Harmless Horseplay? Maybe Not

In my opinion - even in this age of awareness - there are an alarming number of harassment and discrimination lawsuits being filed against car dealerships. “What? In this day and age? Sorry Jim, that’s a thing of the past – everyone has policies against harassment these days”.

I wish I could agree, but all you have to do is Google “auto dealer harassment” to see that I’m not delusional (although, it’s been known to happen).

It doesn’t help that car dealerships are a favorite target of government regulators (and of course, employment attorneys). For instance, EEOC Acting Chairman Stuart J. Ishimaru said in a statement that "sexual harassment and sex discrimination against women in traditionally male-dominated industries, such as the auto industry, are still unfortunate realities”.  In another statement, EEOC regional attorney John Hendrickson said that it was “amazing that at a time when the auto industry is struggling for survival and women exercise so much influence in the marketplace that anyone would in engage in sexual harassment or show contempt for female customers.” 

See what I’m saying?

It’s not just sexual harassment either. Federal and state laws and court decisions indicate that conduct can become illegal when an employer, supervisor, co-worker, customer, or vendor engages in unwelcome verbal or physical conduct against a person because of their race, color, creed, ancestry, national origin, citizenship, religion, age (40 and over), disability (mental or physical), sex (whether or not of a sexual nature and including same-gender harassment and gender identity harassment), arrest or conviction record, marital status, sexual orientation, retaliation or military status. In the month of August 2012 alone, I found news stories for dealership cases involving national origin discrimination, sexual harassment, racism, retaliation, and same-gender harassment.

Having spent many years as a dealership employee, I’ve come to believe that one of the reasons why our industry is so frequently targeted is because of the long-standing dealership culture itself. Let’s face it – car folks tend to be bold, aggressive, competitive, high-spirited – you name it.  Conduct that may be considered to be harassment or discrimination is sometimes so commonplace in dealership environments that people often don’t recognize the behavior as being inappropriate.

Think about it - have you ever witnessed dealer personnel swapping dirty or ethnic jokes or perhaps badgering a co-worker with sexual innuendo? How about inappropriate material being emailed or displayed on computers and mobile devices? Perhaps you’ve noticed that high-performing individuals are given a bit more slack when it comes to their behavior? Have you ever witnessed a supervisor either ignore potentially harassing behavior by a subordinate or just lightheartedly suggest that they be careful what they say?

Unfortunately, many companies have found out the hard way that “just kidding around” with no harm intended is not a viable defense. As far as the law is concerned, harassment depends on how the conduct was received, not on the intent. According to Robert A. Canino, Regional Attorney of the Dallas District Office of the EEOC, "An employer should never assume that it can hide behind a 'horseplay' defense. To do so is to trivialize what can be offensive and degrading conduct toward employees who don't find it amusing. There is no free pass for employers who fail to prevent or correct such offenses on the stereotypical premise that 'boys will be boys'."

Here’s another reality: employees that may actively participate in the “horseplay” or staff members that seem to have no problem with business as usual can become a dealership’s worst nightmare sometime in the future – especially if their employment is terminated. There are a number of savvy attorneys who are ready, willing, and able to assist disgruntled employees with harassment/discrimination claims.

Perhaps many of these claims are frivolous. But whether an accusation has merit or not, the dealer typically loses. Any lawsuit is a bad lawsuit. Besides the cost of defending these claims, there will likely be immeasurable damage to a company’s reputation.  What owner wants the public to be exposed to media stories accusing their dealership of employing harassers or racists?

So what’s the answer? Most dealerships have an anti-harassment policy that all employees must sign, and that’s a great first step, but the questions remain: Have the employees actually read the policy and do they really understand it? Are they really aware of the procedures set forth in the policy to protect them from harassment? Are supervisors consistently enforcing these policies?

Having a policy in place and hanging posters is simply not enough protection for a dealership nowadays. Training dealership personnel in harassment prevention and holding them accountable for proper behavior is no longer an option.  Employees who receive harassment training are more likely to understand that there are boundaries that must be observed in the workplace and more importantly, realize that there can be serious personal consequences for harassment.

If a comprehensive harassment prevention program hasn’t been a priority in your dealership, I suggest that it’s time to get serious.

