January 23, 2026
By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com
With each new year, the automotive industry brings challenges, whether it’s the franchisor, employees, consumers or regulatory bodies. And with each new year, dealers have coped and met each challenge head on. 2026 should not be much different in terms of challenges, but those challenges can be rewarding. Here are twenty-six issues to which you should give attention in 2026.
Federal and State Compliance
Dealers have become accustomed to federal oversight from any one of the numerous alphabet agencies. From advertising to sales practices to personnel treatment, a dealer must have in place a strong compliance program to operate in this regulatory climate.
I-9 Audits. With the Trump Administration, it is imperative that Dealers’ I-9 Forms are compliant. Dealers must follow the correct processes for completion of Forms I-9. Failing to give the employee the choice of documents to show identity and authorization to work can be the basis for a government enforcement action. Maintain Forms I-9 for the required time: for separated workers, one year after termination and three years after hire, whichever is longer. Spot check periodically to make sure you have a Form I-9 for every If not, follow up and have forms completed. Keep a note with each form completed after the required date to explain when and why the form was created. If there are errors, have a procedure to correct them. Employers can only correct Section 2 and the supplement B of the form while employees must correct Section 1. Be sure the corrections are evident to avoid claims of wrongdoing.
Pay attention to advertising compliance. Under the Trump Administration, FTC’s regulatory desires will be curbed, but the FTC’s enforcement activities will continue. Your staff in charge of ads and your ad agency must understand the rules.
-
- In finance advertising, understand trigger terms and the requirement for follow-on disclosures.
- Understand what the FTC considers bait and switch, and avoid those tactics by clear and conspicuous disclosures. Meaningful disclosures should be used to explain the terms and pricing, not negate the price.
- When an ad appears too good to be true, it likely is. Regulators understand that. Too good to be true offers will attract regulatory attention.
- If you are using third-party advertisers such as TrueCar or Cars.com, make sure those advertisements are the same as your website.
Vehicle Shopping Rule is Dead (for now), but FTC Enforcement is Not. Dealers must sell the vehicle at the price advertised. Advertising a vehicle at a price at which the dealer does not intend to sell it is viewed by the agency as bait and switch – a cardinal sin. Bait and switch cannot be solved with a disclaimer that admits that you will not sell vehicles for the advertised Proper disclosures explain an advertised term and they do not contradict or negate it. A statement that you will not honor the advertised price in the advertisement will be seen as an admission of a violation. Another cardinal sin, and one on the FTC’s radar, is requiring the customer to finance the vehicle or purchase a product to get the price advertised for the vehicle. For example, you cannot require the customer to buy gap for the lower price you state you will sell the vehicle. Additional products and services, like extended service agreements and GAP protection, may be additional products purchased by the customer. Those products must be expressly agreed to with clear pricing and disclosures that the products are voluntary.
Data protection will continue to be the FTC and State AG Watch List. This is a hot issue. Make sure your compliance efforts on mandated programs – the Privacy Rule and the Safeguards Rule - are in place and complied with. With the recent breach of 700Credit, it brought to light the need for compliance companies to ensure full compliance with the Safeguards Rule. The FTC‘s views of add-ons differs greatly from dealers and even customers. To the FTC, the price of the vehicle is the only thing that matters. Anything else and the FTC is quick to characterize it as a “junk fee”. The FTC’s view is incorrect and voluntary protection products, like extended service agreements and GAP protection, are important to many consumers. Moreover, charges for voluntary protection policies are not fees. However, dealers must be careful about other types of “creative” fees. Typically, state laws permit a dealer to charge a voluntary documentary or processing fee (however it may be labeled under state law) and a pass through of electronic titling fees. Additional fees may be a problem. The most clear examples are commission fees or used car reconditioning fees added to the advertised price of a used vehicle. Those fees cannot be disclosed separate from the price of a vehicle. Charging any fees not expressly permitted by state law in addition to the advertised price is considered a bait and switch practice by the FTC, and it may violate state law on permissible fees.
