Car Dealer Sales Tactic Under Review

So there’s a tactic that some car dealers use that has been going on for a long time. We’ve seen this back 30 years ago, 40 years ago, and it’s come up in the news quite a bit recently. It’s a way that dealers can do something kind of underhanded, almost invisible, that might put your purchase at risk and in jeopardy. It’s called a bailment agreement. Some people call it yo-yo or be-back or comeback. Basically, what happens is when you purchase a car and you drive off the lot, there may be an option where the dealer can call you back and leverage you or coerce you or blackmail you into giving them more money after you already bought the car. They can make you come back with more cash, they can make you come back and make your payments higher on the car, or even give you a different car.

How the Bailment Agreement Works
How can they do that if you already drove off? Well, it’s a very common practice and it’s invisible; you almost don’t even know what’s happening when it’s happening. The reason we’re bringing this up now is because Jalopnik had a really good article about this just today. Even Steve Lato, the high-profile YouTuber, and attorney, talks about it again. Dealers’ worst tactic under fire. In fact, in this video, he says his first video on his channel was about this tactic many, many years ago. So it’s coming up again because, for a while, it was kind of out of favor, but now it’s being used more.

The Financing and Spot Delivery Process
How does it work? When you go in to buy a car at a dealership, you have to sign a bunch of documents. You have to sign a buyer’s order, a bill of sale, an odometer statement, a car loan if you have that, and you sign this big stack of papers and you drive off the lot. Well, the way dealers do financing is they do what’s called a spot delivery or on-the-spot delivery. Meaning that when you come in and you want to buy a car, they want to get you out the door in that car right then. They don’t want you to go home and think about it and have them get all the paperwork ready and come back later because you might change your mind. So they want to do a spot delivery to get you over the curb with that car right then.

Dealer’s Financing Strategy
So how do they do the financing? Well, they’re going to take your application and submit it to their lender, or maybe more than one lender, and they’re going to try to find the lender that has the highest advantageous financing for you but even for them because they’ll get a kickback. They’ll get a commission on that financing and they may want to find the dealer that has the best kickback. But not everybody gets approved for financing, so they want to make sure that if they give you that car and let you drive home, if for some reason the financing does not get approved, you have to bring the car back. And that’s legitimate.

Legitimate Use of Bailment Agreements
So mixing that paperwork is what’s called a bailment agreement. And that bailment agreement basically says if my financing does not get approved, I will bring the car back immediately upon request, and they’ll give you your money back and your trade-in back, and they’ll basically undo what they did, right? That’s a legitimate, fair thing. Now we’ll talk later about whether or not you should even do that bailment agreement, but that’s what the dealership does and how to avoid this from happening.

Common Issues with Financing Approval
So what happens is that the dealer sends your application out to some lenders. They pretty much have a good idea of how you’re going to get approved. They see your credit score, they see your income, your pay stubs, whatever the case might be, and they know, okay, this person qualifies for this type of financing. But what if they guess wrong, or what if the lender doesn’t approve it the way they want to? Maybe you got approved but for a higher rate, maybe you got approved but for not as much money. They might have been trying to finance a higher amount of money than the bank’s willing to approve for you or for that car.

Consequences of Incorrect Financing Assumptions
Now they get the call back a couple of days later from the bank and your approval didn’t come in the way they thought it did. And they say, wait a minute, you have to come back in and put more money down. You have to come back in and sign up for a higher payment because your rate is higher. That’s not fair. Well, here’s your bailment agreement; you signed it, or you didn’t get approved at all, and you have to bring the car back or maybe switch to a lower-priced car. So this is something that dealers will put in every deal if you’re getting a spot delivery.

Avoiding Bailment Agreements
So how can you avoid this? Here’s what you do. First of all, do not sign a bailment agreement. If you’re buying a car at a dealership and you’re financing, wait until they have their financing done to pick up the car. If you’re in the dealership and they make an agreement on numbers and you’re financing through the dealership, unless they have the financing already approved and done the way that you have it structured, just tell them, hey, call me when you get it done. It’s not going to take them more than a day, maybe two. If you want to leave them a deposit to hold the car, that’s fine. That’s not much at risk.

