Tuesday, September 21, 2010

Digital Due Diligence

Before the internet, when there were only phone pops, we learned valuable lessons on how to handle calls, such as selling the appointment, creating urgency, not giving shopping numbers and keeping information close to the vest until the customer showed up. It was good advice then and it may be good advice now. But keep in mind that many customer inquiries tend to come online rather then by phone. While the ultimate goal remains the same – to get the customer into the dealership – the rules for execution have become trickier because online communication creates a permanent written record of all interactions with customers.

In addition, many dealers are now utilizing social media as an easy and affordable way to promote their products and services. It’s important to understand that even though it may not require writing a big check, certain social media postings may be considered advertising and proper care should be taken to avoid legal exposure. As we are painfully aware, there are plenty of federal and state regulations that govern automotive advertising. For instance, social media postings that list vehicle prices, payments, downpayments or drive-off amounts may trigger advertising disclosure requirements.

Here’s an illustration of how an online interaction could potentially come back to haunt you. A few days before this past Labor Day, I saw a posting from a dealer on their Facebook page about a Labor Day weekend special that offered zero drive-off leases. During this time period, several competing dealers ran newspaper advertising on similar lease programs with “no money down, zero driveoff, leave your checkbook at home” and so forth. On closer inspection, many of these ads indicated in the fine print that certain fees were due at signing, such as tax, license, doc fees and acquisition fees.

I logged on to the Facebook dealer’s website to check out the actual ad (there were no disclosures on the Facebook posting other than zero drive off). The ad indicated that the customer was responsible for tax and license. I then contacted the dealer online to inquire whether I had to pay for the tax & license or if it was indeed “zero out of pocket”. The dealer representative responded that yes it was zero down, but since it was the last day of the month, I needed to come in before close of business to take advantage of the special lease.

Now, let’s look at some possible outcomes if a customer decided to go to the dealership that night.

If the customer went to the dealer to lease the car and there was indeed no money down required and they gave her the advertised payment, she would probably leave happy and nothing else would matter.

But, if she showed up at the dealership and they informed her that she had to pay other fees to get the advertised payment, a few other things might happen:

1. She might reluctantly pay the fees or roll them into a higher payment. The salesperson’s closing ratio would go up and his CSI would go down.

2. She might leave and go lease a car from another dealer.

3. She might decide to take the written evidence of the transaction to her friendly neighborhood attorney. This could happen the next day or sometime in the future if she decides that she no longer wants the car.

Here are some potential claims that an attorney might make. First, I wouldn’t be surprised if an aggressive attorney would try to make a case for Unfair and Deceptive Acts and Practices (UDAP) for the dealer rep’s little miscommunication about zero down (remember, the customer has an email from the rep that said there was no money required).

Next, the dealer’s Facebook posting stated that they were having a “Labor Day Weekend” sale, yet the dealer rep claimed (in writing) that the sale was over the Tuesday BEFORE the Labor Day weekend. Another deceptive act?

The attorney might also throw in a few advertising violation claims for good measure, such as that the Facebook posting may have lacked some required advertising disclosures and the disclaimer in the dealer’s website may not have been clear and conspicuous enough to be in compliance.

There’s a good chance that an aggressive lawyer would throw all of those nitpicky claims against the courthouse wall to see what sticks. Plaintiff’s attorneys love UDAPs, they can often get multiple damages and attorney fees if successful.

So, here’s my two cents: Be careful what you say; even more careful what you write and if you communicate with customers, it’s not a bad idea to get some training in legal compliance.

Thursday, September 2, 2010

Unfair? You Bet it is…


I don’t think I was in the car business one hour before I heard that catchy little phrase. Sure enough, over the course of my retail career, I suspect I was lied to over and over again by the best of them.

I’m not going to pontificate about what buyers lie about and why – many of us could easily write a book on that subject. Instead I’m going to bring up what I think is an important point – buyers can say pretty much whatever they want without fear of recourse, dealers cannot. Yep, that’s right. Buyers can outright lie through their teeth, but dealers are not allowed to stretch the truth even a little.

Doesn’t seem fair, does it? Well it’s not. All may be fair in love and war, but it sure isn’t fair on a car lot. For the most part, when buyers lie to a dealer, they get to go on their merry old way. But if a dealership is accused of being dishonest with a customer, either by commission or omission, they may end up in a courtroom or worse.

When you look at actual enforcement actions and court cases against dealerships, there is typically one common element – the perception that the dealer was less than completely honest with a consumer. The laws allow for a very broad interpretation of what is considered to be unfair or deceptive. Here are some common examples of accusations by plaintiff’s attorneys and regulators:

• Making false statements or failing to disclose a material facts to a consumer

• Oral promises made to the consumer that the dealer fails to deliver upon

• Misleading statements about APR, such as “You won’t be able to get a better interest rate than this”, when the buy rate is being marked up

• Communicating information in a manner that may be misleading, either by commission or omission

• Adding the cost of an F&I product to a consumer’s purchase agreement or lease without first obtaining the consumer’s express consent to purchase the product

• Informing or suggesting to a consumer that the price of any F&I product is included in the price of the motor vehicle

• Informing or suggesting to a consumer that the sale or lease of a vehicle subject to credit approval is a final or completed transaction

• Altering documents without the knowledge and permission of all parties

• Obtaining a credit bureau without proper authorization

• Failing to sell a vehicle at or below an advertised price, whether or not the consumer knows about the advertisement

• Advertising vehicles with intent not to sell them as advertised

• Misrepresenting discounts in advertising and not disclosing important limitations

• Advertising claims such as "everyone financed," "no credit rejected," or similar claims when the dealer is unwilling to extend credit to any person under any and all circumstances

• Engaging in false or misleading advertising, either orally or by way of media

• Advertising “no money down” or “zero drive off” when there is actually some money needed to achieve the advertised payment amount (such as tax, license, acquisition fee, etc.)

• Representing to a consumer that a vehicle is available for sale when it is not

• Informing or suggesting to a consumer that an F&I product is a required purchase

• Informing or suggesting to a consumer that purchase of an F&I product will increase the likelihood that the consumer will be approved for financing or that financing will be approved on more favorable terms to the consumer

• Increasing the selling price of a vehicle to cover a bank acquisition fee

• Intentionally overstating a vehicle’s value by supplying an incorrect book-sheet or due bill to a financial institution

• Over-allowing on a trade-in, thereby increasing the sale price of the purchased vehicle or failing to properly disclose negative equity

• Misrepresenting the amount of rebates available to a customer

• Engaging in payment packing, i.e. inflating payments, inflating down payments, extending the contract term or in any way disguising the actual charges for goods or services.

• Knowingly delivering a vehicle where the lender or lessor will not approve the consumer for financing according to the terms set forth in the installment sales or lease contract, with the intention of re-writing the contract at a later date

• Failing to properly disclose deferred down payments

• Knowingly misrepresenting a vehicle’s prior history or condition, either by commission or omission

• Forging documents

• Knowingly misrepresenting a vehicle, products or the terms being offered

• Falsifying, or allowing to be falsified, any information on a credit application

• Knowingly allowing a consumer to participate in a “straw purchase”

• Misrepresenting the scope or extent of coverage under a service contract or warranty

It’s more important than ever to be very careful when dealing with customers. Plaintiff’s attorneys are constantly on the prowl for cases and regulators recognize the political capital in going after dealers. There’s just no upside to being accused of lying.

The good news is that you can feel free to lie to car salespeople in your spare time.