Best Practices Quiz

March 2022

By Michael G. Charapp
Charapp & Weiss LLP

In the last six months, we have reported on best practices you should adopt for your dealership operations. This quiz tests how carefully you have given attention to the suggestions.

1. You have received a letter from your franchisor that your sales performance is substandard in breach of your obligations under your dealer sales and service agreement. You should:

A.  Challenge the claim because you have had no new vehicle inventory.

B.  Deny the claim you have breached your DSSA because you have complied with your obligations under it.

C.  Take the franchisor up on its offer of assistance.

D.  All of the above.

2. You are purchasing three used vehicles at wholesale from a dealer in another state. You have done business with the dealer before, and you know the person with whom you are negotiating. He sends you wire instructions to pay for the vehicles. It is OK to wire the money based on the email since you know the people with whom you are dealing, True or False?

3. As a franchised dealer, you cannot sell a vehicle for export from the United States under your dealer sales and service agreement. If you do, you will face franchisor penalties. You are contacted by a buyer who asks you to sell him a new vehicle and deliver it to the port to be shipped overseas. You should:

A.  Question the buyer. If he will not sell it, but he will use it personally overseas, you can do the deal.

B.  Refuse to do the deal.

C.  Bump the price to pay for the expected penalties.

D.  None of the above.

4. Competing dealers are advertising vehicles at prices you know they don’t intend to honor. To compete, you advertise vehicles at a price, but when the customer comes in, you will only sell the vehicle at its higher current market value. This is OK if:

A.  You use a disclosure in your ad that the customer may pay a higher price because of market conditions.

B.  You disclose the higher price in fine print in the ad and break out the elements including a sales commission fee that justifies the price increase.

C.  You advertise vehicles you do not have available, planning to offer higher priced vehicles when the customer comes in.

D.  None of the above.

5. You are careful to obtain a completed I-9 from every new employee. You have studied the form carefully, and you know the document or documents that are most effective to prove the new hire’s identity and authorization to work. To keep your records clean, you tell the new hire what he should provide to prove those facts, True or False?

6. You offer a comprehensive warranty that covers all mechanical and electrical systems of the used vehicles you sell that is much better than anything provided by your competitors. You may mark on the FTC buyer’s guide that you are offering a “FULL” warranty to show your warranty’s coverage is superior, True or False?

7. Besides vehicles in your used vehicle inventory, what vehicles should have an FTC buyer’s guide:

A.  New vehicle demonstrators.

B.  Used vehicle demonstrators.

C.  The spouse of the dealer’s demonstrators.

D.  All of the above.

8. The FTC and the CFPB have both changed dramatically from the days of the Trump administration. Both are once again led by bureaucrats critical of dealer F&I practices. A dealer concerned about federal enforcement should have in place:

A.  A fair lending program under which F&I personnel commit to treat all customers equally.

B.  A program for sale of voluntary protection products based on a menu.

C.  A fair lending program that establishes a starting point for rate and provides for downward rate deviations for non-discriminatory reasons.

D.  A program for sale of voluntary protection products that sets prices for VPPs and provides for downward price deviations for non-discriminatory reasons.


Quiz Answers

1. D. All of the Above. That your dealership should be deemed sales ineffective based on measurements during the last two years is ludicrous. New vehicles have never been in such short supply. You cannot sell what you do not have.

In any response to factory criticism, there is one rule of thumb:  YOU ARE NEVER IN DEFAULT UNDER YOUR DSSA, so don’t admit it.  Whether you are in default is a complicated question to be decided in a legal proceeding.

If a franchisor offers assistance, take it up on the offer. Follow its teachings, and it becomes a partner in any continued failure to meet its usually flawed measurement of success. And you just might improve.

2. False. Even though you are comfortable doing business with another dealer, a hacker can alter the email delivered to you by inserting the hacker’s bank account information rather than the selling dealer’s. ALWAYS verify wire instructions by a phone call to a known phone number before sending a wire. If you are providing the wire instruction to your account, always include a message reminding the person wiring the money to do the same.

3. B. You should refuse to do the deal. It does not matter who or what the buyer is.  You are being asked to do a deal that your franchisor forbids. That the buyer will drive the vehicle for personal use, even if true, makes no difference. The prohibition against export in your DSSA covers not only sales for resale abroad but sales for personal use. And bumping the price to cover expected franchisor penalties not only leaves you open to a lawsuit by the buyer, penalties are not the only sanctions a franchisor can seek to impose if it believes the dealer is intentionally operating in violation of the DSSA.

4. D. None of the above. Advertising a vehicle for a price at which you do not intend to sell it is a classic bait and switch tactic, violating the federal FTC Act and state unfair and deceptive practices acts. That is not cured by a disclosure that contradicts the advertised price because of market conditions. It is not cured by adding a fee not authorized by law, especially when that fee results in a fine print price that contradicts the large print price. It is not cured by advertising a vehicle you do not have available for sale since the FTC and state regulators expect you will have sufficient supply to satisfy expected demand or you disclose your limited supply (advertising by stock number or VIN achieves that).

5. False. Employees must document their identity (List B on form I-9) and authorization to work in the U.S. (List C on Form I-9), or provide a document that establishes both their identity and employment authorization (List A on Form I-9) within three business days of their first day of employment.   But the choice of the documentation belongs to the employee. Many investigations of employer practices have been launched because of allegations that an employer required a particular form of proof.

6. False. Under federal law, a full warranty includes numerous consumer rights that no dealer warranty on a used vehicle provides. Any warranty you offer is a limited warranty.

7.  All of the above. A demonstrator is for sale so it should have an FTC buyer’s guide affixed to its window. That is clear for a used car used as a demonstrator.  It is also true for a new vehicle used as a demonstrator as long as it has been driven more than for moving it or road testing it before delivery since that makes it a used car for purposes of the FTC Used Car Rule (but not necessarily for other purposes under state or federal law).  And that is even the case for the demonstrator being driven by the spouse of the boss.

8. C and D. (You didn’t see that coming, did you?  We never said you could pick only one answer.) Consumer zealots for years have been concerned about what they have called dealer mark up on financing rates offered to consumers.  That terminology shows a misunderstanding of the process since dealers offer competitive finance rates in which the cost of credit to them is just one factor. But the FTC and the CFPB are now headed by individuals who see some inherent evil in dealers charging rates in excess of the buy rate.

Both federal agencies are also interested in how dealers and consumers agree on prices that consumers pay for voluntary protection products.  Their new top regulators have stated they believe dealers discriminate in setting VPP prices.

Not only must dealers be concerned about federal agency attention, they must be concerned about the U.S. Justice Department, state attorneys general, and private litigants.  Given the increased exposure, finance sources are again concerned about how dealers and consumers agree on rates consumers will pay for finance and how VPPs are sold.

Programs stressing that dealership personnel must not discriminate are not enough. You must be in a position to show that your process prevents discrimination.  The best solutions are programs in which you establish beginning prices for finance at the same increase in basis points over the buy rate and in which you establish uniform prices for VPPs, and you allow downward price deviations only for non-discriminatory reasons.  The programs available from the National Automobile Dealer Association meet those guidelines. Consider using those.