Audio By Carbonatix
A long-standing race for business between Colorado’s new-car dealers–Dealin’ Doug, John Elway, Phil Long and the rest of the guys–and the state’s automobile brokers, the telephone jockeys who promise a lower price than dealers and without the showroom jive, is rapidly headed for a collision.
In the past two months, both dealers and brokers have armed themselves with all the weapons of a modern disagreement: Lawyers have been retained, meetings attended, trade associations formed, lobbyists hired, legislation introduced. In fact, at a sparsely attended meeting earlier this month, the appointed members of the Colorado Motor Vehicle Dealer Board set into motion events that could effectively prevent car brokers from operating.
The bad feelings between brokers and dealers are complicated. But they’ve intensified in the past couple of years, as brokers have become more than just a minor speed bump to new-car dealers’ sales volume–and as dealers have rebelled against the payment of what they call “kickbacks” to brokers.
Last year about 10 percent of the new cars sold along the Front Range were handled by brokers. Brokers boast that such success has begun to earn them the jealous attention of new-car dealerships. “We are reaching a point where dealers are concerned,” says Bud Brown, president of H.M. Brown & Associates, Denver’s largest broker.
Nonsense, responds Bill Barrow, president of the Colorado Automobile Dealers Association, a trade association of new-car dealers. What’s bugging the dealers, says Barrow, is a kind of double standard: Brokers persist in calling themselves “brokers,” which permits them to deal new cars without getting smudged with the epithet “car dealer.”
“It seems to me there’s a breach of faith here,” says Barrow. “If they’re car dealers, let them call themselves car dealers. A fraud is being perpetrated on the consumer.”
To understand the dispute, it is necessary to descend into the murky world of who may or may not sell new or used cars. The problem for brokers is that Colorado law doesn’t recognize their existence, acknowledging only new-car dealers, used-car dealers and buyer’s agents.
Brokers aren’t buyer’s agents, because they sometimes earn money from dealers and lenders. And they technically aren’t new-car dealers, because they aren’t registered salesmen with a single dealer. So brokers have slid into the used-car-dealer category. This is possible because technically, they don’t sell new cars–they only negotiate sales between buyers and actual new-car dealers.
“Back in 1979 [when the laws were passed], the legislature didn’t anticipate us,” explains Brown. “So our position has been that the legislation didn’t say we can’t [broker deals]. The Colorado Automobile Dealers Association’s position is that the law says we can’t.”
Also muddying the dispute between brokers and dealers is the fact that brokers could not exist without the cooperation of at least some new-car dealers. Here’s how it works: Consumers come to brokers and tell them what kind of car or truck they wish to purchase. For a flat fee that typically ranges from $250 to $400, brokers survey local new-car dealers to find the best price, then arrange a good deal. The cars generally are sold directly to the consumer from a dealer’s fleet department, which deals in wholesale prices. In that way brokers claim they help consumers get the car they want for a lower price.
This has led to a situation where new-car dealers are simultaneously complaining about brokers and selling to them. (For another example of this, see professional baseball, in which owners sign huge contracts with players and then complain they are going broke.)
As Ray McCall, an attorney hired by the brokers to keep them in business, puts it: “Why should the new-car dealers be protected from themselves?”
Barrow, however, protests that brokers don’t really represent the best interests of the consumer. Sure, they call around and sound out various dealers on their best deal. But, he adds, what is less known is that frequently the brokers get paid by the new-car dealer as well, skimming money from dealers on the back end.
Barrow gives an example: A broker comes to a car dealer and asks for his best deal on a Cruiser ESB Turbo. The dealer says $20,000. The broker then goes back to the buyer and says, “The best I could do for you is $20,500.” The buyer pays the dealer $20,500 (remember–brokers can’t sell cars themselves; they can only arrange a sale), and the dealer turns over the $500 to the broker.
That $500, says Barrow, is essentially a kickback. “And,” he complains, “the dealer has to go along with the kickback or the broker will take his business elsewhere.”
Brown readily admits that sometimes he and other brokers get money from both dealers and consumers. But he says it has to do with the way the deal is structured rather than some extortion scheme. Besides, he adds, the eventual price he negotiates for the buyer is still cheaper than what a new-car dealer offers, a claim Barrow disputes.
Barrow says he learned about brokers earning money off dealers only late last year. Since then, the dealers’ association has been waging a war of technicalities against the brokers. The battlefield has been the Motor Vehicle Dealer Board, which meets monthly.
At the past three meetings, the dealers’ association has urged the board to take a stand on whether state law permits brokers to operate legally. Last week members voted to send to the attorney general for review a declaration that would prevent brokers from doing much of their business. (The brokers charge that the state agency is hardly unbiased: “The licensing board is chaired by a new-car dealer, with predictable results,” says attorney McCall.)
In the meantime, both sides are clamoring for attention at the state capitol. The brokers, who last month formed the Colorado Automobile Free Trade Association and hired lobbyist Wally Stealey to make their case to lawmakers, have written a bill that would give them a legal job description. The dealers, meanwhile, have sponsored their own bill, which asks the legislature to prevent brokers from getting payments from new-car dealers. (The legislature could go either way: California is very supportive of auto brokering; Texas bans it.)
Despite all the fuss, consumers have been conspicuously uninterested. Jim Clark, executive secretary of the Motor Vehicle Dealer Board, hypothesizes that it’s because they’re happy. “The brokers have discovered a market that the new- car dealers have created: the image of the fast-talking, patent-leather-shoed, plaid-suited car salesman, which many buyers want to avoid,” says Clark. “The reason there’s no complaints,” he concludes, “is that all the parties seem to be getting what they want.”
Adds Brown, “I would be willing to put my customer-satisfaction record up against any dealer in the state. We’ve got an unblemished Better Business Bureau record, 10,000 customers, 200 to 300 unsolicited letters of thanks, and no complaints filed against us in ten years.”
That’s not entirely true. State records show two complaints filed against H.M. Brown & Associates. Both were filed by new-car dealers.
