November 2012

Litigation and settlements associated with what legal experts have warned dealers about — compliance in connection with advertising — were back at the forefront again last week; this time in the Pacific Northwest.

A potential scenario discussed in Auto Remarketing’s special issue focused on advertising coming on Dec. 1 played out between Performance Nissan and Performance Kia, dealerships in Everett, Wash., and the state’s attorney general.

Nicole Munro, a partner with Hudson Cook LLP who was appointed as the youngest chair ever of the American Bar Association’s consumer financial services committee, articulated several questions dealers should answer when it comes to their advertising initiatives.

—Are dealers offering the product they say they are?

—Is the product compliant with state rules and regulations governing advertising?

—Are dealers really monitoring the advertising they’re doing or are they relinquishing rights to various third parties?

Based on the lawsuit the Washington attorney general’s office brought against Performance Nissan and Performance Kia, prosecutors firmly believed the dealerships did not comply with the points Munro raised.

In a settlement reached last week, store owner Hugh Hall will pay $150,000 in attorneys’ fees and penalties to resolve the lawsuit first filed back in 2010.

The attorney general said Performance Jeep-Eagle, the business that operated Performance Kia and the former Performance Nissan, is also on the hook for another $55,000 fine if dealership practices — what officials called violations of the Consumer Protection Act and other state laws — continue.

Hall issued a statement following the settlement announcement.

“Performance Nissan and Performance Kia signed a consent decree ending a two-and-half-year dispute with the Washington State Attorney General over alleged violations of consumer protection laws,” Hall said.

“We were ready to go to trial as we felt we would prevail, but agreed to settle the dispute in order to avoid the high cost of litigation and the uncertainties inherent in any trial. The agreement does not contain any admission of violation of any law, nor does it represent agreement with any of the allegations made by the attorney general's office,” Hall continued.

“In fact, we absolutely and flatly deny that any laws were violated,” he went on to say. “We continue to operate our business as we always have … in an ethical manner, compliant with the laws of the State of Washington.  This is reflected with the attorney general dropping many of its original allegations including ‘packing’ and ‘bait and switch,’ neither of which is contained within the consent decree. 

“We are surprised by the press release by the attorney general’s office as it is not representative of with the tone or substance of our settlement discussions with them and contains innuendo an inaccuracies we feel are inappropriate,” Hall added.

As the dealership owner referenced, the version of the settlement agreement Washington’s attorney general’s office released contains language Hall mentioned.

Officials said a 2010 lawsuit was filed after numerous consumer complaints to the attorney general’s office. Even while the lawsuit was pending, officials indicated consumers continued to complain.

“One complaint described Performance Kia’s television commercials for the Kia Soul. The ads claimed the dealership was over-stocked with the compact cars supposedly marked down to $9,988, along with guaranteed trade-in values of $4,000,” the attorney general’s office said.

“But the reality, according to consumer complaints, tells a different story,” prosecutors continued. “One consumer complained that when they visited the dealership, none of the advertised vehicles were on the lot.  Performance relied on language buried in the television ad that was ‘one only.’ A sales associate also claimed the trade-in offer did not apply to the Kia Soul.

The attorney general’s office also shared communication it received directly from consumers.

The office indicated one consumer wrote, “I just sent a message to the dealership and said I thought their commercials are misleading and their sales tactics were bait and switch. He replied that their commercial was approved by the attorney general. If you watch this commercial and still approve it, I would be very surprised.”

Assistant attorney general Mary Lobdell shared her reaction to the consumer’s letter and the dealership’s advertising campaign.

“We were surprised because we don’t approve television commercials. We’re not authorized to do so and we certainly don’t approve of these kinds of sales tactics,” Lobdell said.

“We also don’t approve of ads that show pictures of junkyard jalopies, suggesting the dealership will pay $2,000 for trade-ins, no matter what condition, because we know that offer is seldom honored,” she continued.

The attorney general’s office also shared another consumer complaint that included “bait and switch” language. Officials said one consumer who complained when the dealership did business as Performance Nissan spoke of seeing a promotion for a Nissan Altima.

“We test drove a car we liked and decided to purchase it,” the consumer wrote in his complaint to the attorney general. “The sales person came back and told us this particular car was not part of the promotion and it would cost $2,000 more than the advertised price. We felt like it was a ‘bait and switch.’ After further negotiation, the sales manager said he would split the difference and sell us the car for $1,000 more.”

Selling a vehicle at a higher price than advertised is a violation of both the revised code of Washington and Washington Administrative Code, according to the attorney general.

No matter, officials said the settlement filed in Snohomish County Superior Court resolved the attorney general’s 2010 lawsuit against Performance and established a commitment by the dealer to revise its policies and practices.

Among other conditions, officials said the dealership agreed:

—Not to run ads that suggest the dealership will match buyers’ down payments

—Not to sell a vehicle over the advertised price

—Not to engage in “false premise” advertising

—To clearly identify used vehicles in its advertising, including not using the term “previously titled”

—To advertise only those vehicles that are in its possession

—To mark unavailable vehicles as sold or withdraw advertised vehicles from publication

—Not to engage in advertising that suggests a high trade-in value for cars in disrepair

—Not to send out recall notices unless required by the manufacturer

—Not to use terms in any advertisement that state or imply a connection or endorsement by a governmental agency

—To write policies and procedures that promote lawful and ethical sales and advertising practices and to train, monitor and discipline employees appropriately.

Speaking to Auto Remarketing before the developments in Washington arose, Munro said, “Dealer advertising has been the subject of attorney general settlements for as long as I can remember. But as there is new media, I think there are more ways dealers and finance sources to slip up.”

More commentary and strategy recommendations regarding dealer advertising is contained within Auto Remarketing’s Dec. 1 print edition.

Customers may return to the lots sooner than expected after Hurricane Sandy.

In fact, according to a report released by Dataium late last week, auto shopping is already showing signs of recovery from the storm.

“The report reveals that while online auto shopping declined in the days preceding the storm, the trend started to reverse course on Oct. 29, the day the storm made landfall,” officials shared.

Eric Brown, Dataium chief executive officer stated, "The pre-hurricane data speaks to the power of uncertainty to impact consumer behavior. The post-hurricane data speaks to the heart and soul of the American consumer to rise above tragedy and persevere."

That said, the damage caused by the hurricane has still prevented some Northeast consumers from continuing their vehicle searches.

Effect of Hurricane Sandy on Auto Websites

Interestingly, after dropping in the days leading up to the storm, lead submissions on dealership websites increased 12 percent the day the hurricane made landfall, Dataium shared.

Conecticut and Virginia saw the biggest jumps during this period — up 55 percent and 25 percent, respectively, from the previous day.

On the other hand, some of the states most impacted by the storm had less encouraging results.

Maine and New Jersey were the only states impacted by the storm to show declines on Oct. 29, down 39 percent and 16 percent respectively.

Now, post-hurricane lead submissions “have demonstrated gradual daily increases, but are down 13 percent as compared to last month.”

And are some brands faring better than others?

According to the report, imports are seeing slightly better numbers than domestic counterparts, “experiencing a small, but speedier resurgence from the considerable declines on the days that preceded the storm.

"Despite the prevalence of large incentives and special pricing currently being offered by almost all auto manufacturers, only a few brands, like Nissan for instance, have exhibited consistent growth in lead submissions post-hurricane," officials concluded.