General Motors has ignited a furor among its dealers with two bulletins issued August 10, 2017. Bulletin 17-12 pertains to use of non-GM parts and accessories and vehicle service contracts, and Bulletin 17-13 announces a policy about incomplete or altered vehicles. GM mandates unprecedented disclosures to consumers backed with serious threats.
Bulletin 17-12 advises dealers they must notify customers purchasing vehicles with non-GM service contracts that GM will not back those contracts. Nothing is new about that requirement. What is new is mandate of a separate form for that disclosure combined with an inflammatory and misleading disclosure about use of non-GM parts. Bulletin 17-13 is written loosely to capitalize on GM’s millions of recalls by threatening to involve dealers in responsibility for recall related repairs if dealers do not use GM parts where that is not required by the franchise agreement or federal law.
GM dealers support use of OEM parts in situations mandated by the franchise agreement. They advocate use of GM parts where appropriate. The problem is GM’s attempt to force dealers to use GM parts (or give the inflammatory disclosure to consumers) where competitive forces – holding down costs in reconditioning older GM used vehicles, agreements with consumers on customer paid repairs to reduce repair costs, and mandates by insurance companies in body repairs – lead dealers to use aftermarket parts.
In the form mandated in bulletin 17-12, Part 1 contains a disclosure for sale of a non-GM service contract that GM is not responsible for any claims and the contract may not be accepted at other GM dealerships. The problem is the mandated language of Part 2 about non-GM products or accessories. It contains the expected language that GM will not be responsible to back those similar to the disclosure on non-GM service contracts, but it adds this language: “Installation and operation of Non-GM Products/Accessories on a GM vehicle may cause extensive damage to the vehicle, compromise its safety, interfere with the vehicle’s operation, or affect the validity of the GM New Vehicle Limited Warranty.”
Dealers quickly understood that GM was outrageously mandating that dealers either use GM service contracts and parts, or they must tell their customers the dealership cares nothing for the soundness of their vehicles or the safety of their families. The bulletins led to dozens of letters to GM by state trade associations. The letters pointed out numerous problems, particularly with the required form.
- There is no basis for the expansive and inflammatory language in the form. In Bulletin 17-12, GM quotes three sections of the GM dealer sales and service agreement. These are
Article 5.1.1 -Responsibility to Promote and Sell:
“If Dealer modifies or sells a modified new Motor Vehicle, or installs any equipment, accessory, recycled part or part not supplied by General Motors, or sells any non-General Motors service contract for a Motor Vehicle, Dealer will disclose this fact on the purchase order and bill of sale, indicating that the modification, equipment, accessory or part is not warranted by General Motors or, in the case of a service contract, the coverage is not provided by General Motors or an affiliate.”
Article 7.2.1 -Warranty and Policy Repairs states:
“Dealer agrees to use only genuine GM or General Motors approved Parts and Accessories in performing warranty repairs, special policy repairs and any other repairs paid for by General Motors, in accordance with the applicable provisions of the Service Policies and Procedures Manual.”
Article 7.2.2 -Representations and Disclosures as to Parts and Accessories:
“In servicing vehicles marketed by General Motors, Dealer agrees to disclose the use of recycled and nonGeneral Motors Parts and accessories as set forth in Article 5.1.1.”
Notice three things about these sections. First, nowhere in 5.1.1 is there any requirement that GM can control the installation of the aftermarket parts in used GM vehicles for sale by GM dealers. That article refers only to use of parts and accessories in new GM vehicles and sale of service contracts for any (new or used) GM vehicles. Second, nowhere in 7.2.1 is there any requirement for use of GM parts in repairs not paid for by GM. Third, even though 7.2.2 applies disclosure requirements under Article 5.1.1 to repairs on GM customer vehicles, nowhere is there mandated inflammatory and offensive language calling into question the dealer’s judgment or care for the well-being of consumers or their vehicles in using those parts.
- The GM bulletins that require a dealer to use GM parts or make the ugly disclosures go far beyond any requirement of the franchise agreement. Yet, GM announced a ramp up of the penalties on dealers for failing to use this form. It not only backs the mandate with the typical threats that a dealer may lose benefits or may be terminated, it added a threat to impose a penalty of $500.00 per non-disclosure.