Use a Fair Credit Policy. The fairness of pricing vehicle financing has been criticized for years. To deal with the criticisms, the NADA has developed a template program for fair credit. It requires a dealer to establish a standard starting point above buy rates for all customers, with downward deviations for non-discriminatory factors. If you have not adopted a policy, or if you adopted one and you no longer police it carefully, it is time to energize your fair credit compliance efforts. Adopt a policy and enforce it.
Establish a policy for sale of VPPs. Like criticisms over the terms of credit, proponents of stronger regulation of dealer practices have criticized VPP sales practices. To address the criticisms, NADA, along with the NAMAD and AIADA, developed a template program for sale of voluntary protection products. Use the NADA/NAMAD/AIADA program to protect against charges of discrimination in sale of VPPs. Adopt a policy and enforce it. The FTC already views VPPs as “junk fees,” thus having a standard policy and enforcing it is necessary.
Be sure deals are neat and complete. You have a form package for a transaction with a consumer for a reason. The forms are required by state or federal law, or by best practice to protect your dealership. The forms do not work unless they are used properly. Be sure personnel finalizing transactions understand the need for all documents to be completed. Use a deal completion checklist. Periodically audit deals to be sure that all forms are being completed. Make sure your forms are up to date to address current laws. You should seek legal advice on the disclosure requirements and form review.
Operations Issues
Employee Issues. Personnel lawsuits in the automotive industry have become big business for Plaintiff’s firms, and 2026 will be no different. Dealers need to take proactive steps to lessen the chance of lawsuits. Do you have an employee handbook? Is it signed? When was it last updated? How are complaints handled? Make sure all employees that need licensing have licensing. Document personnel files with disciplinary actions and unsatisfactory performance issues. Attention to details will go a long way when it comes employee issues.
Spot Delivery. A dealer that enjoys spot delivery protection under state law should carefully follow the law. If there is no state statute, a dealer should avoid the practices that can lead to criticism.
-
- Use a clear and understandable disclosure of the conditional nature of the spot delivery. If your state requires certain spot delivery language or agreements such as in Virginia (on the buyers order) and Maryland (separate form with certain language required), your state requirements should be the only spot delivery language or documents in the deal.
- If the vehicle is retaken, return the trade and the downpayment.
- Do not charge for use of the vehicle while it was in the hands of the customer.
- Retake vehicles in strict compliance with the law.
Give Attention to Cyber Security. In 2024, dealers were faced with the CDK breach. In 2025, dealers were faced with the 700Credit breach. Hopefully things don’t come in 3s and 2026 is spared. However, its imperative that dealers remember that It is not just big companies and government that are targets of hackers and other virtual malefactors. Bad guys target everyone, including car dealerships. Work with your computer vendor to make sure you have the latest in protections against cyber intrusion. Don’t forget the old-fashioned remedies such as regularly changing passwords, guarding against employees sharing passwords or leaving them exposed, and limiting web surfing that leaves your system open to attack. Be especially careful on methods of payment. Dealers doing large transactions have been victimized by hackers who have taken residence in their systems to send false wire instructions for accounts that immediately get emptied. When doing deals, especially larger deals or deals involving multiple vehicles, do not accept payment instructions through the internet unless you call the person with whom you are doing business at a number you recognize to verify the instructions. Review your insurance policies to ensure that you have the proper coverage for cyber attacks and business interruptions.
Recalls on New Vehicle Ground new vehicles with open recalls. Everyone knows this, but what is your procedure to make sure new vehicles with open recalls are not being delivered?
Recalls on Used Vehicles in Your Inventory. Fix the open recalls on used cars that you can. If there is not a fix or parts are not available, disclose the open recall to a buyer. There is no federal requirement to ground a used car with an open recall. Nevertheless, it is a best practice to check the recall status of every used car in stock.
