Just Because You Are Paranoid... Doesn't Mean They Aren't Out To Get You


Just Because You Are Paranoid... Doesn't Mean They Aren't Out To Get You
Monday, October 29, 2007

Just Because You Are Paranoid…
Doesn’t Mean They Aren’t Out to Get You

By: James E. Lawrence
610 SW Broadway, Ste. #600
Portland, Oregon 97205
503-294-2020 x121

On The Radar Screen
Those entities that would benefit from Dealerships’ non-compliance are organized and committed. They are well funded and armed to the teeth with legal eagles striving to make their rep on the backs of ill-prepared, “out-of-compliance” dealerships. Their political connections to populist politicians and the money they “donate” make it nearly impossible to thwart attempts at legal reconciliation and arbitration. Even the domestics can’t catch a break in Washington, DC. In short, dealers face an increasingly hostile environment and are targets squarely in the middle of every hungry lawyer’s radar screen.

Other developments in the automotive space strongly suggest things will get more intense in the near term horizon. New communication tools and the internet have provided a powerful means for these adversaries to carpet bomb their messages to a greater number of people who may or may not have had a good experience at a dealership. It’s simple, if nearly 80% of all car deals start with the Internet search, as industry research indicates, then those same folks searching for vehicles are getting the messages your adversaries are sending.

On Keeping Your Enemies Closer
Other evidence that dealerships are under the gun from multi-lateral forces is the domestic OEM’s continued emphasis on the message “if-only-we-had-the-same-size-distribution-channel-that-Toyota/Honda-has-everything-would-be-alright” – indeed. This pressure to rationalize, right-size, down-size, economize, and immunize their poor performance at the expense of their dealer partners will only increase with time, which is something the dealers need to recognize. Domestic OEMs have seemingly always been at odds with their channel partners, looking for new and interesting ways to wrestle the customer relationship away from the channels partners in the trenches, dealers doing the customer service and costly relationship management OEMs tend to fall down on. The drive for more control over distribution stems from liabilities associated with dealership “non-compliance,” ever slimming market shares and poor market perceptions.

Target Rich Environment
The facts are overwhelming. A few simple Google searches and wham! All the information you need to start a war with your local dealer is at your beck and call. The following is interesting information that suggests the bell curve for dealership attacks is on the rise.

Some fun headlines dealers have seen before:


  • "Connecticut Attorney General Turns Up Heat on Dodge Subaru Dealerships”
    o Author’s Note: You can replace “Connecticut” with practically any other state in the union and across any badge
  • “xxxx Auto Dealerships Settle Optional Services Action for $5 Million (11/26/2003)”

Some concerning stats:

  • 87% of Businesses in the US are in active litigation, According to Fulbright and Jaworski’s annual Litigation Trends Survey.
  • Google: Results 1 - 10 of about 229,000 for “Auto Dealership Lawsuits.

Some concerning organizations:

  • The National Consumer Law Center (NCLC): Operates “20 Groups” for lawyers to learn how to prosecute dealers
  • The FBI began training agents to better investigate dealerships sales and F&I operations in early 2006 in several regional offices – According to Pete Anderson, ex-Federal Prosecutor and Partner of Anderson Terpening, PLLC, it takes about 18 months for this training to start being used which suggests around ~Q2 2008 we should start to see more federal raps (aka “perp walks”) coming down the pike for dealerships.
  • THE AFLC: The Auto Fraud Legal Center is “on the forefront of consumer protection litigation and advocacy in California.” As California goes, so goes the nation…
  • LawCash.com: “Changing The Face Of Consumer Class Action Settlements - We are committed to making sure that YOU have the information you need and the access you deserve to find out if you are eligible to claim your share of billions of dollars distributed yearly through thousands of class action lawsuits.” Go team!
  • InjuryBoard.com: Provides free personal injury news and information to the public...
  • The National Association of Consumer Advocates (NACA) is a nationwide organization of more than 1000 attorneys who represent and have represented hundreds of thousands of consumers victimized by fraudulent, abusive and predatory business practices.

“Etc, etc, etc…” - Yul Brynner - “The King and I”

Some concerning OEM actions:

  • "173 Chrysler Dealers in Danger of Losing Franchise Agreements, About 450 Banned from Closed Auctions” - By Jennifer Reed, SubPrime Auto Finance News Editor - August 01, 2007
  • “Jim Press Aims To Increase Market Share While Shrinking Dealer Body,” According to The Wall Street Journal, September 21, 2007
  • The latest reports indicate Ford is attempting to reduce its dealership body by as many as 600 stores over the next three years to coincide with significant cuts in production and its white-collar workforce… Ward's Dealer Business, Nov 1, 2006

Finally, a concerning ruling for dealers with strong leasing operations (which should be all of you):

  • Injuryboard.com:

Rhode Island Car-Leasing Company Found Liable In Lawsuit - August 26, 2007
A Rhode Island jury found a car-leasing company liable last week in the case of a Pawtucket woman who suffered severe injuries in an automobile accident. Judith Oliveira was stopped at a street light in her Subaru on the night of July 23, 1998, when Steven Lombardi, 20, slammed his Acura into the back of her car. Oliveira was left a paraplegic. She filed a lawsuit against Lombardi and Chase Manhattan Automotive Finance Corp., alleging that the car-leasing company was responsible for her injuries because it actually owned the car Lombardi was driving. The $28 million verdict follows an April Rhode Island Supreme Court ruling stating that long-term lease companies, rental agencies and car financing corporations are subject to liability in accident cases because they own the vehicles they finance.”

