The next time you buy or lease a car, you could be paying a lot more -- perhaps thousands more -- than you bargained for. This week in a California courtroom, something quite extraordinary happened: Top managers of a car dealership were sent to prison for what many see is a common practice. Joel Grover of KCBS in Los Angeles. He first broke the story.
It's called "payment packing", and it goes on at car dealers across the country. The dealer secretly inflates the payments or price of your car without your knowledge.
We first caught this practice in a hidden camera investigation two years ago. Based on our reporting, the Los Angeles County district attorney filed criminal charges.
It's one of the largest car dealers in the U.S., owned by the country's largest chains of dealerships: Auto Nation. It was at Gunderson Chevrolet that thousands of car buers got taken. Now the four top managers are going to jail for using a common sales practice called "payment packing."
The scheme was first exposed by KCBS's hidden cameras when they sent an undercover shopper to buy a Chevy truck for $25,000. When the shopper went to sign the contract, the finance manager, Don Poteete, said we're getting free theft insurance.
But it wasn't free. They had packed an extra $956 into our contract without telling us, inflating our car's price by almost $1,000. Don pushed us to sign our contract, without even reading it.
Mark Eskeldson, who wrote the book "What Car Dealers Don't Want You To Know," says this happens all the time. Says he, "The greedy and the dishonest dealers will never give up. They can make too much money cheating people."
A lot of people have been cheated this way, like Pauline Nava, who bought an Altima at Gunderson: "We cleaned out our savings account for us to scrape together the money for the down payment."
Pauline didn't know Gunderson added $3,000 of options to her deal, because they wouldn't let her read the contract. She says, "What they did was, 'Sign here, sign here, sign here.'"
We found scores of Gunderson customers who had their payments packed. So we took them back to the dealer to question Don, the finance manager. General manager Jim Hoban tried to make good and right on the spot, he gave refunds to anyone who claimed they had been overcharged.
After our investigation, state agents moved in, seizing cabinets full of contracts. The result: Grand jury indictments against the general manager and the finance managers. They've now pleaded "no contest" to felony charges. The judge told them straight out that "no contest" is legally an admission of guilt. They were then sentenced to six months' jail time, a sentence that prosecutors hope will send a message to car dealers across the U.S.
Auto Nation, which owns Gunderson Chevrolet and hundreds of other dealerships across the country, told us they do not condone "payment packing." But during our investigation, we found this to be a common practice -- not just in Los Angeles, but nationwide. The only thing unusual about this case: These guys got caught