Best Practices for a Compliant Service Department

Let’s face it – service customers can be really hard to please sometimes. Despite the best efforts of dedicated dealership fixed-ops professionals, auto repair-related issues are traditionally among the most commonly-cited consumer complaints. Although many of these grievances may be the result of customer misunderstandings, the accusations may result in significant legal liability and reputation damage. Fortunately, these issues can often be avoided by establishing processes for better communicating with customers and managing their expectations.

Regulations governing auto repairs vary from state to state, but taking a conservative approach can help service departments avoid misunderstandings, stay off the legal radar, and increase customer satisfaction. Here are some recommended best practices:

• Proper documentation and communication is essential. Only perform repair work that has been authorized by the customer and make sure to keep the customer informed. Even if it’s not legally required in your state, it makes sense to always provide a written estimate before doing any work. The estimate should itemize the parts to be used and the method of repair. The customer should sign the estimate, so that there is no question that the shop has permission to proceed with the work.

·         If a customer is not present to sign an estimate, such as in a tow-in or after-hours drop off situation, the shop should prepare an estimate and contact the customer by telephone, text, fax, or e-mail for approval before any work is started, including diagnosis. The customer’s authorization should be properly documented.

• The estimate should state clearly if any used, rebuilt or reconditioned parts are to be used in the repair. If some of the work will be done at a different shop (sublet), it should also be noted on the written estimate or work order.

·         Always get the customer's authorization for additional parts and service before doing repairs that exceed the original estimate. Some states require that all additional work must be authorized even if the cost is one dollar more than the estimate, while other states allow a variance of 10 or 20 percent before authorization is required. Be sure to stay within your state’s guidelines.  If it is determined that it will take additional work and will cost more to repair the vehicle than the original estimate, the customer should be contacted, the additional work and cost described, and permission obtained to proceed.

• The shop should stick to the method of repair and not substitute parts or change the repair method without the customer’s prior consent.

• If a teardown is necessary in order to give the customer an accurate estimate, the dealer should first give the customer a written estimate which includes the total cost of the teardown along with the cost of reassembling the vehicle, and replacing gaskets, seals, and other parts destroyed in the teardown.  A notice should also be given that the vehicle or component may not be able to be re-assembled or restored to its former condition. After the teardown, the shop should prepare a revised estimate and contact the customer for permission to do the repairs. If the customer decides not to proceed with the work, the vehicle should be reassembled within the cost quoted unless reassembly proves impossible.

·         When the customer authorizes the written estimate or work, he or she should be allowed to request that the shop return any parts that were replaced. If the dealer must return the replaced parts to the supplier under a warranty or core charge, the dealer should make an offer to the customer to show the replaced parts.

• Keep a written record of all work performed as well as parts supplied and always prepare a final invoice which describes all repair work, including all warranty work; all parts supplied, and all labor performed. Always give copies of all estimates, work orders and final invoices to the customer. Protect yourself - if a dispute arises you may be required to show proof that repairs were properly authorized or that you complied with all applicable laws.
• If a guarantee is offered with the repair, it should include all pertinent information, such as what the customer must do to have the guarantee honored; the term, time or mileage the guarantee is good for; what is excluded, if anything; whether the guarantee is prorated; and whether the customer can transfer the guarantee to a new owner if the vehicle is sold.
• Avoid making any statements, written or oral, that may be misinterpreted as being untrue or misleading. For example, shops are sometimes accused of using “scare tactics” or false promises to coerce a customer to authorize unnecessary repairs. Be sure to have justification for any repair recommendations to avoid potential legal headaches.
• Avoid advertising a service at a price which may be considered misleading. For example, advertising a service where the dealer knows the advertised price cannot usually be performed in a “good and workmanlike” manner without additional parts, services or labor; unless the advertisement clearly and conspicuously discloses that additional labor services or parts are often needed.

Most importantly, be sure to establish clear procedures for effectively dealing with complaints before the situation spins out of control. Customers will often give the dealership the opportunity to correct a perceived problem before they contact authorities or post a negative review. Why not take advantage?