Is Your Job Worth Going To Prison For?

If this doesn’t make you think about how your dealership does business, I don’t know what will.

News broke this week about a dealer and 9 of his employees that were indicted by a federal grand jury for conspiracy to commit wire fraud as a result of deceptive advertising, fraudulent sales practices, and falsely reporting sales to the manufacturer. Besides the owner of the dealership, the GM, GSM, finance manager, 2 sales managers, BDC manager, and others were named. The indictment claims that these individuals conspired to "devise a scheme and artifice to defraud and to obtain money from the purchasers of automobiles by means of false and fraudulent pretenses, representations and promises, and for the purpose of executing such scheme utilized interstate wire communications" (specifically, deceptive and misleading radio and television ads). The document also accuses the defendants of cheating lenders by using "false job and income information on various credit applications" for customers.

According to the media stories, each defendant faces up to 20 years in prison if convicted.

This debacle began in 2006, started to unravel in 2008, and resulted in regulatory actions by the state, lawsuits by over 500 customers, and ultimately the bankruptcy and closure of the dealerships. Understandably, the dealer paid a steep price for these shenanigans. But here’s where it gets ugly – 4 years later the federal government has decided to go after the dealership’s employees as well.

Do I have your attention yet?

There’s no telling if this grand plan was the dealer’s brainchild or was cooked up by creative sales department personnel. It doesn’t really matter – they’re all in hot water now. So these employees, who obviously moved on with their lives after the dealership closed, are now facing devastating consequences.

Think about it, even if these guys and gals get off - was it worth being criminally charged, having their reputations ruined, paying legal fees, losing their livelihood and likely having to change professions, and who knows what else?

You may be thinking that this dealership engaged in a really outrageous ad campaign that would never happen at your store – and you’re probably right. It’s likely that your dealership doesn’t engage in ridiculous marketing campaigns like this dealer did – most wouldn’t even consider it. But understand this: the legal climate has dramatically changed and the government is showing in no uncertain terms that they are fed up with deceptive practices at auto dealerships.

Automotive compliance experts have been saying this for quite some time and perhaps now more people will begin to pay attention: the good old days of trying to fly under the radar or considering fines a cost of doing business are behind us. The game has changed and car dealerships and their employees who choose to step over the line have a bullseye squarely on their backs and are at great risk.

Here’s some food for thought:

·         If you think that only your employer is responsible for any illegal activities that occur at the dealership and you are not – you are mistaken.

·         If you think that since your competitors also engage in deceptive practices you have a valid defense – you are mistaken.

·         If you think that a fine or a slap on the wrist is the worst that can happen for unethical or illegal practices – you are mistaken.

·         If you think the government only goes after “really bad operators” – you are mistaken.

·         If you think that fudging a credit app or lying to a customer is OK because “we’ve always done it this way” – you are mistaken.

·         If you think that this will never happen to you – I hope you’re right.

If there’s any questionable activity happening in your store - like deceptive advertising, “creative” credit application completion, payment packing, bait and switch, yo-yo financing, or whatever – you may want to look closely at your dealership’s culture and consider what could happen if the government decided to investigate your store. The downside is worse than ever.

So I ask again, is your job worth going to prison for?

Good luck and good selling.

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.

Used Car Warranties: What You Don’t Know CAN Hurt You

I recently visited 2 different dealerships where I noticed that all of their used vehicles, other than cars that were covered by manufacturer’s warranties, were being sold “As-Is”. One of the dealers, a high-line establishment, had a number of very expensive pre-owned vehicles being sold without any warranty, including a low-mileage Bentley selling for almost $120,000. Maybe it’s just me, but I figured that a potential buyer might wonder why they would be expected to spend that kind of money with a dealer that didn’t feel it necessary to stand behind their vehicles.

Being nosy, I had to ask the dealers’ staff “what are you thinking?” After weaving through the employees that responded “I don’t know, that’s just the way we do things here”, I was able to find the decision-makers. In both instances, they expressed to me that they opted for the “As Is” policy to protect themselves from potential warranty claims from customers. Now I’m all for dealers protecting themselves, but unfortunately, automotive law is not that simple and “protecting yourself" can be far more challenging than just slapping an As-Is guide on the window.

