Look Good in Orange?

Your Employees Might Put You in It

It makes me sad to hear stories about dealers who get dinged for seemingly insignificant technical violations of the law. Unfortunately, it is not unusual for us to hear about dealers who get slammed because of some error in their paperwork, or because they overlooked a change in the law.

And, then there are the other kinds of stories. Some stories leave me scratching my head and make me wonder what planet I’m on. I recently read a news article about a dealership in New York that was just this kind of story.

According to a news report in The Hartford Currant, a U.S. District Judge recently fined the general sales manager of a New York dealership $6,000 and sentenced him to two years of probation. Seven other dealership employees, prosecuted previously, were sentenced to up to five years in prison.

So, how did the GSM avoid a stint in the slammer? According to the news report, the GSM escaped a prison sentence by helping federal authorities make a case against the dealership. The GSM pleaded guilty to conspiring to commit wire fraud in 2005 after agreeing to co-operate with authorities against his former colleagues at the dealership, which ceased operation in 2003. ??According to the news article, prosecutors alleged that the dealership sought to boost sales by aggressively marketing itself as a dealership that could assist customers with bad credit. Prosecutors said “lower-income/bad credit customers” flocked to the dealership and sales grew “dramatically” to more than 100 cars a month. FBI, state and local investigators who worked on the case said that the sales volume “was due, in large part, to fraud.”??So, what did the sales team at the dealership do that caught the attention of the law? According to the news source, the dealership’s sales force was accused of a number of fraudulent sales practices over a two-year period, including:??• Modifying customer income and expense information to obtain credit for applicants who were not otherwise creditworthy. ??• Charging customers higher prices than they had agreed to pay for cars.??• Charging customers for products they had declined or had been told were free, such as insurance contracts and extended service contracts.??• Charging customers for optional items, such as CD changers, that were never installed in cars.??• Failing to disclose to customers that their sales contracts had large “balloon payments,” which offered customers low periodic payments until the last month of the sales contract, when the final payment usually jumped to between $6,000 and $12,000.??Federal prosecutors said the balloon contracts often led to default by the customer, but allowed the sales force to increase commissions. When testifying against his former colleagues, the GSM said the balloon contracts sometimes were given to customers in sealed envelopes and the customers were told it was not necessary to read the material.

Now, it’s always hard to know exactly what went on when I read a news story like this. After all, there are always three sides to every story. But, stories like this always get me thinking.

Most notably, I assume that the dealer principal did not know what was going on in the dealership. That’s not always the case with stories like this, however. Some dealers I work with are so involved in the dealership’s day-to-day operations that they actually stroke the checks to pay the light bill. Other dealers only show up on the lot when it’s time to have their cars detailed. Most dealers fall somewhere in between.

I also think it’s interesting how, as part of his plea, the GSM opted to cooperate with law enforcement against his former colleagues. My litigator friends tell me that it is very often the case that former employees will sing like birds and tattle on their former colleagues when their feet are held to the fire.

It kind of makes you think about the sort of tales your employees could tell about your operation, doesn’t it? Some dealers who engage in fraudulent practices think that customers who challenge the practices will face a “he said, she said” problem that would permit the dealer to simply deny the customer’s allegations. The dealership can’t hide when its own employees fess up to the bad practices, however.   

I wonder what sort of compliance program the dealer had put in place at this store. Did the dealer have written policies and procedures requiring employees to comply with state and federal law? Did the dealer require compliance training and certification? Did the dealer impose a code of ethics that required employees to be personally and individually responsible for acting ethically and complying with the law?

If, as the article suggests, the GSM starts naming names and throwing his colleagues under the bus, I’d much rather be the dealer who had documented his commitment to running a clean and compliant ship with written compliance programs and codes of ethics.

But, then again, some people don’t mind wearing orange.