The everyday language of building a better business model

071816 IL The Everyday Language of Building a Better Business Model

Risk management.

Two words that are part of the everyday language of car dealers.

And well they should as “the Federal Trade Commission has taken a renewed interest in the questionable acts of dealers,” suggests an article Dealer fraud in the automotive industry from Alvarez & Marsal, management consultants whose specialties include regulatory and risk management.

Even unintentional actions can result in dire consequences.

“Buying or leasing a car is the biggest financial transaction for many consumers aside from owning a home, and having access to a vehicle also is essential for many Americans to carry on their daily lives,” says the FTC, which seeks to make sure consumers get a “fair deal” in the auto marketplace.

InFRont

  • The agency brings auto-related enforcement actions, including against companies falsely promising to reduce auto loan payments, car dealers and others making deceptive advertising claims, telemarketers pitching bogus auto “warranties” that are actually extended service contracts, and companies promoting illegal pyramid operations through lease offers.
  • The agency also enforces the Used Car Rule, which requires the familiar windshield stickers that appear on used cars at dealers throughout the country and give consumers critical information about who will pay for repairs if something goes wrong with the car they buy.
  • In addition, the Dodd-Frank Act passed by Congress in 2010 gives the FTC new and expanded authority regarding motor vehicle dealers.Since 2011, the FTC has been gathering information on possible consumer protection issues that may arise in the sale, financing or lease of motor vehicles through a series of roundtables and by seeking public comments.

Major areas of interest

Here are some major areas of regulators’ interest, according to Alvarez & Marsal:

Deceptive advertising in which dealers advertise sales, leases or financing to lure buyers to the dealership with the intention of conducting aggressive sales tactics to sell them something different.

Add-on product or services fraud involving services such as undercoating, extended service, road service and biweekly payment programs that may be included in vehicle purchases and either not disclosed adequately or fail to provide the promised benefit.

Failure to disclose material facts about a vehicle including whether the vehicle is a “lemon law” buyback, prior rental, salvage, or has been in an accident that required major repair work.

And then there is …

Spot delivery in which a dealer allows a buyer, typically of poor credit, to take delivery of a vehicle prior to completing financing, then requires the buyer to pay additional fees and higher interest in order to keep the vehicle if the original financing is denied by the lender.

Vehicle trade-ins such as undervaluing and underpaying for a consumer’s trade-in vehicle, causing the consumer to pay more for the overall transaction.

Loan application fraud which may involve submitting false information to finance companies and banks in order to close sales. Many of these cases involve inflation of a consumer’s income so that the consumer can purchase a car he or she cannot afford.

Other issues of concern

The consultants also highlight several issues involving manufacturers or lenders:

Backdating or predating contracts to meet incentive and rebate targets and maximize results that are measured against monthly or quarterly sales.

Vehicle allocation fraud including creation of fictitious customers to improve performance and projections and secure additional production slots from manufacturers.

Warranty fraud in which high-margin service departments submit false warranty claims to manufacturers for work that was never performed.

Selling out of trust in which proceeds from a sale are used for purposes other than repaying the lender, leaving the lender without a secured collateral that may be seized in the event of an unpaid loan.

It’s a lot to digest and requires an appetite for doing business the right way.

Santander Consumer USA works with many dealers that fit that profile and can help them keep InFront with a better business model. If you have questions, contact your area sales manager or our sales department and find your own reasons to work with Santander Consumer USA.

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