Rarely a day goes by without a dealer somewhere receiving a letter or lawsuit regarding an alleged breach of warranty. The federal Magnuson-Moss Warranty Act, the Uniform Commercial Code (UCC) and various state laws (including used car Lemon Laws) all govern warranties on motor vehicles. Breach of warranty claims are extremely common and can lead to serious legal consequences for a dealer.

Following is a basic review of used car warranty issues for dealers. The information is based on federal laws and is just an elementary overview. You should consult with your legal counsel for an extensive review of the laws pertinent to your state.

Warranties

An EXPRESS WARRANTY is often given in the form of a specific, written "Warranty" document.  However, a warranty may also arise by operation of law based upon the seller's description of the goods, and perhaps their source and quality, and any material deviation from that specification would violate the guarantee.  For example, an advertisement describing a product is often full of express warranties; the product must substantially conform to what is advertised.  An express warranty can be made orally, in writing and without the intent of the seller to actually create the warranty.  Any oral promise made to a customer regarding the condition of a vehicle may constitute an express warranty. Consider this scenario: While negotiating with a customer, the sales consultant states, “This vehicle is in great shape. Our service department completely reconditioned it before we put it on the lot. If you have any problems, believe me, we’ll take care of it.” The customer subsequently purchased the vehicle without a written warranty. If the vehicle breaks down shortly after the sale, the dealership will likely be responsible for repairs since an express warranty was created by the sales consultant’s oral promises.

An IMPLIED WARRANTY is one that arises from the nature of the transaction, and the inherent understanding by the buyer, rather than from the express representations of the seller. What many dealers don’t understand is that even though they may give a “power-train only” warranty or service contract, they may still be responsible for other problems that develop. A dealership could find itself in a position of having to make extensive repairs that aren’t covered by the warranty or service contract as a result of these implied warranties.

There are two types of implied warranties: the Implied Warranty of Merchantability and the Implied Warranty of Fitness for a Particular Purpose. As a general rule, an Implied Warranty of Merchantability is included with the sale of a used vehicle, unless it is expressly disclaimed by name, or the sale is identified with the phrase “As Is" or “With All Faults." To be considered "merchantable", the vehicle must reasonably conform to an ordinary buyer's expectations, i.e., that it is fit for the ordinary purposes for which a vehicle is used.  What is meant by “merchantable” may vary by the age of the vehicle. For example, a new vehicle would be expected to be free of significant defects for at least the length of its factory warranty or longer while a high-mileage older vehicle would be held to a lesser standard. To be merchantable, a vehicle may be required to meet safety standards, be fully operational with all accessories in working order, and have no known mechanical problems at the time of sale other than those inherent in a vehicle based upon its age and mileage.

The Warranty of Fitness for a Particular Purpose is implied when a buyer relies upon the seller to select the goods to fit a specific request. For instance, when a buyer asks a dealer to provide a vehicle that is suitable for towing a boat or trailer and relies on the expertise of the dealer to supply a vehicle suitable for that purpose. 

Generally, a dealer who wants to disclaim implied warranties must do so specifically. Some states limit or prohibit the elimination of implied warranties, but in many cases, implied warranties may be disclaimed on a used vehicle by checking the “AS IS – No Warranty “box on the Buyer’s Guide. However, a conspicuous disclaimer may also need to be included in the sale contract as some states may require using special language and/or a document other than the Guide. Other regulations state that when a written warranty of any duration is given with a vehicle purchase, or a service contract is entered into within 90 days of the sale, a dealer may not be allowed to waive the implied warranty.  Again, it is important to have any disclaimers reviewed by experienced legal counsel.

The duration of implied warranties may vary based upon federal and state laws, the sales price, age, and mileage of the vehicle. For instance, according to Magnuson-Moss, if a dealer gives its own written warranty, the duration of the implied warranty may be limited in duration to the duration of the written warranty provided the limitation is set forth clearly and prominently on the face of the warranty. However, if no written warranty is given, but a service contract is entered into, then the duration of the implied warranty of merchantability may not be limited. State laws may impose additional conditions on the duration of implied warranties, but as a general rule of thumb, the newer and more expensive the model, the longer the implied warranty will remain in force.