- The form was designed to be so ugly that dealers will look for ways to avoid using it. How does a dealer do that? Don’t sell non-GM service contracts. Don’t install non-GM parts in used vehicles or customer vehicles. The purpose of the bulletins and the form is anti-competitive – to force dealers to sell GM service contracts and to install GM parts in situations not mandated by the franchise agreement.
- Using one form to cover service contracts in Part 1 and parts and accessories in Part 2 is no accident. The inflammatory language of Part 2 that dealers care nothing for their customers or their vehicles will be seen as applying not only to Part 2 on parts and accessories but to Part 1 on non-GM service contracts.
- The form uses two old, discredited sales tactics – fear and deception — that, if used by dealers, would have GM screaming about the abuse of consumers. It induces fear in customers buying a used GM vehicle or having repairs done to their GM vehicle with non-OEM parts. It is deceptive because no GM dealer would sell service contracts or use parts in used vehicles or customer vehicles that can cause harm to or affect the safety of a vehicle. But the form mandates dealers who don’t sell GM service contracts and parts in all circumstances to scare and deceive their customers.
- The form itself will damage the relationship between GM dealers and their customers. How does a dealer tell a customer it used parts and accessories that may damage the customer’s vehicle and threaten its safety, yet still maintain the confidence of the customer?
- The form will damage relations between dealers’ body shops and insurance companies. If non-GM parts are used by GM dealers in repair of a GM vehicle, the dealer must use the offending form even when the insurer requires use of those parts. The form tells customers their insurance company chose parts that may damage the vehicle and threaten their safety. Will insurance companies continue to use GM dealer body shops to repair GM vehicles if their decisions on parts will only be criticized by the dealer based on a GM mandate?
Based on the firestorm of criticism, GM issued another communication on August 24, 2017 in which it feigned flexibility on the harshness of the August 10 bulletins. However, that has no practical impact on their unlawful and improper effects. The revision changed the offensive form language slightly to state “They [non-GM parts and accessories] also may damage the vehicle, compromise its compliance with safety standards or void the GM Warranty on the vehicle itself.” While toned down slightly, the form still questions the dealer’s concern for customers and their vehicles. Moreover, GM suggested dealers might alter the disclosure language, but that feigned flexibility contained the warning that “other forms of disclosure may not meet the disclosure requirements.” What dealer will risk penalties up to termination if it can use the safe harbor of the inflammatory and deceptive form, or if it can avoid using the form completely by selling only GM service contracts and using only GM parts and accessories?
GM is not alone in having requirements regarding non-OEM parts or non-OEM service contracts in its franchise agreement. The requirements of other OEMs are not as stringent as those contained in the bulletins issued by GM. However, dealers should review their franchise agreements to understand their obligations.
For example, Fiat Chrysler requires a dealer that installs on a new vehicle any equipment, part or accessory not supplied or approved by FCA or sells a non-FCA service contract on a vehicle to disclose in writing those parts or accessories are not included in warranties furnished by FCA or in the case of a service contract that coverage is not provided by FCA. That disclosure must go on the purchase order or bill of sale.
Mercedes Benz dealers may only use aftermarket products that won’t affect the mechanical operation of the vehicle and are equivalent in design to Mercedes Benz parts and accessories. If the dealer uses aftermarket parts and accessories, it must disclose that to the customer and advise the customer that the item is not included in warranties furnished by MBUSA.
The Honda franchise agreement has a section on non-Honda parts, and it requires that a dealer may not represent or imply to a customer that non-Honda products are Honda products.
So why does all this matter to you if you are not a GM dealer? Because if GM succeeds in its clear purpose – to end or reduce the use by its dealers of non-GM service contracts and non-GM parts and accessories in all operations – what will stop other manufacturers and distributors from following by expanding the limited requirements in their franchise agreements? Pricing pressures on new vehicle sales from the internet and other recent developments do not affect just dealers. Increased pricing transparency also affects OEMs who must hold down vehicle prices in this hyper-competitive market. As their vehicle profits decline, they seek other ways to increase profits. Increasing OEM profits on the backs of dealers by mandates to purchase items other than vehicles has historically been the answer, and increased service contract and parts sales can be important to that increase.
In the August 24 letter, GM notified dealers they must comply with the bulletins by December 1, 2017. State and national dealer associations will continue to work to challenge GM’s overreach. However, as the effective date approaches, dealers must decide how they will cope with GM’s disregard of dealers’ rights.