In the last month or so, several automotive manufacturers have announced production cuts. One would think that is perhaps counterintuitive in the sense that, with a market severely lacking new vehicles, shouldn’t OEMs ramp up production rather than decrease it?

According to the Wall Street Journal, Ford recently announced plans for “permanent reductions” of new vehicles and is also planning to push consumers into custom building their vehicles. According to the article, the factory will then build those specific vehicles rather than sending “hard-to-sell models that end up collecting dust and lead to profit-sapping discounts.”

Whether Ford is referring to huge rebates on their end, or if they believe they are helping their franchises, is still undetermined. Due to franchise agreements, Ford can’t “sell” vehicles direct to the consumer. But, to many, the process feels like a little end-around for OEMs to control dealerships’ inventory and availability.

The service “disrupters” are also increasing in number. A recent article in TechCrunch illustrates a fairly new service disrupter that has come on the scene - RepairSmith. Their primary offering is to provide automotive service to consumers right in their driveway. Not only is this a disrupter to franchise dealers, but also independents such as Jiffy Lube! RepairSmitth CEO, Joel Milne, states in the article, “We’re trying to disrupt probably the biggest retail industry that’s untouched by a tech.”

Service pick-up and delivery has been discussed for years – even pre-COVID. Some dealerships implemented it, but most didn’t. In the blink of an eye, it seemed that an at-home auto service where a customer (or their vehicle) never has to leave the driveway was unveiled. But this level of service costs the dealership much more than a simple pick-up and delivery service, as it requires more than a couple of drivers along with the loss of a technician, who are in short supply, for an extended period. Even if you simply factor in the transport time, that's a technician that could have completed the job at the dealership then immediately started on another one.

Do you think the combination of decreased production of new vehicles by automotive manufacturers, the continued market share increase from retail sales by Carvana, etc, and the introduction of service repair disrupters will hurt car dealerships? It’s hard to imagine that these new service models won’t. Car dealerships will be left with nothing other than the buying and selling of used vehicles at increasingly higher prices, while manufacturers control inventory, and service revenue is decreased by this new disruptive industry service.

It's only a matter of time before more disrupters appear on the scene to steal more market share from traditional dealership models. What are you doing to prepare and be competitive in these new market conditions?

We’re not alone when it comes to a labor shortage. Data released in July by the US Bureau of Labor Statistics indicates job openings hit a record high in May. The increase largely reflects more vacant positions in the healthcare, education, accommodation, and food services sectors. But few industries have been as directly affected and had revenues hit as much as the automotive industry with the scarcity of technicians. Don't surrender. Much like the pandemic, this is another opportunity for your dealership to innovate!

Let’s start with some facts.

The availability of vaccines paired with a broader reopening of the economy has spurred a snapback in economic activity in recent months. But consumer demand has largely outpaced the ability of businesses to hire. In short, the business is there! 

Many dealers are missing out on a great profit center that is a win-win for consumers and dealers alike, and that is recalls. We’ve got more vehicle owners affected by recalls than dealers can take on due to a lack of technicians and/or service bays. It’s real – very real.  However, buried beneath the obvious discomfort is a workforce ready to get off the bench from binge-watching Netflix. 

The problem is that sadly, too many dealers feel that only their master techs or service bays with lifts can handle these recall repairs, so they are turning down service business unnecessarily. It can be quite profitable when you consider that several states have passed legislation making warranty and recall work billable at retail rates – Tennessee being the latest one, effective July 1, 2021. And it is something your customers need and want!

Let me show you the face of your future technicians. How do I know? Because my son is considering being an automotive technician as we speak. Sure, he’s my son and I’m going to brag a little. However, I also envision hundreds of thousands of kids in similar situations.  They're young, smart, ambitious, tech-savvy, and have grown up on a steady diet of watching others live extravagant lives through social media. The good news is that they want to make money. However, you also need to recognize that this generation is not immediately drawn to what they consider "blue-collar" careers -- or getting grease and oil under their fingers – stereotypes that don’t always hold true. 