Obviously, dealerships are targets for well organized legal “wild weasel” teams looking to smash through and penetrate your defenses and cash in on the inconsistent adherence to regulatory requirements found in most dealerships. Limping domestic OEMs are hunting and seeking new reasons to shut down points. Non-compliance with their Sales and Service Agreements is a clear favorite. And the legal system in general is working very hard to address every possible grievance expressed by the electorate when they buy a car from a few bad apples.

Si Vis Pacem, Para Bellum

Wikipedia: “Paranoia is a disturbed thought process characterized by excessive anxiety or fear, often to the point of irrationality and delusion. Paranoid thinking typically includes persecutory beliefs concerning a perceived threat.”

I am not sure that “persecutory beliefs” are completely unfounded here. Watching dealerships relentlessly get hammered over time and learning (with incredulity) that they consider this part “of the cost of doing business” is a strange battlefield on which to stand and fight. But I am seeing new and effective ways to shield themselves from the various angles of attack used by the legal establishment and consumer organizations. There are preventive counter-measures that can be used which not only protect your dealership by increasing compliance, they also enhance dealership productivity and overall performance.

This capability emerged on the transaction side of the sales process shortly after 9/11 and the accompanying legal remedies with “in-line” automotive sales compliance systems that address the myriad requirements during the sales process, from OFAC to ID Checks to deal jacket auditing.

A more recent development has been on the people side of the compliance process. Personnel-based Dealership Compliance Management Systems (DCMS) address the other side of the compliance coin. It focuses on the people tasked with adhering to the dealership’s compliance effort. If your people are not “compliant” with a vast array of rules, regulations or OEM requirements or don’t use the in-line transaction-based compliance systems available to them (e.g. F&I Menus), then everyone except the lawyers lose.

Defensive Systems
A DCMS is an automated way to enforce adoption of policies and procedures. It is particularly effective in reducing liabilities associated with people who aren’t performing the compliance actions required of them when they are forced to use manual, costly paper-based compliance processes. An automated DCMS also overcomes the lost knowledge that comes with high dealership turnover and reinforces the usage of compliance systems across the dealership.

The Dealership Compliance Management System distributes required content, and tracks, monitors and reports compliance activity gaps automatically for supervisors and managers. With such “exception” reporting, management can motivate their direct reports act or else…dealers filling the gaps in their lines of defense through automated compliance management, avoid filling the pockets of their foes.

Remember that “They” are looking to build “street cred” and a book of business by pasting your dealer name on the sides of their litigation warbirds. Many of the above organizations show the various complaints they have won and the dealerships they have hammered to prospective plaintiffs as proof of their effectiveness at extracting huge sums of money. You can shield yourself from this ignominious defeat with preparation and technology sitting on a shelf near you.

Think Like The Enemy
The long and short of it is…Be paranoid! Be prepared, because you have the money and they have the time. ”They” are all out to get you! I’m not kidding. “They” are out to “get” those dealerships less compliant and less prepared to deal with squadrons of hungry lawyers, militant AGs and politicos of all shapes and sizes. Your dealership’s sales and F&I departments inconsistent compliance effort will fan the flames that warm the heart of your litigious adversaries. Inconsistent compliance is like handing out bullets for their guns. Don’t give them the ammunition they need to blow you out of the sky. Jam their litigation radar and get your dealership out of harms’ way.

Strategic Compliance: How Much is a Shield Worth?
In actively managing your dealership’s compliance effort, prevention is the better part of valor. Build into your dealership’s culture the compliance processes you want your people to live by, no matter the role, no matter their responsibilities. Ensure that whatever compliance management system you have in place makes 100% of your people understand what compliance means for every subject and requirement.

How much is a shield worth? If you can’t document and demonstrate your personnel’s understanding of your dealership’s policies and procedures at the drop of a lawyer’s hat, expect to find yourselves doing battle somewhere along the line. Don’t give pretexts for legal wars you don’t have the systems in place to win. Don’t just budget for losing legal battles. Look to the technology that is staring you in the face and reduce your risk whenever you find yourself in a legal fight. "If you want peace prepare for war" comes from "Epitoma Rei Militaris," by Vegetius. I couldn’t agree more.

Give your management the safe-harbor, “good-faith” shield they need to do their jobs, to manage their people, to make the decisions necessary to run the business in such a way that you can sleep at night and make your customers happy simultaneously. Make a commitment to automate a best industry practices approach that includes distribution of Policies/Procedures, Training, Monitoring, Reporting and auditing all with technology that is currently locked and loaded and sitting on a shelf. Simply turn the key and launch.

Come In For a Soft Landing
“Fortune favors the prepared mind.” Louis Pasteur. Paranoia in the right dosage and in the right circumstances can save your dealership’s life. By being prepared to meet incoming challenges while enhancing your ability to better run your dealership seems like a “milk-run” worth shooting for. The beauty of an automated dealership compliance management system is that it not only provides a shield of protection from a litigious and hostile environment, it supports policies and processes that reduce costs associated with lawsuits, claims, fines and judgments. Ultimately, your personnel know, without question, their responsibilities and what is expected of them during their orientation and trained to avoid the usual FNG mistakes that can tattoo a dealership’s reputation and pepper your bank account with bullet holes. Paranoia, at the end of the day, has its uses.