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...

Since the news broke earlier this week about the FTC citing 5 auto dealers for deceptive advertising, I’ve been asked a number of questions by folks in the industry. Here’s my take on the situation: What’s the big deal about advertising that the dealership will pay off a trade-in no matter what the customer owes? It’s a true statement. The problem is not so much what the ads say, but what they don’t say. As far as regulators are concerned, if an ad doesn’t explicitly state that any negative equity will be added to the loan balance, it’s deceptive. While it may seem obvious to us that the customer is responsible for negative equity, some consumers (and lawmakers) apparently think that these advertisements imply that the dealer will buy the trade for the amount the customer owes, regardless of its real value. Some basic principles that regulatory agencies consider are 1) advertising is considered deceptive if the advertisement has a &ldqu...

As most everyone knows, ignorance of the law is no excuse. Yet, it’s clear that some dealers really have no idea if their staff is knowledgeable enough to follow the maze of rules and regulations that govern their organizations. Indeed, there sometimes seems to be a tendency for folks to bury their heads in the sand and hope for the best. If this is the case in your dealership, you may want to ask yourself if it really makes sense to put the business and reputation that you have worked years to build at risk by acting like an ostrich. It should come as no surprise that government watchdogs and consumer attorneys have clearly been ratcheting up their assault on the auto industry. Dealers are more and more frequently the targets of lawsuits, enforcement actions, and of course, the associated negative publicity. Even inadvertent violations of the rules can be shockingly costly. Are you truly comfortable with the level of compliance in your dealership? Do you feel that you...

Keeping the lawyers at bay used to be a whole lot easier for dealerships. Unfortunately, new technology brings new challenges. A recent high-profile lawsuit involves a large dealer group named in a class-action lawsuit for allegedly failing to honor a text message opt-out request.  The suit, launched by a former employee, is seeking damages of at least $500 for each violation. While this may seem like yet another frivolous lawsuit by a disgruntled former employee, the potential for liability to this dealer group is substantial. Several recent text message cases have resulted in multi-million dollar settlements. For instance: Twentieth Century Fox - $16 million class-action settlement ($200/ phone number) Simon & Schuster - $10 million class-action settlement ($175/ phone number) Timberland Company - $7 million class-action settlement ($150/ phone number) Text (SMS) marketing is subject to a number of federal and state restrictions and the rules are extremely confusin...

Sweepstakes, contests, and giveaways have become increasingly popular among dealerships. 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.  The FTC receives thousands of complaints from consumers each year regarding the abuse of contest promotions. Failure to follow pertinent statutes and regulations regarding promotions can lead to government inquiries, civil enforcement actions, adverse publicity, and even criminal penalties. Following is a basic overview of the guidelines for running lawful promotions, but you should always consult knowledgeable legal counsel before starting a campaign. And remember, it’s dangerous to assume that outsourcing responsibility for t...

It’s no secret that auto dealerships have frequently been forced to defend themselves against discrimination claims by employees and agencies such as the Equal Employment Opportunity Commission. As a result, many dealers have instituted comprehensive human resources programs to avoid potential problems. However, new technology brings new challenges. As the use of social media grows, more and more dealerships are using the internet to screen potential employees. Many managers tasked with hiring find these sites to be particularly helpful because they perceive that this information reflects a more accurate representation of the applicant beyond the interview. This influx of information regarding applicants would seem to be a great way to vet their ability to "fit in" with a company. While social media may allow employers to learn vast amounts of information about job applicants, hiring managers who even casually use these tools to gather information about a prospect...

Chances are, since you’re reading this post, your dealership or company is involved in social media. That’s good - it’s hard to imagine how difficult it will be moving forward for organizations that have not embraced social networking. Although Social Media is relatively new (and certainly exciting), its meteoric growth has unfortunately caught the early attention of the legal powers-that-be. Despite the widespread use and misuse of social networking at work, 45 percent of all businesses still do not have a social media policy. Many of the policies that companies are using do not adequately address potential legal issues. Regulators have been bringing complaints against companies arising from their social media activity, thus, highlighting the need for companies to demonstrate that they are exercising due diligence to promote legal and ethical conduct in the context of social media activity. Not surprisingly, plaintiff’s attorneys have also jumped on the b...