At the risk of dating myself, I grew up with cars. I took four years of auto shop and spent it rebuilding a 1968 Chevelle from the ground up. With all that love for cars and experience under the hood, even I didn’t end up as a technician. So, when I look at my son and realize that this generation doesn’t have the same fascination with getting under the hood, it’s no wonder we’re short on techs. However, what drew my son to this career path is a combination of several attributes that we need to leverage as an industry. 

1. 1. Today’s cars are just really big computers that roll. Tomorrow's technician has a passion for technology, computers, smartphones, robotics, and everything that yesterday’s grease monkey didn’t have. We’re going to need both skillsets in the service center of the future.
    
2. 2. The money is good. Compare the starting pay for a marketing position to an automotive technician. Shops are climbing tall fences to secure talent coming out of tech schools, bringing significant signing bonuses with them.
    
3. 3. Tomorrow’s techs crave more flexibility. It’s happening in offices too – they don’t want to be stuck in a cubicle. For service departments, highlight opportunities with your mobile repair team, or outdoor service environments where a lift is not required, and you can offer a more interesting work environment.
    
4. 4. Remove barriers to entry such as having to invest in every tool under the sun. More repairs require laptops, so new techs may be turned off by spending money on tools such as ratchet extenders, ball-joint splitters, and other lesser-used tools.
    
5. 5. Create a culture where new recruits can immediately feel part of the team. Discourage cultures that encourage bullying. True, most of us paid our dues. However, in this new era, the teasing and jokes may intimidate younger staff and foster an unhealthy environment that pushes them out. There’s no room for pranking in a shop.
    
6. 6. Promote quickly. Let’s get beyond how us old guys used to do it. Truth is, we should be encouraging all races, sexual orientations, and genders to look at our industry. And, once they arrive, show them the blueprint for promotion. Reward them for ongoing training and development, as well as a willingness to play an active role in the team. This generation wants to belong and craves recognition.   

If you are short on experienced technicians and competing to hire more of them, consider hiring inexperienced technicians that can be quickly trained to complete software, electronics, and airbag repairs that don't require a master technician or a bay with a lift. And also consider changing your staffing strategy so it is not just a matter of hiring more inexperienced people for these tasks, but it can also help to allocate technicians appropriate to the repair at hand, in some cases freeing up a master tech. Even more promising for the dealership is the chance to recruit and nurture the next generation of technicians who want to earn significant income earlier in their careers.

Consumers come to your dealership to get a problem solved. Rather than being the one that says "No" what if you were the one that said "Yes?" Do you think that would make an impression on the customer? What happens when a customer has a good experience with a dealership? They tend to keep coming back! That can easily lead to future revenue for a service department albeit warranty, recall, or customer pay work. In addition, when it comes to recalls you have no competition from the independent facilities as they cannot do recall repairs

Showing a customer that you care, providing the service they want (and need), and ensuring that they leave the dealership feeling confident the vehicle they are driving is safe for them and their family, goes a long way towards building trust and customer loyalty. Your staff is an extension of your dealership. Provide a safe and healthy environment for recruits and it will show up in your service drive with consumers and in the quality of the work.

Let’s stop blaming staffing shortages for leaving consumers without solutions to their dangerous recalls. It’s going to take out-of-the-box strategies and a culture that attracts tomorrow’s talent.

An insightful article in Forbes details the rise – and expected fall – for used car values. Interestingly enough, the article chose the wording for the headline to include “crash” and “brace for impact.” There is no doubt that the used car market could follow the real estate bubble explosion of a not-so-decade-ago. Dealers are buying at high (sometimes over MSRP) prices, inventory is scarce (both new and used), buyers are leaning towards used (to avoid depreciation and lack of new vehicles) and lenders are buying deep to keep funding loans.

According to the article, this bubble is about to burst. That will leave both dealers (who are in too deep on vehicles financially) and consumers (who bought too high) experiencing hits in deprecation as manufacturers ramp up production and used car values settle down. Definitely not something the automotive retail market wants -- whether you are the seller or the buyer.