Stop Sale Due to Recall on Sale of Used Vehicles. If your franchisor issues a stop sale on used vehicles, pay attention to that. There is no federal law empowering a manufacturer to issue a used vehicle stop sale, but there can be consequences to your relationship with your franchisor if you disregard the mandate. Moreover, it exposes a dealer to great liability if the mandate is disregarded. Pay attention to it and seek compensation. Certain states like Virginia allows for compensation for stop sale on used vehicles.
Open Recalls on Vehicles Brought in for Service. Be sure you are checking service vehicles of your brand for open recalls. The law requires that you notify service customers with vehicles of your brand of open recalls if your franchise requires that. Whether or not your franchisor requires that (increasingly factories say they do), it is a best practice to check for the open recall status on all vehicles of your brand brought in for service. If there is a recall affecting a vehicle of the brand you handle, repair it. This will provide business to your service department and avoid potential liability issues of selling a vehicle with a problem you could have remedied. If you cannot remedy an open recall, because there is no fix or it is not a brand you sell, disclose that to a buyer.
Supplier Agreements. All dealers should do an audit of their supplier and vendor agreements, including DMS and insurance coverage. Have a detailed list of requirements and make sure the list is fulfilled. Think about how you may have to terminate your obligations and negotiate termination provisions for events like loss of a franchise or sale of a dealership. You want favorable terms in all your supplier agreements and do not want to get stuck with unnecessary, long-term supplier contracts that could have large termination costs for events like loss of a franchise or sale of a dealership.
- Have a policy for review, approval, and execution of supplier contracts.
- For each contract, a dealer must ask why a lengthy term is required, and whether there is a benefit to the dealer.
- Do not agree to lengthy contract terms unless there is a reason that benefits you.
- Do not agree to automatic rollovers at the end to the term, except for month-to-month.
- Make sure the state in which your dealership operates is the choice of law and venue for any actions between you and the supplier
- As dealers know, there are some suppliers who will not modify their form agreements. In that scenario, dealers need to determine what they can and cannot live with. If the supplier won’t modify the agreement, the dealer needs to assess what the supplier is providing and what the true downsides of the terms are and what that means for the dealership. Dealers should seek legal counsel should they be concerned or need guidance on terms of supplier agreements.
Franchise Relations
As much as the franchisor relies on the dealer to get its cars on the road and fix the warranty issues from defective products, franchisors become bolder and more demanding of dealers year after year.
Attack on the Franchise System. In May 2025, the Alliance for Automotive Innovation, known to you as the Alliance, sent a letter to the Justice Department requesting that it examine franchise laws, specifically as it relates to add-points and warranty reimbursement. Like the Alliance, Scout, a wholly owned subsidiary of Volkswagen that is no different than Audi, also sent a letter requesting that the federal government intervene to get rid of state laws that ban direct to consumer sales. Essentially, the letters by the Alliance and Scout shared a common theme, that state franchise laws are archaic, unnecessary, and anti-competitive. Manufacturers are getting bolder as evidenced by the direct attack on the franchise system.
Legacy Manufacturers Selling Direct. As you are aware, in 2024, Honda and VW announced that they want to forego the dealer network and sell the manufacturer line-makes Afeela and Scout, respectively, direct to consumers, which is a slap in the face to their dealer bodies. In 2025, dealers in Florida sued VW in Miami, which has survived a motion to dismiss. In April 2025, the California New Car Dealers Association (CNCDA) sued VW and Scout based on the changes that California passed to its franchise laws. While those suits are pending, Scout has obtained a dealer’s license in both Colorado and Missouri. This will be an issue to watch in 2026.
Support Your State and Metro Dealer Associations. Dealers will be leaning on their state and metro associations more than ever. The associations need dealer support as they are the advocate in the state you operate and they work hard to ensure dealers have friends on both sides of the aisle, regardless of political divides. State associations protect dealers against negative legislation that challenge franchise and licensing laws. The associations introduce legislation and lobby on your behalf to improve dealer franchise protections by educating the elected officials on your business so they can understand the need for those protections. For these reasons, you need to support the associations, financially and through personal activism by getting to know your local representatives. There are still many lingering questions regarding the Hyundai and Amazon partnership. As we predicted, Ford has thrown itself into the partnership mix for used vehicles. As we have seen so far, Amazon has served the same purpose as other lead provider websites and not circumventing the dealership franchise system. However, monitoring the Amazon and manufacturer relationship in 2026 will be critical to make certain your rights are protected as a franchise dealer.
