Investigate Retail Used Vehicles and Set Deal Completion Deadlines

Team VADA eViews
The Digital Newsletter of Your Virginia Automobile Dealers Association
April 2008
 
 
Last month we continued our “Keys to F&I Compliance” series with an article on safeguarding customers’ personal information and prevention of identity theft. This month we address retail used vehicles and deal completion dates.
 
  • Vehicle history reports are essential on all used vehicles retailed
  • You cannot rely solely on the vehicle history report; carefully inspect each vehicle
  • Dealers need to have a deadline to complete or rescind deals
 
 
Run vehicle history reports on used vehicles sold and trades. Don’t sell a used vehicle if the vehicle history report shows prior damage without disclosing that to the customer.  
The problem is that entries about vehicle damage and repair can often take months to make their way to vehicle history reports. Keep the vehicle history report run when the dealership sells a vehicle to document what was in the report at the time of sale. Run a report on trades to protect against vehicles with reported serious problems. 
 
Sale of a used motor vehicle with significant previously repaired damage can lead to a lawsuit by the customer. The dealership’s exposure for a large judgment depends upon the extent of the damage, but repairs that materially affect the useful life or the drivability of a vehicle have led to some large verdicts. Generally, the claims involve breach of contract (the allegation being that the dealership did not deliver the quality of vehicle described in the agreement), fraud, and violation of the Virginia consumer protection act. Dealers should have procedures to investigate each used vehicle offered for sale at retail. 
 

  • Run a vehicle history report. Run it on the trade when negotiating the deal it comes in on. Run one on each vehicle the dealership buys when booking the car into inventory.   If a customer who buys a previously damaged used car goes to a knowledgeable attorney, the first thing the attorney will do is order a vehicle history report. Know what the report says before you sell a car.

     

  • Because a vehicle history report can later change, keep a copy in the deal jacket. This will be the only protection if there is a report run showing damage prior to the dealer’s sale of the vehicle that showed up on the report after the sale.

     

  • Do not rely exclusively on the vehicle history report as the final word on prior damage. While vehicle history reports are valuable tools, they can only be used as part of an overall program for investigating used vehicles. All vehicle damage incidents are not necessarily reported, and reported damage can take months to actually show up on the report.   

     

  • Run the VIN number through the dealership’s own computer system to see if the dealership has done body work on the vehicle. The most expensive lawsuits are those where the dealer claims it didn’t know of work done in its own body shop. Dealer employees understand why this happens; juries won’t.

     

  • Inspect every vehicle going onto the retail lot. Look for signs of repaired damage. Put the car on the lift for evidence of undercarriage damage.

     

  • If a used car suffered significant prior damage that has been repaired, sell it with a proper disclosure or don’t retail it.
 
 
Have a Deadline to Complete or Rescind Deals. In addition to the obvious business benefits, completing or rescinding deals within a specified time will lead to a timely tag and title processing, will keep customer expectations about the deal realistic, and will protect against subsequent customer bankruptcy. 
 
Dealer personnel work hard to make a deal. When problems arise, they have been trained to do everything they can to rescue a deal. This may involve rehashing with the finance source, renegotiating with the customer, and working with the customer to obtain new information or supporting documents. These efforts take time.
 
Unfortunately, while the efforts may drag on, some deadlines are inflexible. 
 

  • A vehicle must be titled within thirty days under Virginia law. The failure to title a vehicle within the specified time can potentially lead to penalties against the dealer and provide rights, even the right to rescind, to a buyer. 

     

  • The longer a deal drags on, the more the customer believes that everything is fine. Every day of delay makes it more difficult to renegotiate with a customer or even convince a customer to return the vehicle if necessary.

     

  • Federal bankruptcy laws impose a firm thirty day deadline from vehicle delivery within which the lien of the finance source must be placed by processing the title work. If the dealership does not place the lien as required, and the customer declares bankruptcy under certain circumstances, the lien and most likely the right of the finance source to collect payments may be eliminated in bankruptcy. This leaves the finance source with a worthless contract that it probably has the right to tender back to the dealer under the standard agreement between the finance source and the dealer, leaving the dealer with a worthless contract costing it thousands of dollars in losses. 
 
 
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