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 painfully aware, there are plenty of federal and state regulations that govern automotive advertising. For instance, social media postings that list vehicle prices, payments, downpayments or drive-off amounts may trigger advertising disclosure requirements.

Here’s an illustration of how an online interaction could potentially come back to haunt you. A few days before this past Labor Day, I saw a posting from a dealer on their Facebook page about a Labor Day weekend special that offered zero drive-off leases. During this time period, several competing dealers ran newspaper advertising on similar lease programs with “no money down, zero driveoff, leave your checkbook at home” and so forth. On closer inspection, many of these ads indicated in the fine print that certain fees were due at signing, such as tax, license, doc fees and acquisition fees.

I logged on to the Facebook dealer’s website to check out the actual ad (there were no disclosures on the Facebook posting other than zero drive off). The ad indicated that the customer was responsible for tax and license. I then contacted the dealer online to inquire whether I had to pay for the tax & license or if it was indeed “zero out of pocket”. The dealer representative responded that yes it was zero down, but since it was the last day of the month, I needed to come in before close of business to take advantage of the special lease.

Now, let’s look at some possible outcomes if a customer decided to go to the dealership that night.

If the customer went to the dealer to lease the car and there was indeed no money down required and they gave her the advertised payment, she would probably leave happy and nothing else would matter.

But, if she showed up at the dealership and they informed her that she had to pay other fees to get the advertised payment, a few other things might happen:

1. She might reluctantly pay the fees or roll them into a higher payment. The salesperson’s closing ratio would go up and his CSI would go down.
2. She might leave and go lease a car from another dealer.
3. She might decide to take the written evidence of the transaction to her friendly neighborhood attorney. This could happen the next day or sometime in the future if she decides that she no longer wants the car.

Here are some potential claims that an attorney might make. First, I wouldn’t be surprised if an aggressive attorney would try to make a case for Unfair and Deceptive Acts and Practices (UDAP) for the dealer rep’s little miscommunication about zero down (remember, the customer has an email from the rep that said there was no money required).

Next, the dealer’s Facebook posting stated that they were having a “Labor Day Weekend” sale, yet the dealer rep claimed (in writing) that the sale was over the Tuesday BEFORE the Labor Day weekend. Another deceptive act?

The attorney might also throw in a few advertising violation claims for good measure, such as that the Facebook posting may have lacked some required advertising disclosures and the disclaimer in the dealer’s website may not have been clear and conspicuous enough to be in compliance.

There’s a good chance that an aggressive lawyer would throw all of those nitpicky claims against the courthouse wall to see what sticks. Plaintiff’s attorneys love UDAPs, they can often get multiple damages and attorney fees if successful.

So, here’s my two cents: Be careful what you say; even more careful what you write and if you communicate with customers, it’s not a bad idea to get some training in legal compliance.

“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 omission, they may end up in a courtroom or worse.

When you look at actual enforcement actions and court cases against dealerships, there is typically one common element – the perception that the dealer was less than completely honest with a consumer. The laws allow for a very broad interpretation of what is considered to be unfair or deceptive. Here are some common examples of accusations by plaintiff’s attorneys and regulators:

• Making false statements or failing to disclose a material facts to a consumer
• Oral promises made to the consumer that the dealer fails to deliver upon
• Misleading statements about APR, such as “You won’t be able to get a better interest rate than this”, when the buy rate is being marked up
• Communicating information in a manner that may be misleading, either by commission or omission
• Adding the cost of an F&I product to a consumer’s purchase agreement or lease without first obtaining the consumer’s express consent to purchase the product
• Informing or suggesting to a consumer that the price of any F&I product is included in the price of the motor vehicle
• Informing or suggesting to a consumer that the sale or lease of a vehicle subject to credit approval is a final or completed transaction
• Altering documents without the knowledge and permission of all parties
• Obtaining a credit bureau without proper authorization
• Failing to sell a vehicle at or below an advertised price, whether or not the consumer knows about the advertisement
• Advertising vehicles with intent not to sell them as advertised
• Misrepresenting discounts in advertising and not disclosing important limitations
• Advertising claims such as "everyone financed," "no credit rejected," or similar claims when the dealer is unwilling to extend credit to any person under any and all circumstances
• Engaging in false or misleading advertising, either orally or by way of media
• Advertising “no money down” or “zero drive off” when there is actually some money needed to achieve the advertised payment amount (such as tax, license, acquisition fee, etc.)
• Representing to a consumer that a vehicle is available for sale when it is not
• Informing or suggesting to a consumer that an F&I product is a required purchase
• Informing or suggesting to a consumer that purchase of an F&I product will increase the likelihood that the consumer will be approved for financing or that financing will be approved on more favorable terms to the consumer
• Increasing the selling price of a vehicle to cover a bank acquisition fee
• Intentionally overstating a vehicle’s value by supplying an incorrect book-sheet or due bill to a financial institution
• Over-allowing on a trade-in, thereby increasing the sale price of the purchased vehicle or failing to properly disclose negative equity
• Misrepresenting the amount of rebates available to a customer
• Engaging in payment packing, i.e. inflating payments, inflating down payments, extending the contract term or in any way disguising the actual charges for goods or services.
• Knowingly delivering a vehicle where the lender or lessor will not approve the consumer for financing according to the terms set forth in the installment sales or lease contract, with the intention of re-writing the contract at a later date
• Failing to properly disclose deferred down payments
• Knowingly misrepresenting a vehicle’s prior history or condition, either by commission or omission
• Forging documents
• Knowingly misrepresenting a vehicle, products or the terms being offered
• Falsifying, or allowing to be falsified, any information on a credit application
• Knowingly allowing a consumer to participate in a “straw purchase”
• Misrepresenting the scope or extent of coverage under a service contract or warranty

It’s more important than ever to be very careful when dealing with customers. Plaintiff’s attorneys are constantly on the prowl for cases and regulators recognize the political capital in going after dealers. There’s just no upside to being accused of lying.

The good news is that you can feel free to lie to car salespeople in your spare time.

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 believable.

Then I noticed the view count on the video. Just short of 110,000 views so far, most of which are from the last month or so. Needless to say, I was astounded! One car deal, one customer, one dealership, over 100 thousand views? No way, this has to be a mistake.

Sadly, it’s no mistake. Here’s how it happened:

The video was produced by a consumer group who naturally had an agenda of their own. While the customer’s initial complaint was that the car had problems and he wanted his money back, a good portion of the video dealt with how the customer was saddled with an unfair arbitration agreement by the dealer. Now, according to the clip, the poor customer can’t get his day in court, has had to wait years for his arbitration hearing, has little or no chance of winning in arbitration because it’s skewed towards the dealer, and all kinds of other nonsense.

The arbitration issue is what caused this video to go viral. Consumer groups and plaintiff’s attorneys have been lobbying against arbitration agreements for years. This is just another sneaky way to promote their agenda. There are now links to this video on consumer sites, legal blogs, you name it. The worst part is that the video shows up on page one when you Google the dealership or search on YouTube. It’s just a darn shame.

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 perception is the only reality that should matter.

“We have to advertise aggressively and do whatever it takes to drive traffic to the dealership.”
Customer Perception – “I hate the way you advertise. Why is it that the deal is never what it seems? Like when you advertise a car for $7,000 and when I get there I find out that the $7,000 is only the up-front payment for a pre-paid lease and the residual is $11,000. Why can’t you just advertise the real price with no tricks?”

“Customers make ridiculously low offers. If we don’t pack the payments they won’t feel like they got a deal. It’s all part of the game.”
Customer Perception – I hate that damned “four-square” thing you do! It really tempts me to do something uncivilized with your green sharpie. I didn’t come here for a shell game – I came here to give you the opportunity to give me real numbers and perhaps sell me a car. If I didn’t like your car, I wouldn’t be here - why do feel it is necessary to play games with me?”

“If a customer is willing to pay more than the ad price, I’m not going to talk him out of it.”
Customer Perception – “It’s ridiculous that you have multiple prices. Why is it that you advertise one price on the internet and a different price on the lot? Why must I have to try to negotiate down to the price that you have already advertised? I’m not Inspector Closeau – I just want a fair deal and don’t want to be treated like an idiot because I failed to turn over every rock to find your “best” price.”