Be prepared to enforce your franchise rights. State franchise act protections are not self-enforcing. OEMs continually have documents or programs that may disregard or violate state franchise law. OEMs have taken certain liberties over the years as to what franchise laws they want to follow and which they do not. If you are not enforcing your rights, the manufacturer will take full advantage of dealer complacency. Many states have protections for fair payments for performing warranty repairs. You may have to enforce your right to entitled reimbursement at retail for labor and parts. You may have to enforce your right to incentive monies for each new program that the manufacturer introduces in states such as Virginia that allow you to receive program monies even though you do not upgrade your facility to each of the program’s requirements because you renovated your facility within the last 10 years. Failing to enforce your rights on the facility upgrade programs could mean you are leaving hundreds to thousands of dollars per vehicle on the table while encouraging the manufacturer to continue to skirt franchise laws.
Performance Threats. OEMs continue their standard threats about dealer performance, particularly sales. If you get a letter critical of your performance, respond and dispute it. Explain why your performance is not deficient. Be clear about the negative impact of inventory shortages. Explain why the standard you must meet is improper, for example your PMA is incorrectly defined making you responsible for sales in geographic areas where you have no advantage. NEVER agree that you have breached your dealer agreement.
Warranty Audits. In 2025, many manufacturers performed warranty audits and claimed hundreds of thousands of dollars in chargebacks against dealers. Many of the warranty audits are a result of manufacturers who are strapped for money and want to recoup it from the dealers. Some of these audits completely violate the laws in which the dealers operate. For those audits that are excessive or completely in violation of the law, you should be challenging them either through the internal manufacturer process (i.e., Ford’s Dealer Policy Board) or through your state administrative agency under the state franchise act. Not only challenge those audits, but any audit is a wakeup call to the dealer to know whether their procedures and processes for warranty claims need to be fine-tuned. If the same mistake is occurring, training and possibly hiring warranty experts may be necessary to stop the same issue from occurring in the next audit. Avoid freely giving your money back to the manufacturer!
Warranty Rate Increase Requests: Insist on proper labor and service reimbursement for warranty and recall work. Warranty work and repairs to remedy recalls have increased dramatically. Many states have changed the methods and procedures related to retail reimbursement. Make sure you are following your state law when seeking an increase in your rate. It is a best practice to hire an expert to submit the package. Due to various statutes changing around the country, many manufacturers are quick to deny the request as well as haggle with you. An expert is a best practice to set up a challenge under state law that the submission was done correctly.
What are you Signing? When your OEM rep presents you with a document to be signed, understand what it requires. Programs that cost you more and make you less will result as OEMs seek to make dealer income their own. Some OEM documents may violate your state law if they have waivers of state franchise act protections. Remember, your franchise agreement does not terminate. During renewal of the agreement, while you cannot change a manufacturer’s form agreement, the specific terms applicable to your dealership are negotiable. If the terms are unfavorable, raise the issues with the factory and negotiate more favorable terms as part of your renewal. If your factory representative labels you as a difficult dealer, point out the factory is changing the relationship, not you. Know your state franchise laws when it comes to new forms, such as in Virginia, the new forms need to be presented and approved by the Commissioner before the manufacturer can request that you execute them.
Succession and Dealer Ownership. Succession planning has become a reality for many dealers. If you are one of those dealers redoing the ownership structure for estate planning purposes, make sure you have the approval of your franchisor before you finalize the sale of or gift of stock. Many dealers think that they only must notify franchisors of minority interest changes after they make them. That is not the case. Most dealer sales and service agreements require manufacturer approval before a new interest in the company is granted. Any small interest gifted or sold requires manufacturer approval. Failing to obtain approval beforehand can be considered a breach of the dealer sales and service agreement.