The concerns that I have are that these used cars are being flipped so fast that dealers cannot afford to invest the time to get safety recalls fixed before selling them. Dealers are scrambling to get the inventory just as fast as the consumers are gobbling it up. Eventually, however, dealers may end up with a bunch of unsold used inventory on which they are upside down, with consumers even more so. 

Regardless of when it happens, chances are that many consumers are going to end up with vehicles that have open safety recalls… and franchise dealer’s service departments will be even more inundated with service work than they are now. And this doesn’t even include parts availability. Sound like a familiar situation? We STILL haven’t replaced all of the Takata airbags.

This is the PERFECT time to scour DMV registration databases to get information about new buyers in your PMA that have open safety recalls. These consumers may not have any idea that their vehicle has one, and your dealership could be the first to reach out and inform them. That effort could easily translate into a long-term service customer. In addition, you will have a “heads-up” on what safety recalls in your area need servicing, which gives your dealership an advantage for acquiring parts before your competition.

Inevitably, these consumers will be contacted by your competitors attempting to gain this service business. If, however, your dealership is prepared with parts and shop capacity, you can win that business. Imagine being the dealership that can tell the customer “Yes, we have the parts, and we can fix it,” versus being the competitor that says, “We can fix it, but we have to order the parts.” Translating that into sales, that’s like a dealership saying yes, we have the car versus no we don’t.

Who knows? Some of those recalls could turn into service-to-sales opportunities. Either way, it’s a win-win for your dealership to get ahead of the game. In one way, you could easily gain a service customer, and, in another, you might even gain sales through either taking a customer out of service into sales or through referrals.

Being first to the game and having all of the equipment will give you an edge that may translate into a ton of revenue

As used car sales continue to climb, legislators are now more cognizant of and are focusing on how dealerships are selling pre-owned inventory without first getting safety recalls repaired.

As I covered in my previous blog, a bill is currently being put forth to Congress that mandates the completion of any recall repair before selling a used vehicle. The interesting thing is that, even if things returned to pre-COVID conditions tomorrow, the demand for used vehicles would not necessarily die off. According to an article in Forbes, shoppers with excellent credit are choosing used vehicles over new ones because they offer a better value for the price.

So, it may pay to take a look at your best practices and consider placing safety first when it comes to selling used vehicles. Some things may need to change to protect your dealership from any future legislation.

To keep it simple, here are three best practices you can easily include in your process right now that can help prepare your staff for pending legislation. These points will also help you market to and reassure customers that your dealership cares about their safety.

1. Proactive Safety Measures – While this might seem like a hardship that slows turn times, how about making friends with your local brand competitors and then come to an agreement where they repair your safety recalls quickly for any off-brand pre-owned inventory and you do the same for them. This also applies if you are part of an auto group. The other franchises have the same issues and, while it may seem counterintuitive to work with a competitor, in the end, it helps all of you sell vehicles faster and market them to consumers as safe and recall-free.

2. Be More Selective at Auctions – This is a no-brainer. If you don’t want to deal with the first scenario, you can use technology to do a VIN scan on vehicles to identify any with open safety recalls BEFORE bidding. Then, at the very least, you know in advance. If it's your brand (or one that is in your auto group,) you can control how quickly that vehicle's open safety recall is repaired and gets to your front line. If it is not a brand you carry, you need another dealership to help as fast as possible to get the repair done.

3. Enhanced Disclosures –If you don’t want to do either of the first two options before the new legislation forces your hand, I would suggest that, at the very minimum, you ensure your used vehicle buyers know upon purchase exactly what open recalls exist -- with safety recalls being the most important. Then, on top of that, include instructions on how and where to get the repairs done. At the minimum, this shows a customer that you care about their safety. Remember, your dealership is still subject to a product liability lawsuit if death or injury occurs as a result of that recall, whether or not you have signed disclosures. Recall disclosures only protect you from Lemon Laws, not product liability laws. In fact, signed disclosures are often submitted into court as evidence that the dealer willingly sold a dangerous vehicle despite knowing the danger posed.

The bottom line is that it is invaluable to be able to move your used inventory while also ensuring customer safety. There is nothing worse than having a customer in the box for a NEW vehicle, coming to an agreement, then discovering a stop-sale because of a safety recall. Well, this could soon happen with your used inventory too.

