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.

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.

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.

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.

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 “tendency or capacity to mislead the public”; 2) if an ad is deemed deceptive, an advertiser has liability regardless of whether there was intent to deceive and; 3) statements susceptible to both a misleading and a truthful interpretation will likely be construed to be deceptive.

We always fully disclose negative equity on our contracts and leases, why isn’t that good enough?

If regulators feel that the first contact with a consumer is secured by deception, a violation may occur even though the true facts are made known to the buyer before he or she enters into a purchase or lease. Since statements and representations in advertisements are evaluated based on their tendency to deceive, no actual harm to consumers need occur for there to be a violation.

Dealers have been using this type of advertising for years – did the FTC recently change the rules?

No, these types of incomplete statements about paying off trade-ins have been considered deceptive for a long time by both federal and state regulators, so this is nothing new. Bear in mind that the fact that others were, or are, engaged in like practices is not considered a defense.

As to why the Feds decided to take action against dealers now - your guess is as good as mine. The FTC has been threatening to step up enforcement against dealers for the last year or so, but to be honest; I’ve been a bit skeptical. The Feds have traditionally gone after bigger fish and left car dealers to state regulators. So, while this action may just be a flash in the pan, it can also be a major game changer.

How do we avoid this happening to us? I mean, if the regulators decide to go on a witch hunt, they’re going to get you one way or another.

I disagree. Again, the violations the FTC cited are not new or surprising to anyone who understands advertising regulations. If you have ever read or listened to my ramblings in the past you know that I have a tendency to harp on two issues - Education and Due Diligence.  Please forgive me for once again repeating myself, but this is important:

Protect yourself by doing the following:

• Ensure that any member of your staff involved with advertising is properly trained in all applicable regulations.
• Never assume that your ad agencies or vendors know, or are following, the rules. If you write the check, you’re responsible.
• If you’re not sure, don’t guess! Have your advertisements reviewed, and edited if necessary, by someone knowledge before publication (this should done for all of your advertising including websites, YouTube, social media, etc.). It may cost a few bucks, but it’s a small price to pay.

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 “tendency or capacity to mislead the public”; 2) if an ad is deemed deceptive, an advertiser has liability regardless of whether there was intent to deceive and; 3) statements susceptible to both a misleading and a truthful interpretation will likely be construed to be deceptive.

We always fully disclose negative equity on our contracts and leases, why isn’t that good enough?

If regulators feel that the first contact with a consumer is secured by deception, a violation may occur even though the true facts are made known to the buyer before he or she enters into a purchase or lease. Since statements and representations in advertisements are evaluated based on their tendency to deceive, no actual harm to consumers need occur for there to be a violation.

Dealers have been using this type of advertising for years – did the FTC recently change the rules?

No, these types of incomplete statements about paying off trade-ins have been considered deceptive for a long time by both federal and state regulators, so this is nothing new. Bear in mind that the fact that others were, or are, engaged in like practices is not considered a defense.

As to why the Feds decided to take action against dealers now - your guess is as good as mine. The FTC has been threatening to step up enforcement against dealers for the last year or so, but to be honest; I’ve been a bit skeptical. The Feds have traditionally gone after bigger fish and left car dealers to state regulators. So, while this action may just be a flash in the pan, it can also be a major game changer.

How do we avoid this happening to us? I mean, if the regulators decide to go on a witch hunt, they’re going to get you one way or another.

I disagree. Again, the violations the FTC cited are not new or surprising to anyone who understands advertising regulations. If you have ever read or listened to my ramblings in the past you know that I have a tendency to harp on two issues - Education and Due Diligence.  Please forgive me for once again repeating myself, but this is important:

Protect yourself by doing the following:

• Ensure that any member of your staff involved with advertising is properly trained in all applicable regulations.
• Never assume that your ad agencies or vendors know, or are following, the rules. If you write the check, you’re responsible.
• If you’re not sure, don’t guess! Have your advertisements reviewed, and edited if necessary, by someone knowledge before publication (this should done for all of your advertising including websites, YouTube, social media, etc.). It may cost a few bucks, but it’s a small price to pay.

