Don’t Forget to Tell Your Inventory Story

Failure to properly disclose a vehicle’s history is one of the most common legal claims against dealerships. Dealers are frequently held liable for misrepresenting or failing to disclose what they knew or reasonably should have known about vehicles in their inventory. Courts have long held auto dealers to a higher standard than their customers when it comes to disclosing vehicle history information. They feel that dealers are in a much stronger position than consumers to know the history of a vehicle and have imposed a greater duty on them to make accurate disclosures.

Federal and state regulators have also weighed in on the importance of vehicle disclosures.  According to an opinion by the National Association of Attorneys General, “Vehicle history information is a material fact and, therefore, must be disclosed under state unfair and deceptive acts and practices laws. There are a number of sources where dealers can find this information, including vehicle titles, state motor vehicle record databases, NMVTIS, private services such as CarFax and AutoCheck, auction announcements, and manufacturer records. The information is there and dealers have greater access to it than do consumers. Whatever information the dealer can reasonably obtain should be disclosed”.

Vehicle Condition and History Disclosures

The required disclosures vary from state to state, but often dealerships are required to disclose material known facts about a vehicle’s history, such as if it was:

·         A prior rental vehicle

·         A lemon law ‘buy back'

·         Subject to odometer tampering/malfunction

·         Issued a “branded” or “salvaged” title

·         A former taxicab

·         A former police, fire, or driver education vehicle

·         Flood damaged

·         Frame damaged

·         Damaged in connection with the theft of the entire vehicle

Dealerships should also disclose material known facts, such as if the vehicle was involved in a prior accident that caused substantial or material damages. A dealer who sells a vehicle with prior damage runs the risk of significant liability in a lawsuit.

Many states require that prior damage to a vehicle must be disclosed if the damage exceeds a specified amount, particularly in the case of new cars. However, even if state laws don’t specify what “material” damage to a vehicle is or state when a disclosure of prior vehicle damage must be made when selling a car, misrepresentation and fraud are always prohibited. As a result, dealership personnel should consider very carefully the nature of any damage sustained by a vehicle, and make a disclosure of that damage when it is sensible to do so. Prior damage to a vehicle should be evaluated in terms of its impact on the value, operation, and safety of the vehicle. If there is any question about making a disclosure, it may be wise to make the disclosure so as to protect against claims of misrepresentation or fraud.

Factory or extended warranty coverage may also be affected by a vehicle’s history. There may be exclusions for vehicles that have suffered accident damage, have pre-existing defective conditions, or do not contain original factory parts. Having a customer find this out the hard way can easily lead to a potentially costly lawsuit.

Dealership personnel should always respond to any inquiry by a buyer regarding the condition of a new or used vehicle (including those relating to prior damage or involvement in an accident) in a manner that is truthful and not misleading. Even though a dealership may not be legally obligated to disclose certain facts, it likely wouldn’t be insulated from legal claims arising from false or inaccurate affirmative statements by dealership personnel about a vehicle’s condition or history.

New or Used?

This may seem like a no-brainer, but the mischaracterization of used vehicles as “new” is a frequently cited in legal actions against dealerships. The law requires that a dealership correctly describe a vehicle being sold as either "new" or "used."  The Federal Trade Commission defines a “used vehicle” as “any vehicle which has been driven more than the limited use necessary in moving or road testing a new vehicle prior to delivery to a consumer”.  Although the "used" designation often applies to demonstrator vehicles, and "unwinds” or “rollbacks, these vehicles are often mistakenly represented as "new" to customers. 

Generally, any vehicle that is taken out of the new vehicle inventory for any extended or regular use may lose its status as new and become used. For instance, vehicles that were used by the dealer as a demonstrator, executive vehicle, service vehicle, rental, loaner or lease vehicle, are not allowed to be described as new in many states, regardless of the number of miles driven or whether or not the vehicle was ever registered. Even though these vehicles may be considered “new” by factory standards (i.e. eligible for new vehicle programs and incentives), the law in many states considers them to be used. Representing that vehicles are new when they are in fact used is often considered an unfair and deceptive practice and can subject the dealership to severe penalties.

As a best practice, any vehicle that is not considered to be “new” should be properly disclosed as “used” in all communications with the customer.  Examples include advertising of the vehicle, worksheets, internal forms, and the new/used box on the sales contract or lease agreement. In addition, all vehicles classified as “used” must have a Buyer’s Guide conspicuously displayed on the vehicle.

There you have it. It’s always safer to tell your inventory story. The benefits are less headaches and increased customer satisfaction.