Over the last year, any business that remained open did everything possible to reassure customers their premises were safe and followed the latest CDC COVID guidelines. Social distancing, masks, and disinfecting surfaces for customers have become standard practices and, in some cases, are mandated by states. These measures require extra work and extend vehicle turnover time which, as a consequence, reduces revenue. Still, to build consumer confidence in service at the dealership, most made that investment by adding complimentary vehicle sanitization at drop-off.

A recent article in the NY Post shares newly released CDC guidelines which state that surface-level transmissions are infrequent and pose a relatively low exposure rate to COVID of about 1 in 10,000. According to the article, the most frequent way COVID is contracted is through “direct contact with a sick person or from airborne transmission,” not from surfaces. The updated guidelines come as a bit of an insult to small businesses, dealerships included, that purchased equipment/chemicals or paid staff to wipe down surfaces after every interaction. Let’s not cry over spilled milk. What’s done is done. More importantly, what consumers believed is what we all believed – and to earn their business, we instituted policies that no one questioned at the time.

Many dealerships spend a lot of time (and money) on disinfectants and, ultimately, labor hours to disinfect surfaces. Whether those surfaces are desks in the dealership, service vehicles, or cars on the lot, the CDC now reports that disinfectants currently aren’t necessary, stating, “There is little scientific support for routine disinfectants in community settings whether indoor or outdoor to prevent spread through surfaces.” The CDC also states that “In most situations, cleaning surfaces using soap and detergent, and not disinfecting, is enough to reduce the risk.”

What does this new update mean for dealerships? If this is the “new normal,” does the average consumer still expect their vehicle to be disinfected after service? And at the dealership’s expense? 

Many dealers spend a significant amount on disinfectants for vehicles in the service drive when, according to the new CDC guidelines, currently all that is needed is to wipe the vehicles down with soap and water. This can save time, help increase shop capacity, and the volume of vehicles serviced.

Think about how many times disinfectant is used on a vehicle and the expense of that disinfectant. Perhaps a dealership disinfects a service vehicle 4-5 times: When it is checked in, again during the MPI, again before the technician services the vehicle, then again once the vehicle service is completed. That’s a lot of work for something the CDC now states is no longer necessary.

What about sales? Dealerships are disinfecting vehicles after each test drive. And, what about those customers who test drive multiple vehicles? Then they may sit at a salesperson’s desk and, if the dealership closes the deal, customers could be sitting in a waiting area (just like in service.) Is someone following behind every customer disinfecting everything a customer touches?

Of course, customer perception of safety and convenience must be at the top of your importance list and it is key to communicate your safety measures to your customers in a way that makes them feel 100% safe when visiting your dealership.

While the CDC’s update has been widely publicized, it may take a while for the average consumer to learn about it or feel comfortable with the policy. I admit that, if consumers are not current with CDC safety guidelines, it may be a bit of a challenge getting the right message across to your customers, so they do not think you are cutting corners. A good strategy is to post the latest data on your website. Make it highly visible. Get the right message across that the safety of your customers is your #1 priority. Make a video and include it in an email to your customers with their service appointment reminders.

It is certainly a balancing act that needs to be done right. Reassuring customers that sanitary measures are in place in your dealership is an important value proposition. But the latest CDC guidelines about COVID transmission could save you a considerable amount of money and labor hours.

During this pandemic, many dealers introduced measures to ensure vehicle service is more convenient and fits the current lifestyle of their customers. This, of course, comes at a cost. Dealerships have to pay porters or drivers to go to the customer's house, pick up their vehicle, return to the dealership to perform the service, then return it to the customer. What if the labor cost to accomplish this service exceeds the profit generated from it?

Viewpoints are split on the subject. Some auto industry veterans feel that perhaps dealerships should only advertise this service to a segmented audience, offering service pickup and delivery to those vehicle owners who have scheduled service that meets revenue thresholds. And, according to a research study published in Automotive News, when it comes to different age groups, there is a considerable difference as far as those who want pick-up and delivery services or mobile repairs performed at their home or workplace.

