Why Comply? A Chilly Lesson

A record fine of $500,000, imposed on a dealership chain's nine stores in Alaska, underlines the need for dealers to tighten regulatory compliance measures in every department of their stores.

So says James E. Lawrence, vice president and product manager for Compli, a dealership training and monitoring firm.

In a consumer-protection case filed by the Alaska state government, Lithia Motors was ordered to pay the $500,000 civil penalty, as well as send $200 refunds to several thousand Alaskans who were charged document preparation fees that the state objected to. The fine is the largest handed out to an Alaska auto dealership.

Lithia dealers had collected the fees from customers who paid listed prices of vehicles. In addition, the state took issue with alleged failure to disclose accident and repair information on resold trade-in cars.

Under a settlement between the state and publicly owned Lithia, based in Medford, OR, the 104-store chain agreed to audit its records of all new and used vehicles sold since 2002 to identify and compensate buyers who were improperly charged document prep fees.

Lithia also agreed to establish a separate claims procedure to handle claims related to non-disclosure of vehicle histories.

Lawrence says the case highlights that “since dealers are fair game for regulators, it's essential that every employee be trained to conform to every federal, state or local regulation.”

Lawrence says the need to comply affects every franchised or independent dealer, no matter how big or small. “That Alaska fine should be a wake-up call to every dealer,” he declares.

Lithia Motors is not the first publicly owned chain to face regulatory problems.

A large AutoNation Inc. Chevrolet dealership in El Monte, CA, was raided by authorities a few years ago. Jail sentences and fines resulted from complaints of F&I contract packing.

Two Sonic dealerships in Clearwater, FL, were cited in owner suits for F&I overcharging. The suits were settled by Sonic out of court.

The size of the penalty was challenged in court by Lithia, but both the amount of the penalty and the refunds to consumers were upheld. An Alaska assistant attorney general, Ed Sniffen, tells Ward's Lithia is cooperating fully in seeking to make restitution and in the establishment of a complaints process covering all its stores.

“Many of the employees sent up here by Lithia were not conversant with our business practices and complaints procedures,” Sniffen says. “When it's all finalized by this summer, I expect it will cost Lithia between $700,000 and $800,000. But they should come out of this squeaky-clean in treating consumers.”