Dealership Loses Franchise Due to Compliance Violations

August 29, 2023.  Compliance Violations Costs Dealership Its Franchise.

On August 14, 2023, a federal court upheld a vehicle manufacturer's termination of a dealership's franchise.  Approximately one year earlier, the dealership entered a Consent Order in which the dealership pled guilty to a multitude of violations of state consumer protection laws, resulting in in the payment of over $500,000 in civil penalties, $304,901.54 in restitution payments, and a 1-week suspension of the dealership's license.  Shortly after entering into the Consent Order, the vehicle manufacturer provided the dealership with notice that it was terminating the dealership's franchise, which resulted in litigation between the dealership and the manufacturer.

The dealership had been accused of using deceptive advertising to lure customers to the dealership.  Specifically, the dealership was accused of:

• Stating "the price you see is the price you pay" and then selling the customers vehicles at prices "well above the advertised prices";
• Advertising that there were "no dealer fees" when the dealership charged $175 documentation fee;
• Falsely promising "guaranteed approval" for financing; and
• Falsely advertising accessories, warranties, and other add-on products.

The Court found that the dealership materially breach several provisions of the franchise agreement with the manufacturer, which:

• Prohibited the dealer from engaging in "discourteous, deceptive, misleading or unethical practices"
• Prohibited "the suspension or revocation of any license, necessary for the conduct by Dealer of its business pursuant to this Agreement"
• Prohibited impairment of "the reputation or financial standing of Dealer"
• Prohibited the dealer from making any "submission to a customer of a false or fraudulent report or statement of any kind"
• Required "Dealer to maintain good relations with its customers" and prohibited the "repeated failure to properly resolve customer complaints"

"Typically, regulatory investigations start because multiple consumers are making complaints about the same business", said Adam Crowell, President & General Counsel of ComlplyNet.  "To avoid these investigations, Dealerships need comprehensive compliance solutions and a process for capturing complaints, tracking resolutions, and remediating the issues that drove the customer to complain."