The Key-Chain Caper

Under the heading, “Things Dealerships Should Do to Get Investigated,” put charging a couple of thousand dollars for a key chain.

A California dealership finance and insurance manager tried that key-chain con, first giving a customer the presumably free trinket, then listing it as a $2,295 purchased item in a lease agreement.

Busted! The customer went to the authorities. Los Angeles deputy district attorney Jeff McGrath went to the dealership and ultimately filed fraud charges.

“You don't want to see me at your dealership except every three years when I'm buying a car,” says McGrath, who specializes in dealership fraud prosecutions.

Greed motivates so many dealership finance and insurance misdeeds, he says at an F&I Management and Technology compliance conference. “If you get greedy, you get someone like me at your store.”

McGrath recalls his first automotive case in 2001, when the California Dept. of Motor Vehicles raided Gunderson Chevrolet in El Monte, CA, carting away records that implicated the store in such wrongdoing as forgery; odometer fraud; and charging thousands of dollars for anti-theft windshield etchings without customer knowledge.

“I got 25 file cabinets and an education,” says McGrath of the now infamous Gunderson caper.

The dealership ultimately got slapped with court-ordered $1.6 million restitution payments to 1,263 customers and $1.1 million in penalties. Its general manager, sales manager, finance director, used-car manager and three F&I managers were criminally charged.

“Lots of these problems come out of the finance office,” says McGrath.

A more recent raid occurred at Power Toyota in Cerritos, CA, after TV news reports said customers, led to believe they were buying vehicles, later learned they were duped into leasing them at inflated payments.

The dealership was sealed as a crime scene, records were seized and there was a lot of bad publicity. It isn't worth it, says McGrath. “And here's some advice: If you are selling a Toyota Camry with a $12,000 gross profit on it, that's going to indicate something is amiss.”

Another investigator, Terrance O'Loughlin of Florida's attorney general's office, tells of a former dealership employee who defrauded senior citizens in a similar scheme of leasing them cars they thought they were buying.

The shady character acknowledged his main tactic was to confuse customers. “He is now serving an 8-year sentence in Florida's Sumter Correctional Facility,” says O'Loughlin.

Here is McGrath's short list of what not to do in the F&I office:

Here is McGrath's shorter list of what to do in the F&I office: Disclose, disclose, disclose. “Dealership employees should be taught to take the high road,” he says.

While many dealership investigations stem from customer complaints, lots of others originate from disgruntled employees, past and present, turning over incriminating documents to the authorities.

“That's our most fruitful source of information for going after big dealerships,” McGrath says.

In the Gunderson case, General Motors Acceptance Corp. was the first to spot F&I wrongdoing in the form of suspicious loan-application information.

Some lenders participate in fraud, says McGrath. Not GMAC, which aided in the Gunderson investigation.

“Our people do a good job of spotting suspicious loan applications, but it can be hard when you are doing thousands a day,” says David L. Jones, a GMAC vice president. “Lenders who collaborate in automotive-loan frauds are suicidal.”

Dealership finance managers can say the darnedest things in trying to arrange financing for customers, says O'Loughlin.

He cites this example: “What if I make that zero an eight so your income goes from $1,000 to $1,800 a month.”

He says he and his colleagues sometimes go undercover while investigating dealerships in connection with unfair and deceptive trade practices.

“Auto complaints to our office are No.1, so that's why they are investigated,” says O'Loughlin. “Consumers continue to tell us stories about car dealerships. There are 100-plus ways to defraud the public through a transaction.”

He tells of an undercover operation in which someone who was wiretapped went to a dealership and asked for the advertised price on a vehicle. The salesperson said, “We never sell cars at that price. We couldn't afford to.”

Conversely, a more forthright salesperson at another dealership told a wired undercover operative that the store always sells at advertised prices or the attorney general would sue the place. “I thought: ‘Good answer,’” says O'Loughlin.

Some investigations reveal it is not the dealership trying to pull a fast one. “I used to believe all consumers told the truth,” he says. “They don't.”

O'Loughlin offers this straight advice for dealerships:

O'Loughlin says dealerships that come under investigation would be wise to fully cooperate with authorities and turn over all requested documents.

Doing otherwise raises suspicions. So does bringing out the big legal guns.

“In one case, a famous attorney showed up for the deposition of a dealership salesman,” recalls O'Loughlin. “When that happened, I realized I had a really big case.

“Another time, three attorneys and a paralegal showed up for a simple deposition of a dealership employee. I didn't realize until then that I had such a good case.”

And Then There Are the Civil Suits

By Steve Finlay

Potential criminal prosecution aside, alleged improprieties also can land dealers in civil court, facing lawsuits filed by hungry litigators with visions of plump monetary damage awards dancing in their eyes.

Some attorneys advertise in newspapers, looking for would-be clients with dealership beefs that are serious enought to turn into a legal matter, says Ron Reahard, a dealership F&I trainer.

“Attorneys are just fishing for enough people with the same dealership story,” he says. “Then those attorneys get the order in for that yacht.”

Reahard notes that the sales and F&I process are under increased scrutiny from state attorneys general, the media and those lawyers on the lookout for lawsuit material.

He says the best defense is honesty and consistency.

“These days liar, liar means lawsuit,” says Reahard. “Slap me silly and call me stupid, but give the customer accurate, non-misleading monthly payment quotes.”

There is a big difference between outright scamming a customer and doing things the old way, from a time when the rules were looser — and so was their enforcement. But using the more wide-open old ways can get you in trouble these days.

“Packing payments and legging a deal a few years ago were the ways to do business,” says Tom O'Connor, a 33-year automotive veteran who spent 12 years in dealership sales and F&I positions and now is a Ford Motor Credit Co. sales-support manager.

He winces thinking about how it was. He now stresses full compliance and disclosure for dealerships, especially in the F&I office.

“You don't need to trade customer satisfaction for F&I profits,” says O'Connor.

The best customer is an educated customer, “a thought we wouldn't have been receptive to 10 years ago,” yet it goes a long way towards keeping dealerships operating within the law today, says David L. Jones, a General Motors Acceptance Corp. vice president.

He explains, “For a dealership to succeed, the whole operation — front end to back end — must succeed. The more a customer is educated, the more it keeps everyone honest. Educated customers weed out the bad apples.”