a warning on the “record of client advice” which Barnett signed. “There may be limitations on the appropriateness of the advice provided ... Clients are requested to take care to independently consider the appropriateness of the advice given ...”
It may be a schlep to do your own product and price comparisons and then contract directly with service providers, but it’s almost always worth the effort.
• CONTACT WENDY:Email: consumer@knowler.co.za; Twitter: @wendyknowler; Facebook: wendyknowlerconsumer
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