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 your staff is properly trained and accountable for their business practices? Are you comfortable with the last set of eyes you have reviewing your paperwork? What do you think the result would be if you were forced to defend yourself in court?

As they say, “You don’t know what you don’t know”. So, why not take the time to find out by performing a risk assessment? Compliance audits are a vital step in protecting dealerships from legal claims. They can be performed by either knowledgeable dealership staff or by an outside party. At worst, we’re talking about an investment of a few thousand dollars that can potentially save millions. Kind of a no-brainer, isn’t it? Here are some benefits of compliance audits:

Identify training needs – Many dealers, general managers and finance directors are well-versed in automotive legal issues. On the other hand, many other dealer employees have little or no background or training in compliance. They may simply rely on doing things “the way they’ve always been done”. There’s a lot to know about dealership compliance nowadays and a lot of people who must know it. Staff members that negotiate with customers, present prices and payments, make representations and promises or create advertisements may represent the greatest risk of noncompliance in the dealership. Think about all the people involved in those activities on a daily basis – sales managers, closers, used car managers, sales consultants, service advisors, internet department and BDC personnel – you name it. And, of course, there is always employee turnover to contend with. Audit results will help minimize confusion about potential legal issues and identify areas where more training is needed.

Accountability – Employers often don’t know the intimate details of every transaction that takes place in their dealership. It’s possible that some employees believe that “questionable behavior” may benefit the dealership (or themselves) financially or that the behavior is the industry standard and therefore acceptable. Employees may be hesitant to break old habits that have served them well in the past. Trusting that all staff members do the right thing every time can be very risky. Regular audits will help to ensure that employees are following proper procedures, and will reinforce the message that the company policies are the real deal and the organization will not tolerate noncompliance.

Protection from liability – Compliance audits, along with formal policies and training, are vital parts of a good faith attempt at operating a compliant organization. The FTC has specifically stated that this may limit potential liability and will be considered in any prosecution. According to FTC commentary, “The Commission agrees that the establishment of appropriate procedures would warrant consideration in its decision as to whether law enforcement action would be an appropriate use of agency resources. The Commission is not aware of any instance in which an enforcement action was brought against a company for the actions of a single ‘rogue’ employee who violated established company policy that adequately covered the conduct in question.”

Here are some examples of violations that are frequently uncovered during compliance audits:

• Forms and documents that are out-of-date or missing
• Contracts and leases that are improperly completed
• Evidence of potential unfair and deceptive acts and practices (UDAP) claims such as payment packing, price-gouging, “yo-yo” financing, undisclosed vehicle history, or hidden finance charges
• Deferred down payments or negative equity not properly disclosed
• Backdated re-written contracts
• Missing Risk Based Pricing notices (or credit score disclosure), Adverse Action notices, OFAC reports, privacy policies or cash reporting forms
• Fees or additions not properly disclosed on contracts or leases
• Evidence of falsified information on credit applications, power booking, straw purchases, or forged documents
• Information Safeguards and Red Flag policies not in place or not followed properly
•  Advertising regulations not being adhered to

Burying your head in the sand and hoping for the best is simply not a sensible business strategy in this day and age. With every customer interaction, with every car sold or serviced, your dealership and its long-term growth are at risk without absolute adherence to state and federal laws. An investment in compliance programs and training will help protect your assets, your employees, your customers and your good name.

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 your staff is properly trained and accountable for their business practices? Are you comfortable with the last set of eyes you have reviewing your paperwork? What do you think the result would be if you were forced to defend yourself in court?