Benefits of Avoiding Spot Delivery
Well, here’s what it’ll do, even if you’re not worried about getting declined for financing or rejected. It’s still a good idea. Here’s why: Let’s say, for example, you do your deal, and they put you in as like an a-tier financing or a very low rate or low monthly payments, and it doesn’t come in that way. Now they have to readjust it, and they have the option to do it. They have the leverage to do it. If they do something with a low price and then decide later, wait a minute, we made a mistake, they can bring you back in to fix that mistake.

Real-Life Example of Bailment Agreement Issues
We’ve seen this happen. We had an example where a customer went into a dealership to buy a car. It was late at night, finalizing the deal. They negotiated, and they got a really good deal on this car, and it was a lease deal. And the dealership figured the price of the car with incentives from the factory, like rebates. This was back in 2017 or 18 when there were incentives and rebates on the car. And they also did a lease deal which had incentives on the lease. They had a lower rate for the lease, and they figured the payment up. It was a really good deal. They delivered, they spotted the car, and the customer said, no, I don’t want to do this bailment agreement. Just call me when the deal is ready.

Customer Leverage and Dealer Mistakes
So they didn’t take the car that day, that night. They said, you know, if you have to wait for the financing to be approved, I don’t want to take a car that I’m not approved for yet. It’s not a done deal. So let’s wait till the next day. So the dealership called back, and they said, well, it might be a little different. So the customer said, forget it then. That’s the deal I thought I was getting. If you can’t do the deal, that’s fine, and they were going to go look somewhere else. Finally, the dealership said, okay, fine, we’ll do it. And they came back in, and it wasn’t that the customer wasn’t getting approved because they had very good credit. It was that they had miscalculated the numbers. The lease deal incentive and the rebate incentive, you couldn’t do them both. You could either do the incentive or do the lease deal. The dealership made a mistake, and they used them both when they figured out these numbers.

Importance of Not Taking the Car Immediately
If they had done a spot delivery, they could have called them back and said, hey, you gotta come back and pay a higher payment, especially since it’s been two or three days. You’re driving the car, you’re enjoying it, you’re not going to undo that deal. But since you didn’t take the car yet, you actually have more leverage now because you don’t have to go back to the dealership. You’re more likely to go back and redo that paperwork if you already have the car in your driveway, in your garage, driving it around, whatever you’re doing because you don’t want to give back a car you already have. But if you didn’t do the deal in the first place, now you have leverage.

Final Advice on Bailment Agreements
So what the dealership had to do was they actually had to sell the car for a lower price, probably than they even could have. It was probably a below-cost deal in order to make those numbers still happen because they didn’t want to lose the customer and also have a bad review for that transaction. To make a long story short, if you’re buying a car and the dealership has mixed in that paperwork a bailment agreement or some agreement where you have to bring the car back, call foul on that deal and tell them that you’re not going to do it. When you have the financing done and you know you can do this deal, call me and let me know, right? And I’ll do it then. I’m not going to do speculation with you as a dealership that you think you can do this, but maybe you can’t because I’m committed to it. You don’t have the option of bringing the car back, right? The dealership is doing an unfair advantage to you where they have the option of undoing the deal, but you don’t. So you want to level the playing field. If they can’t commit to the deal and know that it’s going to be completed and etched in stone, then you shouldn’t have to be locked into it either. So unless they’re willing to say, well, you know, you have the option of bringing it back too, then why would you do that? Because it’s not a level playing field.

Conclusion: Be Cautious with Bailment Agreements
So this has come up a couple of times. We saw these two on Jalopnik and Steve Lato. It was also in a Car and Driver article. It seems like dealerships are doing it again. Again, it was very, very popular in the 80s and 90s, but it appears that dealerships are starting to maybe mix this back into their playbook, and you want to avoid it so you don’t run into a problem where you’ve had the car for a few days or a week, and they tell you you have to bring it back, pay more money, or have a higher payment. Don’t worry; there’s plenty of cars to go around, so if for some reason you can’t get that one, somebody else will do that deal for you.

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