Dangers of Powerbooking

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Every dealer knows about powerbooking. It is a practice, particularly regarding used cars, of overstating the model or equipment on a vehicle. The purpose of powerbooking is to increase the perceived value of the vehicle, so a finance source will increase the advance. This allows the vehicle to be sold for more. It allows the customer to finance more.

Powerbooking is a problem for two primary reasons:

  1. It tends to increase the monthly payment for the customer. Customers on the edge at the beginning may find themselves less able to afford the vehicle over time, increasing the rate of default; and
  2. Because of this impact, indirect dealer agreements contain representations and warranties by the dealer that the vehicle is as described. Overstating the model and/or equipment of the vehicle can violate these representations and warranties, causing a buy-back demand.

Powerbooking allows salespeople and F&I personnel to increase their sales earnings. In the past, problems came from the finance source, but buy-back demands did not arise until a deal went bad and the vehicle recovered did not match the representations from the dealer. But those buy-back demands were few because it required a diligent check-in process to compare what the finance source thought it was financing versus what it was actually financing.

In recent issues, we have highlighted major cases against dealers for misstating customer income and downpayments. Those used to be bases for asking the contracts that have gone bad be repurchased by the dealer. No longer. Those practices now support FTC civil or Department of Justice criminal actions against dealers. Powerbooking has the same effect as those practices because it leads to higher default rates. Can powerbooking be far behind as the basis for law enforcement actions?

Powerbooking is already the basis for some finance sources reviewing their booked deals and billing dealers for alleged inflation of the value of the vehicle. The finance sources are using services that analyze the VIN of the vehicle to identify model and equipment. To the extent those are overstated, the finance sources are sending bills to the dealers for the overstatement amount even where the consumer is paying as agreed.

Powerbooking is a serious issue. Employees should be trained in the dangers.  In any compliance program, there should be a review of transactions to ensure that the representations of model and equipment are accurate.