As they say, “You don’t know what you don’t know”. So, why not take the time to find out by performing a risk assessment? Compliance audits are a vital step in protecting dealerships from legal claims. They can be performed by either knowledgeable dealership staff or by an outside party. At worst, we’re talking about an investment of a few thousand dollars that can potentially save millions. Kind of a no-brainer, isn’t it? Here are some benefits of compliance audits:

Identify training needs – Many dealers, general managers and finance directors are well-versed in automotive legal issues. On the other hand, many other dealer employees have little or no background or training in compliance. They may simply rely on doing things “the way they’ve always been done”. There’s a lot to know about dealership compliance nowadays and a lot of people who must know it. Staff members that negotiate with customers, present prices and payments, make representations and promises or create advertisements may represent the greatest risk of noncompliance in the dealership. Think about all the people involved in those activities on a daily basis – sales managers, closers, used car managers, sales consultants, service advisors, internet department and BDC personnel – you name it. And, of course, there is always employee turnover to contend with. Audit results will help minimize confusion about potential legal issues and identify areas where more training is needed.

Accountability – Employers often don’t know the intimate details of every transaction that takes place in their dealership. It’s possible that some employees believe that “questionable behavior” may benefit the dealership (or themselves) financially or that the behavior is the industry standard and therefore acceptable. Employees may be hesitant to break old habits that have served them well in the past. Trusting that all staff members do the right thing every time can be very risky. Regular audits will help to ensure that employees are following proper procedures, and will reinforce the message that the company policies are the real deal and the organization will not tolerate noncompliance.

Protection from liability – Compliance audits, along with formal policies and training, are vital parts of a good faith attempt at operating a compliant organization. The FTC has specifically stated that this may limit potential liability and will be considered in any prosecution. According to FTC commentary, “The Commission agrees that the establishment of appropriate procedures would warrant consideration in its decision as to whether law enforcement action would be an appropriate use of agency resources. The Commission is not aware of any instance in which an enforcement action was brought against a company for the actions of a single ‘rogue’ employee who violated established company policy that adequately covered the conduct in question.”

Here are some examples of violations that are frequently uncovered during compliance audits:

• Forms and documents that are out-of-date or missing
• Contracts and leases that are improperly completed
• Evidence of potential unfair and deceptive acts and practices (UDAP) claims such as payment packing, price-gouging, “yo-yo” financing, undisclosed vehicle history, or hidden finance charges
• Deferred down payments or negative equity not properly disclosed
• Backdated re-written contracts
• Missing Risk Based Pricing notices (or credit score disclosure), Adverse Action notices, OFAC reports, privacy policies or cash reporting forms
• Fees or additions not properly disclosed on contracts or leases
• Evidence of falsified information on credit applications, power booking, straw purchases, or forged documents
• Information Safeguards and Red Flag policies not in place or not followed properly
•  Advertising regulations not being adhered to

Burying your head in the sand and hoping for the best is simply not a sensible business strategy in this day and age. With every customer interaction, with every car sold or serviced, your dealership and its long-term growth are at risk without absolute adherence to state and federal laws. An investment in compliance programs and training will help protect your assets, your employees, your customers and your good name.

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 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. In many cases, the consumer must opt-in (give express permission) before you can legally send them a text message, even if you have an existing relationship with them.

Here are some things you should know before launching a text marketing campaign:

1. You can’t send a commercial text message (solicitation) to a phone number that’s on the national “Do Not Call” (DNC) list (subject to the “established business relationship” and other provisions of the national DNC rules).
2. You can’t send a commercial text message to a phone number that is on your company-specific DNC list.
3. You can’t send any text message whatsoever to a cell phone number – including sales pitches, service reminders, and communications with current customers - using an “automated dialer system” unless you have the consumer’s prior express consent.  This may include computers used to send automated text messages (yours or your vendors).
4. In some instances, a text message may also be considered an email and must comply with all of the standard CAN-SPAM requirements (contains your physical mailing address, cost-free opt-out mechanism, etc.). A text message will be considered an email if is sent to an email address – that is, if it has an internet domain name after the "@" symbol (for example: sending a message from your computer to a mobile carrier, such as 10digitmobilenumber@txt.att.net).
5. The CAN-SPAM Act also prohibits sending commercial e-mail messages to wireless devices without prior permission. So, no commercial text message that is deemed to be an email may be sent to a wireless device without express prior authorization. Merely having an "established business relationship" with the recipient is not enough.

