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Meet the Sleazebucket Car Dealers Who Prey On Our Troops

Kidnapping. Falsified documents. Hooters nights.

ONE DAY in April, a 19-year-old sailor named William Kirkgaard was walking to the store at the Norfolk naval station when a man in a black Ford Mustang pulled up and asked for directions to the main gate. Kirkgaard indicated the way, whereupon the man, who said he was a former Marine, began asking questions: Why don't you have a car? Are you a member of the Navy Federal Credit Union? Claiming he worked there, Kirkgaard says, the man then offered him a ride to the credit union to open an account—the first step toward buying a car. So the sailor got in. But an ominous feeling overtook him as the Mustang drove on and on. "I kinda thought I was gonna die at that point," he says. The real destination, it turned out, was Tidewater Auto Brokers, a used car dealership in Virginia Beach, about 14 miles away. Mustang Man didn't work for the credit union, and the Marines say they have no record of his having served, either. He was a used car salesman.

Kirkgaard had maybe $20 to his name—not enough to get a taxi back to the base, much less buy a car. He'd only been in the Navy 10 months and had never bought a car without his parents. He didn't even have a driver's license on him, which meant he couldn't legally drive off the lot. Still, Mustang Man, whose real name is Jesse Neely, eventually persuaded him to test-drive a 2005 Dodge Stratus with 78,000 miles and a $10,000 sticker price. It shook violently and the "check engine" light flashed. Kirkgaard told Neely he didn't want the car, he says, but he naively agreed to give the dealership his personal information. Afterward, employees asked him to sign some paperwork; the sailor obliged without much thought. "Congratulations," they told him. "You just bought a car."

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Kirkgaard says he tried to return the Dodge the next day, but the dealership told him (falsely) that it was illegal to cancel a sales contract in Virginia. A saleswoman did offer to reduce the price to $7,900—hardly a deal given the car's roughly $6,000 blue-book value. Kirkgaard, out of desperation, signed the new contract. He then left the car in the parking lot with the keys inside and sought assistance from a lawyer back at the base. He was legally on the hook for the full price, plus 15 percent interest. "I'm screwed," Kirkgaard told me soon after.

Mustang Man has been busy, apparently. Kirkgaard knows another sailor who was delivered to Tidewater after Neely allegedly offered him a ride to the movies. That sailor ended up paying $11,000 for a 2005 Dodge Neon he didn't want. He, too, abandoned it at the dealership the next day, prompting Tidewater to phone the sailor's superior, Chief Electrician's Mate Larry Gordon. "They called me up saying they wanted to press charges against him because he left the car there," Gordon told me. "They are really preying on these sailors."

Tidewater's owner did not return calls seeking comment. When I informed Neely of the complaints, his immediate response was, "Jesus, are you serious?" He admitted he'd picked up the sailors, but claimed they came voluntarily and seemed eager to buy. "If he's over 18 years of age and he's willing to sign a contract," the salesman argued, "I don't see how you can be forced."

Sketchy used car dealers are nothing new to the military. Back in 2000, a Marine Corps report on "financial readiness" noted that car buying creates more money problems for Marines and their families than any other factor. "If they're worried about finances and they're out in the field and the spouse is calling with problems, they're not concentrating on what they're doing," says Karen Varcoe, a professor at the University of California-Riverside who helped prepare the report.

So many young enlistees have been targeted in recent years that some officers now call predatory dealers a threat to national security. Yet authorities ranging from local prosecutors to state regulatory boards to the Federal Trade Commission (FTC) to the military itself have done relatively little to address the proliferation of dubious auto sales-and-credit tactics. (Many used car dealers make more money selling loans than selling cars.) "I wish there were some aggressive enforcement of the consumer protection laws, especially where military personnel are involved," says Steve Lynch, a Coast Guard attorney who has seen many a Coastie get stung.

Beyond saddling service members with debt, sour car deals can result in bad credit, making it hard for soldiers to obtain the security clearances they need to get promoted. Hard-sell tactics can even affect unit cohesion, says Dwain Alexander II, a Navy Legal Services lawyer at the Norfolk naval station, if a superior officer lures recruits to a dealership for a fee—a common occurrence. "If you can't trust the guys who your life depends on," he says, "that's really bad."

 

THE HAMPTON ROADS region of southeast Virginia, home to 14 major military installations, is overflowing with used car dealers. They hang their shingles here by the dozens, feeding on a steady supply of 18- to 22-year-old enlistees giddy at the prospect of their first real paycheck. "The guys buy the cars as soon as they get here," says Alexander. "There's a beach. They can't pick up girls without a car."

One showroom a stone's throw from the Little Creek naval base lures sailors with pool tables and the promise of free lunch for those who bring a few friends. Others feature video games and big-screen TVs, bikini car washes and Hooters nights featuring all-you-can-eat wings. (The slogan on Tidewater's website: "All Military. All Ranks. 0 Down.")

When such promotional strategies fail to put boots on the lot, some dealerships resort to more aggressive methods like bird-dogging—the illegal tactic of paying service members and others to drag their buddies down to the lot, or local cabbies to bring in kids who arrive at the airport fresh from boot camp. One local dealership even convinced a USO volunteer to forward contact information for the newbies coming in at Norfolk International Airport. Salespeople would then call and claim, say, that the recruit had won a prize, and would he like to come down and collect it?