Make Sure Your Advertising Will Pass Muster in Your State

Recently, regulators in several states have been scrutinizing dealer advertising practices as a result of concerns about business practices by TrueCar and other companies.  This is a good wake-up call for dealers to be diligent about understanding - and following - each state’s unique guidelines. The primary responsibility for truthful and non-deceptive advertising rests with the dealer, not outside vendors or agencies. While state advertising regulations vary, there are a number of common themes throughout. Dealer associations are a good source of information on state-specific advertising regulations. Here are some examples of advertising rules that many states enforce.

Availability of Vehicles - Advertised vehicles should be in the possession of the dealer and willingly shown and sold as advertised. If a specific advertised vehicle is not immediately available, the advertisement should clearly state that the vehicle is available only by order or is located elsewhere. Advertising goods or services with the intent not to sell them as advertised is considered to be "Bait" advertising, which is an unfair and deceptive practice.

Duty to Sell at Advertised Price – Some states require that advertised vehicles be sold at or below the advertised price regardless of whether or not a customer has knowledge of the advertised price. These policies apply to all forms of advertising, including radio, television, print, electronic, direct mail, flyers, billboards, showroom and other dealership displays, and the Internet.

Disclosures - All disclosures must be made in a clear and conspicuous manner to minimize the possibility of misunderstanding by the consumer public. The use of any print in type size so small as to be not easily readable is likely to be deemed misleading or deceptive. Any Qualifying statements made on television and radio should be of sufficient content, clarity, and length to be easily understood. Asterisks or other reference symbols should not be used as a means of contradicting or substantially changing the meaning of any advertised statements. The use of any unexplained abbreviation, term or jargon which is not readily understood by the general public, such as OAC or TT&L, is not allowed in many states.

Credit Advertising - When credit terms are advertised, they must comply fully with the specific disclosure requirements of the Federal Consumer Truth in Lending Act (TILA) and Regulation Z. Leases must comply with Lease Advertising provisions of TILA and Regulation M.

Trade-in Advertisements - Many states disallow the advertising of minimum or guaranteed trade-in allowances.  In these states, dealers should not use terms such as “guaranteed trade-in,” or “Push It, Pull It, Tow It In”.

Pictures of Vehicles - Several states prohibit the use of inaccurate photographs or illustrations when describing specific vehicles. Photos should always accurately depict the overall appearance of the vehicles actually offered for sale. Such terms as “pictures for illustration only” or similar disclaimers should be avoided.

Downpayment Advertising – In several states, the phrases "No Money Down" or “0 Down” may not be used if any charges, including tax or license fees, rebates or trade-in equity is to be paid by the consumer at the time the contract is signed.

Guaranteed Credit Approval – Term such as "Guaranteed Credit Approval" or "Everyone Approved" should not be used unless there are absolutely no credit qualifications needed to obtain financing, and the dealer is willing to finance anyone, regardless of their ability to pay.

Underselling Claims - Ads that claim a company policy of matching or beating competitor’s pricing should only be used if the claims are verifiable.  Terms such as “We will beat any dealer’s price” or "We won't be undersold" may be deemed to be deceptive unless the advertisement clearly and conspicuously discloses a price matching policy and  does not require the presentation of any evidence which places an unreasonable burden on the consumer.

Creating a False Sense of Urgency -Advertising the words "sale", "price cut", "reduced", "clearance", or "tent sale" may be deemed to be deceptive unless the current selling price of the vehicle is reduced by a reasonable amount from the vehicle's former (regular) price. False price comparisons on vehicles, such as “was___, now___”, should not be used.

The use of terms such as “Liquidation Sale” or “Going Out of Business Sale” should not be used unless such a sale is required by law or by impending cessation of the dealer’s business.

The use of terms such as “Authorized Distribution Center”, “Factory Outlet”, or “Factory Authorized Sale” imply that the dealer has an exclusive or unique relationship with the manufacturer and should not be used unless the advertising dealer has received a unique authorization from the manufacturer and such authorization is in addition to their normal authority to act as a franchisee of the manufacturer.

Invoice Advertising - Some states do not allow dealers to advertise the terms "dealer cost", "invoice price" or similar terms.

Rebates – In many states, dealers may not offer any rebates or cash back, unless it is from a manufacturer. When limited rebates (first-time buyers, college graduates, military personnel, etc.) are advertised, the terms and limitations should be clearly and conspicuously disclosed.

