Careful When Doing It Yourself

New car dealers have found that consumers respond positively to manufacturer certified pre-owned programs. So if they like those, some dealers have reasoned, why not create a dealer-branded certified pre-owned program?

Any dealer thinking about creating an in-house CPO program should be aware of some potential legal pitfalls.

The reason CPO programs work is that consumers view a certified pre-owned vehicle as something more than just a run-of-the-mill used car. Consequently, customers disappointed by their certified used cars are apt to seek the advice of a lawyer.

And plaintiffs' attorneys have developed lawsuits based upon the theory that a used-car certification is, in itself, a representation of quality that if not true justifies not only a recovery for compensatory damages but punitive damages for the fraudulent misrepresentation inherent in the certification claim.

A dealership setting up its own CPO should follow certain guidelines.

What does it mean? A dealer's program should be clear what “certified” means. Have you developed standards that a certified vehicle must meet? Do those standards provide significant benefits to the customer by ensuring the vehicle is in good mechanical condition, is free from serious prior body damage or flood damage and meets some objective standards of quality?

Is there a state law? Check to see if your state law regulates use of the term “certified”?

What is the vehicle's history? No vehicle should be certified unless you have checked its history. Run a vehicle history report. If you have access to title history online in your state, check that. Consumers expect a certified used car has a history free of salvage or flood problems.

Has the car been inspected? Be sure each certified car in inventory meets the established standards. Management should spot check the internal records of the used-car department to ensure that vehicles certified have in fact been inspected. Records of used-car mechanics or service-department technicians should be spot checked to see that sufficient time has been spent on the check points. A dealership's certification program quickly loses its meaning if the standards are not carefully and continuously applied.

Has the car sustained serious body damage or flood damage? We are not talking about dents and dings or a fender that's been crumpled. We're talking about a major accident. We're talking about real flood damage. Customers assume that cars that have been certified do not come with these types of problems. Do not simply rely on a vehicle-history report because such information may not be reported or may be delayed. Put the vehicle on a lift to check for evidence of this kind or damage in the undercarriage. If found, do not certify it.

Are problems repaired? Customers presume that certified used cars are free of mechanical problems. In addition to being sure that vehicles are inspected, you should ensure that problems are remedied in certified cars. Wear items that will soon need replacing should be replaced.

Is a solid warranty provided with the car? Any consumer expects the dealership to stand behind its certified cars. A certified car must have a meaningful warranty. And the warranty should be in writing and comply with the law. A description of the warranty on the buyer's guide is not a written warranty document that complies with federal law.

Has the certification “run out”? This is a problem in dealerships where used cars are driven as demonstrators. A vehicle may well meet standards for a certification, but after 3,000 miles going back and forth to the beach all summer that popular convertible may have problems that were not apparent when the certification inspection took place. After the passage of time or accumulation of miles, vehicles should be recertified.

Michael Charapp is an attorney with Charapp & Weiss LLP, specializing in representing motor-vehicle dealers. He can be reached at (703) 564-0220 or [email protected]

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