As the customer's age increases, the percentage who want pickup and delivery goes from 22% (18-34) down to 7% (55+) when there is a fee involved. Even when it is offered by the dealership for FREE, there is a huge difference as to desire.

If your dealership offers pick-up and delivery, it may be helpful to target your customers differently by age. Be sure to reinforce the value of your dealership and reassure customers that they will be well taken care of. And pay attention to which type of service makes them comfortable. But also take a look at if it is profitable and makes sense to do the service remotely.

It can be a tough call when all you want is to give the best service possible to your customers, but it simply isn’t profitable. It can help to stress the safety initiatives your dealership has instituted so your customers can feel better about visiting in person. Consider making a video of these to send to customers – even include happy customer testimonials from service customers, if you can get them!

Dealerships should also be aware that the Centers for Disease Control and Prevention (CDC) recently stated that there is no significant risk of catching the coronavirus from a surface or object. The CDC clarified its position in a guidance update that states that people generally contract COVID-19 through direct contact with a sick person, or from airborne transmission.  Countless dealerships have invested heavily in vehicle disinfection upon service completion.  We can’t have regrets about following those CDC guidelines – there was just not enough science to refute those early recommendations.

The question is, what do we do about it now? How long does it take for the average consumer to learn about the CDC’s new position? Similar to the early weeks of the pandemic, we can expect confusion as the pandemic subsides. It’s going to take a while for consumers to understand how the guidelines have changed, and whether it’s more beneficial to act out of an abundance of caution. In short, inform customers and let them decide.

If there is a greater opportunity that outweighs the costs associated with pick-up and delivery, then offer that service right up front. Make intelligent decisions on a case-by-case basis to best utilize your resources to achieve growth, profitability, and happy loyal customers who keep coming back.

A salesperson has to build rapport during the initial meet and greet with the shopper. Once they have worked their way into an (at that point) semi-familiarity with the customer, they should move on to the fact-finding step. In this step, salespeople ask questions to help direct the customer to the vehicle that best fits their needs. Or, if the customer already knows what they want, they can pick up key information to better guide the sale.

A good salesperson will quickly spot a customer’s “hot buttons.” Maybe they are interested in performance. Or perhaps they need a vehicle for a family. The customer’s interests should be highlighted in the vehicle walk-around. And, regardless of customer interests, one thing that is always of interest is safety.

A consumer has probably researched multiple makes and models before coming to the dealership in person. How can you be different from your competition, aside from having a different vehicle?

Show them that their safety is important to you!

Not applicable to new vehicles, but definitely for pre-owned inventory – check for an open recall.  You might think it’s a risky step in the sales process, but checking the vehicle, right there in front of them, for a recall will build their trust in you and the integrity of your dealership brand.

Some dealerships may shy away from using this tactic simply because they think a customer would lose interest in that vehicle and move on. But that is not the case.

A dealership cannot legally sell a new vehicle if it has any open safety recalls. That being said, sometimes that information is slow to spread through the ranks of sales and service. A friend told me that they went through the whole sales process and were waiting to go into the finance office to sign papers and drive off in their new vehicle. Then the sales manager showed up at the last minute and told them that he could not sell the vehicle to them because it had an open recall. They were pretty upset after spending hours going through the process only to be denied.

In the case of used cars, dealerships are not legally obligated to ensure open recalls are addressed before the sale. In fact, if the pre-owned vehicle is a different make, they may not even know about it. Many dealers have simply taken the step of adding a waiver document into their finance process stipulating that they are not responsible for any open recalls – which is not altogether true -- read https://www.recallmasters.com/whats-at-stake-legally-when-selling-a-used-car-with-an-open-recall

If the customer drives off in that vehicle and finds out after the fact that it has an open safety recall, they are probably not exactly happy with the dealership. In fact, in a consumer survey performed by Recall Masters, 85% of respondents indicated that they would be upset with the dealership.

In all likelihood, when faced with a recall, consumers appreciate full disclosure. You can take it one step further and if the vehicle is a different make to your franchise, locate a franchise dealer close to them that will perform all the repairs. Remind the consumer that the repairs come at no cost to them and that more than 1 in 4 vehicles are on the road with an open recall. Consumers crave transparency, especially when shopping for a used car.