Confused yet? Here are some suggestions to help protect yourself against legal challenges:

Consult your company-specific DNC list before sending a text message.

Consult the national DNC list and consider whether your messages are based on an "established business relationship," which may provide an exception from the national DNC compliance.

Determine whether your delivery meets the CAN-SPAM Act’s "email" definition, and if so, whether you have complied with the CAN-SPAM disclosure and opt-out requirements.

Put a process in place to ensure that all opt-out requests are honored quickly and permanently.

Develop an employee policy regarding text messaging and educate your staff on proper procedures.

Appoint an in-house compliance coordinator to monitor text messaging by both employees and vendors.

Consider instituting a policy of ALWAYS obtaining recipients’ express prior authorization before sending text messages, regardless of the circumstances or method of delivery.

Always consult knowledgeable legal counsel before launching a text marketing campaign.

 If you use an outside vendor to administer your text marketing campaigns, NEVER assume that they know all the rules and regulations - run it by your legal team first. If you’re writing the check, you’re responsible.

I know - it’s mind-boggling how difficult it can be to deal with these regulations. But just remember - it only takes one consumer (or one employee) to get the legal ball rolling, and it’s certainly not difficult to find a lawyer who’s ready, willing, and able to sue a car dealer.

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 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. In many cases, the consumer must opt-in (give express permission) before you can legally send them a text message, even if you have an existing relationship with them.

Here are some things you should know before launching a text marketing campaign:

1. You can’t send a commercial text message (solicitation) to a phone number that’s on the national “Do Not Call” (DNC) list (subject to the “established business relationship” and other provisions of the national DNC rules).
2. You can’t send a commercial text message to a phone number that is on your company-specific DNC list.
3. You can’t send any text message whatsoever to a cell phone number – including sales pitches, service reminders, and communications with current customers - using an “automated dialer system” unless you have the consumer’s prior express consent.  This may include computers used to send automated text messages (yours or your vendors).
4. In some instances, a text message may also be considered an email and must comply with all of the standard CAN-SPAM requirements (contains your physical mailing address, cost-free opt-out mechanism, etc.). A text message will be considered an email if is sent to an email address – that is, if it has an internet domain name after the "@" symbol (for example: sending a message from your computer to a mobile carrier, such as 10digitmobilenumber@txt.att.net).
5. The CAN-SPAM Act also prohibits sending commercial e-mail messages to wireless devices without prior permission. So, no commercial text message that is deemed to be an email may be sent to a wireless device without express prior authorization. Merely having an "established business relationship" with the recipient is not enough.

Confused yet? Here are some suggestions to help protect yourself against legal challenges:

Consult your company-specific DNC list before sending a text message.

Consult the national DNC list and consider whether your messages are based on an "established business relationship," which may provide an exception from the national DNC compliance.

Determine whether your delivery meets the CAN-SPAM Act’s "email" definition, and if so, whether you have complied with the CAN-SPAM disclosure and opt-out requirements.

Put a process in place to ensure that all opt-out requests are honored quickly and permanently.

Develop an employee policy regarding text messaging and educate your staff on proper procedures.

Appoint an in-house compliance coordinator to monitor text messaging by both employees and vendors.

Consider instituting a policy of ALWAYS obtaining recipients’ express prior authorization before sending text messages, regardless of the circumstances or method of delivery.

Always consult knowledgeable legal counsel before launching a text marketing campaign.

 If you use an outside vendor to administer your text marketing campaigns, NEVER assume that they know all the rules and regulations - run it by your legal team first. If you’re writing the check, you’re responsible.

I know - it’s mind-boggling how difficult it can be to deal with these regulations. But just remember - it only takes one consumer (or one employee) to get the legal ball rolling, and it’s certainly not difficult to find a lawyer who’s ready, willing, and able to sue a car dealer.