It was bound to happen. The tremendous growth of digital marketing and social media was an invitation for government regulation. For instance, the Federal Trade Commission recently updated its truth-in-advertising guidelines, which were last revised in 1980, to address the commercialism of the Web. Federal and state regulators are taking the position that social media is not a loophole for deceptive marketing practices and are actively enforcing and cracking down on social media deception. Proper social media ethics are now a matter of law, not just personal preference. Faking 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. The Guidelines are extremely broad and can apply to anyone writing reviews on rating sites, web sites or promoting products through social media sites, including blogs. There are several compani...

I recently saw a vehicle advertised on a dealer website that caught my attention. This pre-owned car was advertised as a “CarFax One Owner”.  Upon further investigation, I discovered that the “one owner” was a rental car company. Even though the “one owner” statement may have been technically true, the description of the vehicle blew my mind: “With just one previous owner, who treated this vehicle like a member of the family, you'll really hit the jackpot when you drive home with this terrific car”.  (Now I know that Enterprise has been advertising lately that they are a “family company”, but I’m not sure that this is what they had in mind…). I was intrigued by this statement, so I kept sniffing around. It turns out that the dealership is part of a large dealer group and I noticed that similar statements were advertised on prior rental vehicles in some of their other stores as well. For example...

There are a number of good reasons for operating an ethical and legally compliant dealership, not the least of which is staying out of a courtroom.  Perhaps the most important - and most often overlooked - reason is increased customer satisfaction.  There are times when an employee may feel that he or she came out the winner by bending the rules a little, but what about the dealership’s reputation?  What about the customers who were mislead?  It seems like there might be some losers in the game. Customers often make decisions during a vehicle sale transaction that they come to regret after the “ether has worn off”.  Perhaps they read the contract more carefully after they got home or showed it to a relative, friend, neighbor, etc.  The customer may notice some imperfections on the vehicle in the light of day and have it inspected by a mechanic or body shop or run a vehicle history report.  If there is a concern, some customers wi...

The new federal regulations that went into effect this year have added to the never-ending compliance requirements that dealerships have to deal with. Fortunately, most dealers have found that the Risk Based Pricing Notice and updated Privacy Notice requirements are pretty easy to handle. Utilizing the Credit Score Disclosure exception to Risk Based Pricing Notices and using the New Model Privacy Notices is relatively simple – just a few more forms to add to the pile. The Red Flags Rule is another story. Red Flags regulations require a dealership to not only be a good citizen, but to be a cop as well. There’s no two ways about it, if red flags are detected during a credit transaction, certain proactive steps are required that will create extra work and slow down the deal process. Many dealerships are utilizing automated Red Flags programs to help stay in compliance with the new regulations. These programs, such as those available through DealerTrack, RouteOne and the ...

A recently filed lawsuit against an auto dealership accused a sales manager of sexual harassment and sexual battery against a salesperson. According to the complaint, the employee was harassed continuously over a ten day period and ultimately quit due to the alleged behavior.  The complaint further stated that the dealership should have known what was going on and tried to correct it. The dealership responded that the claims have no merit, that it has a zero-tolerance harassment policy and that human resources was not contacted about the situation, as its employee handbook specifies. I have no idea what the true merits of this particular case are, but it brings to mind what an uphill battle fighting these claims can be. In some cases, employers may be considered to be “strictly liable” for sexual harassment, meaning that the employer is liable for harassment by an employee or other individual even if the employer did not know about the harassment or acted immed...