With so many dealers chasing military customers, the competition is intense. Kirkgaard's story isn't even the worst of it. In 2004, a Norfolk-area dealership called Carland lost its license for essentially kidnapping young Marines from bases in North Carolina and northern Virginia. The victims had made the mistake of calling "Kim," a name listed on business cards someone had sprinkled around Camp Lejeune and other bases. (It stood for "kids in the military," military lawyers later discovered.) The card promised discounts, and when Marines called, Carland sent an employee to pick them up and drive them to its lot nearly four hours away. It was a one-way trip; the hapless grunts were told that they'd have to buy a vehicle in order to get back to base and not be declared AWOL. One stressed-out Marine paid $23,000 for a 1997 Civic, nearly quadruple its value.

Navy lawyer Alexander sees a steady stream of sailors trapped in bad car deals. The young enlistees are naive and trained not to ask questions. They make particularly good targets for credit shenanigans, since the government makes it easy for dealers to garnish wages when an enlistee defaults on a loan. The upshot, Alexander says, is that his clients typically overpay by at least $2,000, often enough to trigger chronic money woes.

 

FOR ALL ITS war-fighting skills, the military is ill equipped to take on a bunch of unscrupulous businesspeople. While its lawyers can help individual soldiers, litigation is expensive and time-consuming. Alexander says his office sued a dealer called Hollywood Wholesale Inc. a few years ago, but the owner simply changed the business name and transferred the property to his brother. Alexander won a $50,000 judgment plus $25,000 in attorney's fees, but only managed to collect $3,000. "Getting a judgment against a car dealer is extremely difficult," he says.

The military isn't without options. Most bases have disciplinary control boards that can declare a dealership off-limits, making it a crime for service members to patronize it. But while effective—it wreaks havoc on sales—this off-limits designation is rare. Commander Art Record, vice chairman of the Armed Forces Disciplinary Control Board for the Hampton Roads area, says the board first gives dealers the opportunity to change their practices. In the last year, seven Norfolk-area dealers have appeared before the board, but only one is currently off-limits, and that dealership has closed its doors.

The brass has also taken steps to educate enlistees, who now get some financial literacy counseling in boot camp. Alexander says his base offers a great, albeit poorly attended, seminar on car buying. But these efforts haven't helped much, he says; many of the victims are barely out of high school and just don't appreciate the pitfalls. "It's so unfair to put all of the burden on the troops," says Rosemary Shahan, president of the California nonprofit Consumers for Auto Reliability and Safety, who has been fighting sleazy dealers since the 1970s. "They have enough to worry about. They're protecting us. We need to step up and protect them."

 

FEDERAL LAWMAKERS have been more inclined to protect the dealers, a politically savvy bunch who doled out more than $9 million to federal candidates during the 2008 election cycle alone. In 1982, after the FTC ordered auto dealers to post signs on used vehicles, disclosing any known defects, the dealers squealed and Congress eviscerated the new rule. The commission hasn't tried anything so bold since.

In any case, the feds have limited authority. Regulation of auto sales falls largely to state dealer boards. But the dealers, who have even more clout in local and state politics, tend to dominate. Virginia, for instance, requires that dealers hold 16 of the 19 seats on its board. The current board can, and occasionally does, revoke a dealer's license or impose fines for illegal practices, but it has only 11 investigators to monitor nearly 3,600 dealerships. In most cases, it doesn't take action until after a consumer successfully sues the dealer, and even then, only if the dealer fails to pay. People in the industry "know what they need to do to stay legal," says Bruce Gould, the board's executive director. "There's a moral problem with it, but not a legal one."

Gould says a partial solution may lie in a new partnership between the Better Business Bureau, the Navy, and a state used car trade group that will refer military customers to dealers who vow to abide by written ethical guidelines. "These dealers are not angels per se, but these folks who come in and have not educated themselves are easy marks," he says. "They sign things that give away their rights, that have interest rates that are too high, and unfortunately, the law is not on their side when they sign something."

The regulatory vacuum has allowed notorious operators to flourish. Take Charlie Falk, a Virginia used car legend with a lot on the highway that runs between the Little Creek naval base and Oceana naval air station. In 1977, Falk served several days in jail for rolling back odometers. In the 1990s, his business was the target of a racketeering suit that accused him of "churning"—selling at inflated prices and quickly repossessing the vehicles after customers missed even a single payment. His dealerships would then resell those cars while suing the original buyers to collect on their high-interest loans. Falk ultimately settled the racketeering case, which involved thousands of customers, by paying $400,000 in damages and writing off $10 million in loans.

Despite all this, state regulators have never shut down any of Falk's lots, nor has the military ruled any of them off-limits. Local politicos have also left Falk alone, although Sen. Jim Webb (D-Va.) alerted the Navy last year after a Falk dealership unleashed a 30-minute infomercial featuring hot chicks in military uniforms. (The dealership yanked the ads when the military threatened to charge it with improper use of a uniform.)

Tom Domonoske, a Virginia lawyer who specializes in consumer credit, says better policing is needed, not just of dealerships but also of the finance industry. Here's why: Suppose a customer with decent credit is eligible for a loan at 7 percent interest. If a salesman can convince the customer to accept a 10 percent rate—a feat Domonoske says many dealers accomplish by lying—he can then sell the loan to a bank or finance company and pocket the extra 3 percent as a perfectly legal kickback.

This percentage cut encourages dealers to inflate sales contracts with pricey add-ons and even to falsify loan documents so that customers qualify for more loan than they can afford. Banks and finance companies have largely turned a blind eye to these practices, Domonoske says. Many sell the loans to Wall Street, so what does it matter if the customer defaults? The easy credit, Alexander argues, "funds criminal conduct, bird-dogging, and provides incentives for the overpricing of vehicles for massive profit to dealers."

Additional reporting by Taylor Wiles.

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