“Whatever you do, don’t sell the ad car, it’s a big loser. Get the customer down here and switch them to something we can make money on.”
Customer Perception – “I saw an advertisement for a great price so I called you and asked if the car was still available. You told me ‘Yes, c’mon down’. When I got there a short time later, I was told ‘the car was sold last night but don’t worry, we’ll give you a great deal on something else’. Why did you lie to me?”

“The only reason we advertise those loss leaders is to get people on the lot. No way am I going to sell a car and lose money.”
Customer Perception – “I tried to buy a car at the price you advertised in the paper and you told me that the ad was a mistake and the real price is higher. I don’t believe that for a second.”

“We need to close the customer at the highest payment possible so we can make some money.”
Customer Perception – “You told me that the service contract and other accessories were included, but when I read my contract I see that you charged me thousands more.”

“This customer is credit-challenged, she’s lucky to get approved at all.”
Customer Perception – “You told me that the bank won’t finance me unless I pay a higher price for the car and I buy a service contract to “protect the loan”. I’m willing to pay a higher interest rate, but I don’t think it’s fair that I have to pay more for the car too.”

“Your customer’s debt-to-income ratio sucks. We need to give him a raise and hope the bank doesn’t stip for income.”
Customer Perception – “You lied about my income on the credit application and told me not to worry because the bank won’t ask for proof. What else are you lying about? And what happens if the bank calls me, do you expect me to lie to them too? It doesn’t seem like the right thing to do.”

“That’s the perfect car for your customer. Do whatever it takes to send her home in it.”
Customer Perception – “You told me that the car I bought is a ‘one-owner creampuff’, then I find out that the ‘one owner’ was Hertz Rent-a Car! Why did you lie to me? I still might have bought another car from you if you had told me the truth.”

“I’ll over-allow on the trade to make them happy, just close them at this payment.”
Customer Perception – “You told me you would pay off my trade then I found out you added thousands to the price of the car I bought. I would have sold the car myself if I knew you were going to charge me more.”

“We need get rid of those grounded demos.”
Customer Perception – “I was told that the car I bought was new and had a full factory warranty. When I asked why it had 7,000 miles on it, I was told that the manager drove it back and forth to work. Then I found out that a good portion of the warranty was used up.”

“If a customer asks about that painted fender, just say it was key-scratched and repaired.”
Customer Perception – “When I asked you if the car have ever been in an accident, you said it hadn’t. Then my neighbor, who runs a body shop, checked out the car and told me tells me that it’s been wrecked.”

“Let’s just roll the deal. Once they fall in love with the car and show it to all of their friends, they’ll re-write at a higher payment.”
Customer Perception – “You told me my loan was approved, and then you called me back and told me that I need to put more money down and agree to a higher payment or you’ll take the car back. I never would have taken the car home if I knew this was going to happen.”


This article is intended as food for thought. You may agree or disagree. One final thought though - a consumer law firm or attorney general’s perception of the above scenarios probably wouldn’t be pretty.

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 unwary car buyers and are unfair to those dealers who compete on the basis of forthright and truthful advertising”. You may also recall that in 2007, Bill Heard Chevrolet was faced with a $50 million deceptive advertising lawsuit by the Georgia Governor's Office of Consumer Affairs.

Many dealers run into trouble with their advertising when staff members or outside vendors are not aware of the countless federal and state laws that regulate advertising. Here are some practical tips on how to avoid advertising violations:

• Never assume that advertising agencies or representatives know all the laws and regulations governing advertising compliance. This is particularly true of companies based in other states, such as internet and direct mail providers. State advertising laws vary and the responsibility for compliance lies with the dealership, not the advertising agency.
• Be aware of all advertising that your staff participates in. If your internet manager is advertising online (including social media!) or your used car manager is placing Auto Trader ads, it is important that they are properly trained and that all advertising is inspected before it is run.
• All advertising, whether printed, broadcast, internet or otherwise, should be in plain language, clear and conspicuous and non-deceptive. Deception can result from direct statements in the advertisement or from reasonable inferences that may be drawn from an ad, or from disclaimers that contradict, confuse, unreasonably limit or materially modify a principle message of the advertisement. Deception may also result from the failure to clearly and conspicuously disclose any material facts, including limitations, disclaimers, qualifications, conditions, exclusions or restrictions. Advertising is considered deceptive if “members of the public are likely to be deceived” or the advertisement has a “tendency or capacity to mislead the public”.
• Be sure that everyone understands that Bait & Switch is a commonly-cited advertising offense and must be avoided. The FTC defines Bait & Switch advertising as “an alluring but insincere effort to sell a product or service which the advertiser in truth does not intend or want to sell. Its purpose is to switch consumers from buying the advertised merchandise in order to sell something else, usually at a higher price or on a basis more advantageous to the advertiser.”
• If you are not sure about an advertisement, you should have it reviewed by a qualified professional – it may end up costing quite a bit less than a legal action.
• Be conservative in your advertising and understand that your intent is not relevant as far as the law is concerned. If an ad is deemed deceptive, an advertiser has liability regardless of whether there was an intent to deceive. A dealer has the duty to investigate the accuracy of any statements made in advertising.

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 who’s watching the store.  But fear not, the brilliant perpetrators of all of this negative feedback had a plan. They simply added some positive posts to the site, which of course were exposed as coming from the dealership’s IP address.  So much for that idea. How does this dealer defend against various staff members allegedly lying to customers and then trying to cover it up? It’s sure not going to be easy.

• A post on another site accused the dealer of deceptive adverting. Now, I long-ago realized that some customers have tendency to misread advertisements, so, in order to give the dealership the benefit of the doubt, I looked up the ad on their website. Well, sure enough it was questionable at best and went astray of state advertising regulations. The people who wrote that ad may be patting themselves on the back for bringing customers across the curb, but at what cost? The customer not only did not buy from the dealer, but also gave a glowing review and recommendation of the competitor who ended up earning their business. Undoubtedly, there are many people who are going to read that review about the dealer’s advertising practices but how does the dealership defend itself? They could claim that the ad wasn’t deceiving but the state’s attorney general might not agree. Does the dealer really want to open that can of worms?

• The next dealer was accused of payment packing by the finance department.  According to the post, the customer attempted to rectify the situation by returning to the dealership to discuss the issue but apparently received no satisfaction. After the customer posted the negative review, a customer relations rep from the dealership responded with a nice apology and offers to help – so far, so good, (although it was 21 days after the original post).  Here’s where it goes downhill – the next post comes from an “anonymous” employee of the dealership who proceeds to berate the customer by accusing him of posting fraudulently. The employee stated that the customer’s issue couldn’t have happened; the company is wonderful, etc.  “Anonymous” actually remarked that the customer should be “ashamed of himself” and “should be man enough to discuss his concerns and not hide behind a fraudulent posting.”  Is it just me or is this the worst possible way to try to handle a negative review??  Eventually, the GM got involved and the problem was finally rectified to the customer’s satisfaction (I guess it was a real customer with a real complaint and not a fraudulent posting?).  The customer very graciously posted an update about the resolution, but also responded about the employee that attacked him and called him a liar. The question that comes to mind is this: What has more significance in the mind of someone reading this review - that the dealership ultimately handled the complaint or that someone in the dealership raked the customer over the coals for complaining in the first place?

There are a number of excellent firms that specialize in Online Reputation Management and I highly recommend that dealers consider utilizing their services. But it important to realize that while these companies do an outstanding job, it may not be possible to mitigate the damage caused by ethically-challenged personnel. The first and most important step in managing one’s reputation is having zero tolerance for bad behavior by employees.

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 falling victim to other types of class action lawsuits that are no less mind-boggling. It should come as no surprise that these cases typically end up with the allegedly wronged consumers getting little or nothing while the attorneys collect a fortune.

