In a report released Monday, Public Citizen cited as an example of fraud an offer for an anti-theft program that etches the vehicle's identification number in the window glass.
The service should cost about $100, Public Citizen said, but dealers charged as much as $500. In some cases, customers paid and the service wasn't provided.
Public Citizen, a Washington-based group, said customers also may not be told they got the etch service, so they aren't aware that they're eligible for an insurance payment of up to $2,500 if the vehicle is stolen.
"This is an issue that's pervasive," Public Citizen President Joan Claybrook said. "(Auto dealers) imply that they're you're advocate, but they're not. They're there to make a profit."
The organization based its 71-page report on the allegations of Duane Overholt, who worked as an auto salesman in Florida for 20 years before going to federal prosecutors with accusations against his former employer, Charlotte, N.C.-based Sonic Automotive Inc. Sonic Automotive didn't return a telephone call seeking comment Monday.
The group also reviewed lawsuits against dealers filed in nine states.
The National Automobile Dealers Association said Public Citizen's report focuses on some extreme cases of fraud in an industry that employs 1.2 million people and sells 40 million new and used vehicle each year.
"To suggest that this is part of some kind of national conspiracy is absurd," Chairman Alan Starling said in a statement. "To indict an entire industry is a great disservice to the overwhelming majority of auto dealers who treat each of their customers in an honest and open manner."
But Claybrook warned that "auto dealers will do almost anything to sell a car." She said customers should not obtain financing through a dealership and should remember that dealers make money from add-ons, even if they say that something is being offered for free. Customers also should refuse to sign any blank financial forms, as they are sometimes asked to do if the sale is completed after hours.
By Dee-Ann Durbin