Advertising violations are very easy for regulators to find and very difficult for dealers to defend. It’s vitally important for any dealer employee or vendor tasked with creating advertisements to be aware of all state-specific requirements.

Compliance in the Digital Age

Dealership compliance concerns have traditionally focused primarily on the sales and finance processes. However, the unprecedented growth of digital marketing, social media, and online reputation management has invited new regulations and created additional legal challenges for dealers to contend with. Following are six areas that dealers should pay close attention to in 2012:

Advertising Online - Internet advertising may be handled by any number of people in the dealership, such as a used car manager, internet manager, marketing director or perhaps an outside vendor. The Federal Trade Commission (FTC) and state regulators have been taking a much more aggressive stance in examining and challenging internet advertising. It’s vital that anyone who is responsible for writing and posting advertisements online be well aware of state and federal advertising regulations.

A particular area of concern is social media. Despite the fact that social networking tends to be a low-keyed, casual type of communication, advertising regulations still apply. For instance, if inventory is posted or prices/payments are quoted on a social media site, it’s likely that the posts will be deemed to be advertisements and will be subject to disclosure and truth in advertising regulations. A good rule of thumb is to have any information that could possibly be construed as advertising reviewed by upper management or a qualified professional before it is posted online. Remember, advertising violations can be easy for regulators to identify and difficult to defend against.

Online Reviews - The FTC’s updated Endorsement and Advertising Guidelines require companies to ensure that their posts are completely accurate and not misleading, and planting or allowing fake reviews is a violation. Reviewers must never endorse a product or service that they have not used personally or create any other form of false endorsement.

Dealers may also face liability if employees or vendors use social media to comment on the company’s services or products without disclosing the employment or business relationship. The FTC has indicated that companies are fully responsible and liable for all inappropriate actions of their employees and their vendors.

Regulations also require that any reviewer provided with any form of compensation for posting a review must fully disclose the source and nature of any compensation received. So, if a dealer gives away free oil changes or gas cards for reviews and the reviewers fail to disclose their compensation, the dealership may face liability. 

Social Media Policies - Social media applications have soared in popularity and it’s important that dealers control the information that’s coming out of their business. Policies and procedures should be put in place to spell out how employees are expected to conduct themselves within social media.  A social media policy can help take the guesswork out of what is appropriate for employees to post about a company to their social networks.

In addition, there are a number of legal considerations that every company should be aware of when establishing their social media policies and procedures, such as social media use in employment decisions; potential overtime claims; harassment, discrimination and defamation claims; and copyright and privacy issues. Beyond legal risks, employees can harm a company’s reputation by disseminating controversial or inappropriate comments. 

Contests and Sweepstakes - Sweepstakes, contests, and giveaways have become increasingly popular among dealerships, especially on sites such as Facebook. These promotions can be a great way to get word out about your company, increase your social media presence and develop leads. However, entry into a poorly considered sweepstakes or contest can be a trap for the unwary dealer. These promotions are governed by a variety of federal and state laws as well as social networking sites’ terms of service. Failure to follow pertinent statutes and regulations regarding promotions can lead to government inquiries, civil enforcement actions, adverse publicity, and even criminal penalties.

Text Message Marketing - A recent high-profile lawsuit involving a large dealer group that allegedly failed to honor text message opt-out requests ended in a $2.5 million settlement. Text messaging is subject to a number of federal and state restrictions and the rules are extremely confusing. These regulations can be much more difficult to deal with than telemarketing or email regulations - primarily because many consumers are charged for text messages and the government feels that they should be afforded additional protection against unwanted solicitations. It’s wise to always consult knowledgeable legal counsel before launching a text marketing campaign.

Online Privacy - Dealerships typically collect a great deal of personal information from their website visitors through contact forms, online credit applications, etc. What many businesses fail to realize is how vitally important it is to properly handle any Personally Identifiable Information (PII) collected from consumers through their sites. The potential penalties are substantial. It’s important for dealers to examine their policies for handling consumer privacy online and to review the policies with their employees and vendors to ascertain their understanding. The FTC has penalized a number of companies for failing to follow their own published privacy statements.