Damaged vehicles can come into your dealership inventory in many ways. They can be damaged in transport, during test drives, on loan or rental to customers, or through staff error. Damage disclosure can significantly limit your liability.
Most states have statutes that permit a dealer to reject new inventory that is delivered by transport arranged by the manufacturer. These statutes are usually found in state franchise laws and often require damage to be a certain percentage of MSRP to qualify for this rejection. In cases where the dealer accepts the vehicle, most of these laws require the dealer to disclose the damage, even if repaired, to a potential buyer.
Your state could also have statutory disclosure requirements for customers trading in vehicles with prior damage or for a dealer selling a vehicle with repaired damage. There are often forms provided by your state’s Motor Vehicle Division or provided by your state’s incarnation of the NADA.
The most significant source of liability typically arises under your state’s version of the Consumer Protection Act. Failure to disclose damage or repairs to a vehicle is often a UDAAP violation. Dealers can be accused of misrepresenting the certification, qualities or grade of goods; failing to advertise that goods are reconditioned or blemished; or misrepresenting that repairs, alterations, or modifications have been performed. Importantly, CPA violations result in minimum damage awards as well as arbitrary attorney-fee provisions. State CPAs can also provide for government agencies to investigate your dealership’s practices.
Here’s how to help minimize your exposure:
- Detect damage – Ensure that your trade evaluation forms require customers to disclose vehicle accidents and repairs. Use automotive history reports at the time a vehicle comes into your inventory AND prior to selling to ensure up-to-date information. Service departments should be examining the vehicles for existing damage and repaired damage at check in.
- Notate damage – Notate damage where it is visible to sales staff and management, such as on pricing screens in your AMS system. If your dealer is still using folders for vehicles, placing a copy of an RO or completed damage disclosure form in the file is also helpful.
- Train to sell damage – Dealers should train their staff to present the benefits of damage repaired with OEM parts by manufacturer certified mechanics rather than minimizing it. Be sure F&I managers are trained on how/when to use disclosure documents. Due diligence can go a long way in minimizing liability.