Here are some recent examples of class action lawsuits in California:

• A Toyota Dealer failed to properly disclose an “Optional DMV Electronic Filing Fee” on leases that were assigned to Toyota Motor Credit Corporation and charged the fee without the customer’s knowledge or consent. It is believed the case affects over 50,000 persons who leased vehicles from over 60 Toyota dealerships in the last five years. (We’re talking about a $28 fee).
• A dealership settled a class action suit where a customer alleged that when she was called back to the dealership to sign a new contract to purchase the same vehicle, the dealership dated the subsequent contract the same date as the original contract, thereby causing undisclosed charges. Members of the class, believed to be up to 500 customers, will receive up to $1,400 for valid claims.
• A class action lawsuit that consisted of all persons who executed a Retail Installment Sale Contract with the dealership that included in the “Cash Price of Motor Vehicle,” on the contract the cost of insurance. The Court awarded members of the Class a refund of all of their payments, as well as having the option to rescind their contracts.
• A suit where the Class consisted of all persons who purchased a used vehicle from the dealership for personal use and were charged “California Tire Fees” even though the dealer had previously paid the tire fees to the seller of the tires at the time the dealer purchased the tires. (Tire fees are $1.75 per new tire).
• Another Class consisted of all persons who purchased a diesel vehicle from the dealership for personal use and were charged a smog fee and a smog certification fee.
• A lawsuit where the Class consisted of customers who made a deferred down payment, and whose RISC does not disclose that some portion of the down payment would be deferred until a later date.
• Another action naming all persons who purchased a used vehicle for personal use that was not equipped with new tires, but who were charged a California Tire Fee.
• A Class was defined as all persons who executed a Retail Installment Sale Contract for the purchase of a vehicle for personal use where registration and licensing fees were not properly disclosed.
• Another Class including all customers who were not properly notified within ten days of the execution of their purchase contract that the dealer was exercising its contractual right of rescission.
• Customers who signed a Retail Installment Sale Contract that failed to separately itemize the amounts paid for license fees and registration/ transfer /titling fees on the retail installment sale contract. (Are they kidding? The dealer did not overcharge the fees, but simply did not split them up!)
• A class action settlement was reached on behalf of all consumers who purchased undisclosed prior rentals, entitling class members to $1,000 refunds from the dealership.
• Another class action that involves the failure of the dealer to disclose the itemization of capitalized cost in the precise manner required by law.

You may be thinking that since you have your customers sign an arbitration agreement you don’t have to worry about class-action lawsuits, right? Well, in two recent cases, a law firm successfully defeated motions to compel arbitration in backdating and deferred down payment class actions. One of the Courts held that the customer could not waive her unwaivable rights under the Consumers Legal Remedies Act, which included the right to bring a class action lawsuit. The other Court held that the arbitration clause was procedurally and substantively unconscionable.

Although the cases above are all from California for illustration, be assured that there are attorneys in every state finding ways to exploit dealers. In many states, a plaintiff suing under the state consumer protection laws does not need to prove that the dealer intended to defraud the consumer in order to make out a case. The lack of any element of intent on the part of the dealer not only lowers the bar for proving liability, but also makes the case more susceptible to treatment as a class action.

What’s really sad about all of this is that most of these lawsuits have nothing to do with unfair or deceptive practices on the dealer’s part. The lawyers are simply taking advantage of mistakes and oversights. Take tire fees for example. These fees are often mistakenly charged because the dealer’s DMS isn’t programmed to differentiate between new and used tires. If an employee inadvertently overcharges the fee, it is not retained by the dealer, but sent to the state. So, does that mean that California and the dealer are in cahoots in defrauding the poor consumer? And how about the need to separately itemize the amounts paid for license fees and registration/transfer/titling fees? C’mon, that’s just ridiculous.

The good news is that exposure to these types of lawsuits is avoidable. It is important for dealers to review their company policies and practices and ensure that all employees are properly trained. It may also be a good idea to have a highly-qualified second set of eyes on every deal. Personnel can get very busy and may overlook important details when trying to move customers through the sales process in a timely fashion.

It’s a shame that dealers have to contend with these issues. It’s tough enough trying to stay afloat without the sharks circling.