Serving in the interest of the buyer will elevate your dealership’s profile as a trusted partner.  That’s where referrals come from.

It’s a very competitive market. Differentiation is key to building rapport with the customer and setting your dealership apart from your competition. Do a quick VIN scan during the walk-around with the customer and reassure them that, in addition to all of the normal safety features, there are no open recalls. Going the extra mile to ensure their safety and welfare could be the catalyst to winning a customer.

Part 1: Consumers Vote with their Pocketbooks

When it comes to selling used cars with recalls, dealers seek refuge from scrutiny by turning to fellow dealerships for validation.  We’re all doing it – it’s not against the law.  No, it’s not against federal law, but it also doesn’t mean that’s it good for business.  And there’s also a huge legal question tied to product liability, but let’s set that aside for the moment.  There’s no point to an ethical debate on a practice that is a pretty commonplace in our industry.  Instead, it would be more fruitful to focus on the pillars of good business, risk mitigation and an eventual legislative outcome that will force your dealership to change.  I’ll take the arrows of criticism, but I’m not alone in taking a similar position.  Brace yourselves – it’s not good business to sell a used car with an open recall.  Let’s explore the first of many issues further – consumer sentiment.

At first glance, it’s not fun being a dealer amidst millions of recalled vehicles and angry owners.  Parts shortages, not enough technicians, occupied service bays, dismal factory reimbursement, sales on new models down – how could anyone expect a dealership to absorb the cost of shelving used car inventory affected by a recall?  A few weeks ago, I found myself at an independent dealership discussing the subject of recalls with Hamit, the owner.  Of the 70 or so cars on his lot, about 20% have some open recall, to his dismay.  He explained that shoppers already scrutinize an independent lot more than a franchised dealership, and that franchise dealers the same disadvantage as his store when it comes to selling an off-brand used car with a recall.  Makes sense, right?  In the shopper’s eye, his inventory holds less value without a service center, skilled technicians or the ability to repair a vehicle affected by a recall. 

The volume of recall repairs doesn’t affect independents, but, on the sales side, Hamit knows that recalls are just another point of contention for shoppers who are already leery.  To offset fears, he purchases fewer recalled vehicles at auction.  To stay on top of recalls, he runs the VIN for recalls at acquisition and then again upon sale of the vehicle, recognizing that newly-announced recalls make it impossible for him to own a recall-free inventory. 

“I don’t want to get stuck with a car that is going to be difficult to sell,” he explains.  “It still happens, and I can only give the buyer two options because there’s not enough margin for me to lower the price – give me a couple of days to arrange for the repair at the local dealership or you take the car off the lot today and take care of the recall yourself.  I’m not going to hide from a recall.  I have to do the right thing because these shoppers are already aware of the vehicle’s history and will use any issue to negotiate for a lower price.  If I can’t be honest and up front with them, they will not buy from me and my ratings on CarGurus goes down.  That’s how you kill a business.”

Could it be that some independents are acting more ethically than some franchise dealerships – you bet.  In a hyper-competitive sales environment where the consumer has access to all vehicle data and a multitude of dealerships competing for the shopper’s dollar, honesty matters and, in Hamit’s case, actually differentiates his independent dealership from others who are selling similar makes.  You don’t need to ask the owner of an independent dealership to know that differentiation is almost impossible to establish in the used car sales market.  But, as it turns out, by openly disclosing to the consumer that a recall exists, the dealership is disarming the consumer from using that omission at the bargaining table.  Not only that, it’s simple good, honest business.

Here’s your chance to stand by your product, give shoppers a confident buying experience and garner the highest resale value on your inventory.  Sure, it comes at a cost.  You may have to hold back the sale of that recalled vehicle for a couple of days while the repairs are made, but there’s no better sales leverage than safety.  Is your competitor offering a “recall free guarantee” or connecting the buyer to an authorized dealer locally?  Probably not. 