Much of what employees learn in the car business is from watching and listening to their co-workers. This type of education can be invaluable in many areas such as sales presentation, demonstration, and closing techniques. Of course, it can also lead to picking up bad habits like pre-qualifying customers by appearance or shortcutting the sales process. An area that is frequently learned more by osmosis than by formal training is legal compliance.  Dealers often assume that their employees possess adequate regulatory know-how simply because they’ve been in the business for a while. But who taught them the rules? Have they been properly trained in compliance or are they just winging it? It’s important to realize that at some point in their career, many automotive professionals were taught the “old school” way of doing business. Some dealership practices they’ve learned are not necessarily legal or ethical but the employees simply rely on doing busin...

The vast majority of dissatisfied customers who threaten to call an attorney never do. For the few that follow through, the results can be devastating. While it’s true that many customers’ complaints have little or no merit, there can be a real danger if the wrong plaintiff’s attorney gets involved. You may be thinking “we have lawyers of our own and insurance for that sort of thing, so bring it on”. Well, here’s the problem: many lawsuits that stem from seemingly insignificant complaints snowball into massive class action cases based upon other issues entirely. There are a number of plaintiffs’ attorneys out there who are absolutely brilliant at turning dealer oversights or technical violations into class action lawsuits. For instance, one dealership’s failure to honor its promise to swap rims on a vehicle resulted in a class action lawsuit for backdating rewritten contracts where the court ordered that the over 1,500 class members c...

Employee training can cost a lot of money. Not training your employees can cost even more. In lawsuits, courts and regulatory agencies sometimes impose after-the-fact training requirements in addition to large monetary penalties. Consider these actual cases: A dealership faced a wide range of complaints, including failure to disclose material defects and misrepresenting sales and extended service contract prices, and was ordered to pay $1.5 million in restitution to victims, plus $300,000 to the state Department of Consumer Protection. As part of the settlement, the dealer also agreed to initiate a mandatory education program for all its employees within 60 days of the settlement, instructing employees on state consumer protection laws. A jury awarded a $14.4 million wrongful death verdict against a dealership that performed a faulty tire repair and failed to take the tire out of service, leading to a rollover crash that killed a couple. As a condition of the post-verdict settl...

As I read through dealer websites, I’m often surprised at how many advertising violations I find. You would think that website providers would make sure that this doesn’t occur, right? You should never assume that the company that creates and maintains your website follows all the laws and regulations governing advertising compliance. State advertising laws vary and the responsibility for compliance lies with the dealership, not the vendor. Here are some examples of what I’ve run into and issues to look for: Disclaimers - Website providers sometimes include boilerplate factory disclaimers on inventory pages that identify vehicles by a specific VIN and price, such as: “Advertised vehicles are subject to actual dealer availability. Certain vehicles listed may not be available, or may have different prices.” “Pricing and availability varies by dealership.” “Prices do not include dealer charges, such as adv...

If your sales staff told you that they had a 50% closing ratio, would you take their word for it? I suspect not – you would probably track all of their opportunities to determine the true percentage. Most dealerships measure a vast number of items on a daily basis. After all, you can’t manage what you don’t measure, right? How about the level of compliance and ethical behavior in your dealership? Is that something you measure or do you just take everyone’s word for it? Have you really thought about how your staff is conducting itself in these areas? Is it possible that some of these thoughts are floating around? “We’ve always done it this way – haven’t been caught yet” “Hey, if we get sued, that’s what insurance is for.” “Compliance is not in my pay plan. I’ll do whatever it takes to make a decent paycheck.” Sure, you can bury your head in the sand and hope for the best, but is it rea...

Many of the big money, big publicity compliance meltdowns in the auto industry have been the result of vehicle financing issues. Remember the Gunderson Chevrolet news clips showing the management team being convicted and sent to jail? Being a fearless bunch, some F&I folks still walk a fine line when it comes to compliance. Maybe it’s because no one ever showed them a better way? Becky Chernek of Chernek Consulting, Inc., who is one of the finest F&I trainers in the industry, was kind enough to share some feedback that she received from F&I managers when discussing ethical sales practices in her seminars. "Never happened before, not going to now." "Just a bunch of hype for car dealers to buy into." "We love Becky, but don't pay too much attention to the regulations; she will get to the meat & potatoes." "Yeah, the minute we implement that policy you might as well shut our doors." "I know you learned it t...