Used Car Rule and Buyers Guides

Most dealers who sell used vehicles must comply with the Federal Trade Commission's (FTC) Used Car Rule. The Rule regulates the use of Buyers Guides and declares that it is a deceptive act or practice for a dealer to:

• Misrepresent the mechanical condition of a used vehicle. 
•  Misrepresent the terms of any warranty offered in connection with the sale of a used vehicle.
• Represent that a used vehicle is sold with a warranty when it is not.
• Fail to disclose, prior to sale, that a used vehicle is sold without any warranty.
• Fail to make available, prior to sale, the terms of any written warranty offered in connection with the sale of a used vehicle.

A Buyers Guide must be posted before a used vehicle is “offered” for sale. A vehicle is offered for sale when it is displayed for sale or a customer is allowed to inspect it for the purpose of buying it, even if the car is not fully prepared for delivery. The exact wording and form of the Buyers Guide has been prescribed by the FTC, and should not be altered.

The Buyers Guide must be posted prominently and conspicuously on or in the vehicle. This means it must be in plain view and both sides must be visible. The Guide may be hung from the rear-view mirror inside the car or on a side-view mirror outside the car. It can also be placed under a windshield wiper or attached to a side window. A Buyers Guide in a glove compartment, trunk or under the seat is not conspicuous because it is not in plain sight. The Guide may be removed for a test drive, but must be replaced as soon as the test drive is over.

The Buyers Guide must specify whether the vehicle is being sold "as is" or with a warranty. In states that limit or prohibit the elimination of implied warranties, the "Implied Warranties Only" version must be used. If a warranty is offered, each system that's covered must be specified. The Rule prohibits the use of shorthand phrases such as "drive train" or "power train" because it's not always clear what specific components are included in the "power train" or "drive train."

If a dealer’s warranty requires buyers to pay a deductible, the warranty document should disclose the deductible amount and the details as to when and under what circumstances the deductible must be paid.

If the manufacturer's warranty hasn't expired, this fact may be disclosed by checking the "Warranty" box and including this disclosure in the "systems covered/duration" section: "MANUFACTURER'S WARRANTY STILL APPLIES. The manufacturer's original warranty has not expired on the vehicle. Consult the manufacturer's warranty booklet for details as to warranty coverage, service location, etc." The disclosure must be stated in the exact language quoted above. Using phrases such as "balance of factory warranty" are not sufficient. Although it may not be required by law, disclosing that the vehicle is covered by an unexpired factory warranty may help prevent later claims by the customer that he or she needlessly paid for repairs that were covered under warranty.

The buyer must be given the original or a copy of the vehicle's Buyers Guide at the sale. If the dealer and consumer negotiate changes in the warranty, the Buyers Guide must reflect the changes. If a signature line is included on the Buyers Guide, the buyer should sign the Guide that reflects all final changes.

The sales contract itself must incorporate the information included on the Buyers Guide.

If a used car transaction is conducted in Spanish, a Spanish language Buyers Guide must be posted on the vehicle before it is displayed or offered for sale.

Warranty information provided on the Buyers Guide is not sufficient to meet the requirements of the Warranty Disclosure Rule. Therefore, the written warranty and the Buyers Guide must be two separate documents. The FTC's Rule on Pre-Sale Availability of Written Warranty Terms requires that written warranties are displayed in close proximity to the vehicle or made available to consumers, upon request, before they buy.

Dealers who violate the Used Car Rule may be subject to penalties of up to $16,000 per violation in FTC enforcement actions. Many states have laws or regulations that are similar to the Used Car Rule. Some states incorporate the Used Car Rule by reference in their state laws. As a result, state and local law enforcement officials may have the authority to ensure that dealers post Buyers Guides and to fine them or sue them if they do not comply. So get on out there and walk the lot.

One final note - warranty claims frequently snowball into much larger legal issues. Savvy plaintiff’s attorneys often review purchase documents and look for other violations. Many class action lawsuits have begun as a result of perceived warranty or Lemon Law issues. As always, I suggest that you take all customer complaints seriously. If a buyer claims that there’s a warranty issue with a vehicle they purchased from you, it’s probably a good idea to get legal advice before ignoring the claim. That’s my 2 cents. Good luck and good selling.