In a 2018 attitude survey about vehicle recalls, 55.2% of consumers revealed that they hold strong negative opinions of dealerships that don’t go out of their way to disclose a recall prior to purchase.  If you depend on online reviews and referrals from customers, your dealership needs to take a stronger stance on recall compliance.  If not for mitigating risk and financially liability, protecting your inventory from recalls is just good business.

In a similar December 2017 survey conducted by Public Policy Polling, 85% of Tennessee respondents indicated that recall repairs should be made prior to the sale of a vehicle.  Only 13% of respondents felt that a simple disclosure was enough.  When survey takers were presented with a scenario that involved a dangerous recall, like a Takata airbag, 94% of consumers thought that the dealer should not be able to sell the car.  In an industry that depends heavily on customer retention, referrals and satisfaction scores, selling used cars with recalls goes clearly against the will of the people. 

 Whether an independent dealership or a franchise dealership with off-brand vehicles on your lot, recalls still ought to be a dealership priority.  While federal law prohibits the sale of any new vehicle with an open recall, the Motor Vehicle Safety Act does not address used vehicles. As a result, Federal law does not prohibit a dealer from selling a used vehicle with an open recall nor does it require the OEM to compensate the dealer from holding it in inventory should the dealership take a virtuous stance.  The lack of clarity on the subject has placed consumers and dealers in a precarious position.  However, as I eluded to, we’re not having a legal discussion at the moment.  Let’s stick to the consumer buying experience.

It’s an easy leap to see where used car shoppers don’t benefit from any less than overt disclosure, but what about consumers who own used cars with recalls?  In a climate where recalls deflate the value of a vehicle, how does the consumer benefit from lower trade-in value or the inability to sell that car on the open market due to a recall?  The issue of recalls creates complexity for consumers as well.  For the moment, let’s focus on dealerships and what’s at stake.  Let’s point out the obvious – the used car market is hot, but also precarious.  Reconditioning a vehicle acquired in the open market, at trade-in or at auction has to be done at break-neck speed.  Every second counts, so the prospect of sending that vehicle to an authorized dealership for recall repair seems unlikely, especially since federal law doesn’t require the dealer to do so.  Case closed, right?  Not as long as consumers can vote with their pocketbooks. 

Selling a vehicle with an open recall, while legal, is frowned up by consumers.  At what risk to the brand are you willing to go in order to move inventory?  Granted, Hamit never shelved inventory at his independent, but he went a step beyond a discreet printed disclosure and gave the consumer an option that called on his dealership to arrange for the repairs.  As a result, he never had to sacrifice profits nor his integrity.  He never had to be reticent about recalls or slide a disclosure under their unsuspecting nose – he was up front and honest.  Hamit also mentioned that he faces more competition at auctions from franchised dealers looking for recalled vehicles that they can repair for factory reimbursement and then put on the lot at a premium used car price.  For these franchised dealerships, they win on both service and sales fronts along with protecting their brand by taking an unsafe car off the road.  He wonders why it is that franchise dealerships have to act so clandestine when it comes to recalls, given that every dealership has similar issues.

While disclosures may meet a legal requirement (all 50 states have some disclosure laws on the books), it’s just not enough for consumers, who may not even understand what they’re signing.  It doesn’t meet the smell test – it’s underhanded, misleading and in direct conflict with what consumers expect.  Anything less than clear verbal disclosure and assisting the new owner on how to resolve the recall is bad business.  If you don’t know that, you’re just not being honest with yourself and your not positioning your dealership to win consumers over the long haul.  There are ways to manage a recalled vehicle and the process of disclosing it to a consumer who is falling in love with the concept of driving it off your lot.  There’s a lesson here from a small independent dealership in Burbank, California – we should all take note.

In the coming weeks, we’ll look at a few other pitfalls that selling used cars with a recall present.  However, if approached proactively, the recall crisis is better described as an opportunity for dealerships rather than a pitfall.  It’s not all bad news.  In fact, this is the moment where the chasm widens.  Is your dealership a market leader building a loyal base of customers by acting in their best interest or is your dealership setting its own hair on fire to get rid of the tangles?  Oh yes, what a tangled mess we have on our hands with recalls.