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 painful...

“BUYERS ARE LIARS”. 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 om...

I was browsing through the website of a prominent dealer-chasing law firm this morning (I know, I have weird hobbies), and came across a posting about a dealer with a link to a YouTube video. This dealership is part of a good-sized group that is very well-regarded in the area. As I am personally acquainted with this dealer group, I can attest to their integrity and dedication to customer satisfaction. So, when I clicked on the YouTube link, I expected to see another unconvincing customer with a bad case of buyer’s remorse. Well, I wasn’t disappointed – the customer bought a cheap older car and expected it to run like a brand-new Mercedes. Not surprisingly, the video attempted to make the dealership look terrible and completely at fault. But here’s the thing - this video wasn’t an amateurish clip of a customer ranting and raving, it was obviously professionally done. So well done in fact that I suspect most consumers viewing the video would find it bel...

I get it. It’s tough out there. Customer access to information on the internet continues to squeeze margins. Dealerships are just trying to make a buck in a fiercely competitive marketplace. You have to do whatever it takes to stay ahead of the competition.

I also get that some may view compliance as unnecessary, overrated, annoying, a waste of time and money, and downright harmful to profitability. These are perceptions and as they say, perception is reality.

Some employees may be tempted to step over the line ethically when trying to make a deal. After all, the chances of getting caught are pretty slim, right? That’s one way of looking at it. Another way is to ask yourself what’s really more important in the long run - flying under the radar or satisfying your customers? In my view, when it comes to compliance and ethical behavior, the true payoff is customer satisfaction and retention. It really comes down to one simple premise - your customer’s perce

Many complaints and legal actions against auto dealers are the result of the way vehicles are advertised. According to a joint survey by the Consumer Federation of America (CFA), National Association of Consumer Agency Administrators (NACAA), and North American Consumer Protection Investigators (NACPI), the number one consumer complaint has been misrepresentations in advertising or sales of new and used cars. Advertising violations are also a ripe target for regulators and consumer attorneys. To give you an idea of how dealer advertising is on the radar, consider the opinion published by the New York State Attorney General’s office: “This office's review of current car ads has revealed a widespread pattern of deception and the use of materially false or misleading representations by some dealers. Rather than truthfully informing consumers, all too many ads appear designed primarily to confuse and mislead them. Such unscrupulous dealer ads are costly traps for unwar...

Much has been written about Automotive Online Reputation Management and, fortunately, there are a number of companies and consultants now available to assist dealers in getting a handle on this crucial subject.  Reputation and customer satisfaction is of the utmost importance to dealers and there is little doubt that many negative online postings are either questionable or do not reliably portray the true culture of the dealership. However, I believe that a dealership’s reputation is difficult, if not impossible, to manage when certain staff members do not operate ethically and resort to “old school” deceptive practices.  Looking through some of the sites that rate dealers, I found some interesting examples: • A dealer reviewed on one of the sites has dozens of negative posts about bait and switch, refusal to sell at advertised prices and other questionable acts.  I was a bit surprised at the volume of negative feedback and I have to wonder w...

It seems like dealers just can’t catch a break when it comes to lawyers and lawsuits. Back in 2004, California businesses won a hard-fought battle against “shakedown” lawsuits with the passing of Proposition 64. Previously, the law had allowed any party to sue a company regardless of whether the plaintiff was directly affected. For example, lawyers were able to review car dealer ads in the newspaper, spot a violation of the Vehicle Code and file a lawsuit against the dealer, without any client who was misled. Proposition 64 restricts private lawsuits against a company only to those where an individual is actually injured by and suffers a financial loss due to an unfair, unlawful, or fraudulent business practice. It also provides that otherwise only public prosecutors may file lawsuits charging unfair business practices. Of course, this was a tremendous blow to greedy attorneys who specialized in these shakedown lawsuits. Unfortunately, many dealers are still falli...