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How Do You Compete When Other Dealers Cheat?

By Thomas B. Hudson June 17, 2019


Most car dealers I encounter try in good faith to follow the requirements of the many federal and state laws that regulate the business of selling, financing, and leasing vehicles to consumers. They make an affirmative effort to identify those requirements, and they try to follow the rules.

Some of the dealers I meet have some vague notion that theirs is a heavily regulated industry, but they don't know the details of the compliance mandates that apply to them and don't make a serious stab at trying to follow the laws and regulations. They aren't intentionally fudging the rules - they just don't know what those rules are and don't care about incurring the increased overhead that is part of the cost of running a dealership legally. Pure of heart, perhaps, but empty of head.

And then there are the crooks. Some dealers know full well that their activities don't meet legal standards, but they have made the cynical determination that they are unlikely to get caught and, if caught, are unlikely to have to pay a penalty significant enough to hurt them. At day's end, their attitudes, and their actions, are no different from those of common street muggers.

You probably compete against dealers like these on a daily basis. They bait and switch, pack payments, engage in illegal spot delivery transactions, advertise deals that they know they cannot deliver, sell cars that aren't in good shape while maintaining to the contrary, advertise cars at one price on the Internet for "creditworthy buyers" while charging credit-challenged buyers more to cover the discounts they must pay when they sell those buyers' retail installment contracts to discounting finance companies, tell buyers that the purchase of service contracts is required as a condition of financing, and otherwise lie, cheat, and steal.

In addition to these fraud-on-the-customer sorts of violations, some dealers will go further, defrauding the banks, credit unions, and finance companies that provide financing to their car buyers by, for instance, faking customers' credit credentials, engaging in "power booking," or knowingly engaging in straw transactions that violate their dealer agreements with their financing sources.

By competing unfairly, these dealers take food off the tables of the dealers who try to comply with the law. And when you think about it, so do the dealers with the pure hearts but empty heads. If you are one of those honest, or trying-to-be-honest dealers, how can you compete against dealers who don't know the rules or who know them but don't follow them?

The idea of complaining to a state or federal regulator about another dealer's illegal activities doesn't sit well with some dealers, and accusations of another dealer's misconduct can carry some risks of their own. Still, if the dealership down the street is advertising that brand-new Belchfire V-8 at $2,500 less than you do because it is aggregating every possible discount available on the car, knowing full well that no, or almost no, buyers will qualify for all the discounts and you are missing Belchfire sales as a consequence, then that dealership is stealing from you, and you would be perfectly justified in calling the law.

Still squeamish? Here are a few somewhat less drastic solutions.

When faced with players who ignore the rules, some dealers raise a fuss with their state dealership associations. The effectiveness of this approach will vary with the effectiveness of the association. If it's a golfing club in disguise, you'd be wasting your time, but if the association makes serious attempts to keep dealers operating legally, you might get some results.

Another less drastic approach to dealing with corner-cutting dealers is to meet with your state and federal regulators to describe how the corners are being cut and to ask for some enforcement. You don't have to name names and point fingers at specific dealers, but you will need to describe the activity you believe to be illegal and ask that the activity be investigated. This approach also can involve your state association.

Finally, your dealership can engage in efforts to educate the public about common dealer scams and ways to avoid them. Several programs, including one by the American Financial Services Association, teach financial literacy, and there are resources available for businesses that want to support these efforts. Again, this is an effort that won't make much immediate difference but is a long-term and systematic response. It is also a program that your state association could help with, if so inclined. An educated consumer can be a compliant dealer's best defense against cheating dealers.


Thomas B. Hudson was a founding partner of Hudson Cook, LLP, and is now of counsel in the firm's Maryland office.

© 2019, all rights reserved. Based on an article from Spot Delivery. Single print publication rights only to Used Car News.


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Last modified on Monday, 17 June 2019 13:30

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