Transparency is Not a Dirty Word

Shortly after I began writing this post, an article popped up on my Google Alerts about another dealer group, accused of deceptive marketing by their state attorney general’s office, having to pony up a six-figure settlement. Not surprising at all, I’m used to seeing these types of articles on a regular basis. Another day, another enforcement action against a car dealer.

In this case, the dealerships were accused of “having advertisements online and in print publications that misrepresented the actual prices of automobiles”, “dealership employees asking consumers to sign incomplete documents with the understanding that they would be completed using the negotiated vehicle price, but later entering a higher price”, and “allegedly charging consumers fees for unwanted or undisclosed warranties and services”. According to the article, the auto group denied any wrongdoing but agreed to the settlement.

But I digress. The above story really isn’t the point of this post, nor is it my intention to try to warn you of the legal dangers of non-compliance with the laws of the land. I, and my peers, write enough about that. Sure, I’m now a compliance consultant, but my ramblings here are based on the things I learned during my 20 plus years in automotive retail - and the realization that I probably had it all wrong.

This post is about Transparency. It’s about the Big Picture. It’s about opening your mind and stopping to think about the absurdity of old school tactics. Not from a legal or ethical mindset, but from a common-sense business perspective.

I realize that “Transparency” is the latest, and perhaps most over-used, buzzword in the car business. But please bear with me for a few moments while I pose a few questions. Hopefully, it will stimulate some “outside the box” thinking.

First, what is the upside of hiding information from your customers?

Sure, you have to do whatever it takes to stay ahead of the competition. Sure, that’s what the legendary automotive sales trainers taught us. Sure, the chances of getting into a legal bind are pretty slim. Sure, everybody else is doing it. Sure, if you give customers too much information they’ll just use it to shop you. Sure, there are ways to “manage” your online reputation, even if you have some unhappy customers. I get all that.

But – Big Picture Time – is the “anything it takes to make a deal” mentality really a sensible way to do business in today’s world? Do you really think this will lead to customer satisfaction and retention? Do you really believe that customers will continue to put up with this type of behavior forever?

Here’s how I look at it: Every time you…
    Post a misleading ad, or
    Charge a customer more than the advertised price, or
    Lie to a customer about a vehicle being in stock, or
    Present a foursquare with inaccurate numbers in order to confuse a customer, or
    Present “packed” payments, or
    Fail to truthfully disclose a vehicle’s history, or
    You’re not completely honest and upfront with your customers
…there are some things you might want to consider:

1. You may be breaking the law – but it’s only illegal if you get caught, right?
2. What you’re doing may be an unethical business practice – but customers have no loyalty and you’re just trying to make a buck in a fiercely competitive marketplace, right?
3. You may be pissing off customers (or potential customers) – but “ya gotta have haters, right”?
4. You’re gambling with your future - this is an unsustainable way of doing business in the modern world and your continued success is greatly at risk.

Now you may be perfectly comfortable rolling the dice on number 1 and not care a lick about numbers 2 or 3, but what’s your answer for number 4?

I challenge you to think about it. Just think about it. Unfortunately, I didn’t when I worked in dealerships – I was a faithful practitioner of the old school ways.

Now, I realize that you may feel that this post is just more nonsense from an ex-car-guy-turned-consultant who doesn’t get it - and you may be right. Only time, and customer sentiment, will tell. But you may still want to ask yourself just how long are customers going to put up with business as usual?

Let’s face it; consumers have access to much more information, and choices, than they ever did. You can hate the internet and all its information. You can hate the idea of “transparency”. You can hate all the regulations that dealers have to contend with. You can hate the consumer advocates. You can hate the media and all of its anti-dealer sensationalism. But guess what? None of it is going away. The “But We’ve Always Done It This Way” mentality just doesn’t hold water anymore.

Now, I’m not a believer that the internet is going to somehow take over car buying. I totally agree that dealerships are, and will continue to be, the primary way that customers will purchase vehicles for a long time to come. But remember this; while customers may always choose to do business with dealerships, they don’t have to choose to do business with your dealership.

One final question: Are you a true professional who is ready, willing and able to succeed in the new world or are you hoping that things will never change?

In my book, transparency is not a dirty word, but complacency is.

Good luck and good selling.