Nevertheless, Halloween calls for horror stories (or “haar” stories as we say here), and today’s comes from Florida.  According to the St. Petersburg Times, Ernie Haire Ford in Tampa, Florida was ordered to pay $6.9 million to resolve a class-action suit.  What did Ernie Haire Ford do?  According to the lead plaintiff, it charged $199 for etch that she didn’t request.  She also claimed that there were other things in her contract that had been “concealed” in her sales contract, such as rust-proofing, paint sealant, and fabric protection.  Hmm – does this sound familiar to anyone?

The plaintiff’s lawyers are having a happy Halloween because they were awarded $3 million in attorneys’ fees and $431,700 for expenses.  (If I lived in Florida, I would have my kids trick or treating at their houses – but they probably have gates.)  

The frightening part of any class action case is the large numbers involved.  When a standard practice of a dealership is successfully challenged, the damages can be huge.  Etch, doc fees, and other disclosure issues create huge exposures.  

The other thing that this case shows is how important it is to have good insurance coverage.  According to the general manager’s comments in the article, it seems that Ernie Haire Ford’s insurance had assumed the defense of this case and was responsible for the settlement.  Dealers should all read their insurance policies carefully to make sure that they would be covered in cases like this.  Happy Halloween!

Source:  St. Petersburg Times

Stephen Lussier, a classic car dealer in New England, allegedly discovered two aggressive ways to increase his margin:  (1) don’t pay for the inventory (theft) and (2) assign contracts to banks without sales to back them up (bank fraud).  Mr. Lussier’s plan was pretty simple – take cars in consignment, sell them, and then don’t pay the owners.  This was good for about $150,000 to $200,000 in revenue.  The bank loans were good for about $430,000 in revenue.  But the great thing about Mr. Lussier’s business model is that he had absolutely no “cost of goods sold.”  If he kept his rent, advertising, payroll, and other expenses down, then his bottom line would look pretty good.

Theft and bank fraud on a large scale will lead to a government bailout, but on a small scale it usually leads to jail.  Mr. Lussier was indicted in both state and federal court and is facing a maximum of 7 1/2 to 15 years in prison for each theft charge.  But from a pure numbers standpoint, his gross margin was a thing of beauty.

Source:  Nashuatelegraph.com

So what happened to Bill Heard?  I wonder if we will ever find out.  All I know is that the store near me seemed to “rock” and sold a lot of cars for a long time.  The market has been brutal for Chevy dealers, but you would think that Bill Heard would be able to hang on for awhile in a tough market.

If nothing else, this situation illustrates the downside of debt.  When stores are making money, everyone wants to give you money.  Buy other stores – lots of blue sky?   No problem!  Spend a few million to comply with your manufacturer’s architect de jour?  Here’s the money – no problem!  If the economy gets bad, guess who’s no longer your friend.  When you need the money to keep the doors open, they’ll yank it.  It seems like a lot of fundamentally sound businesses are closing because they relied on financing to operate.  Sometimes its absolutely necessary.  But if you paid off your floorplan instead of buying that 5th store, I bet you’re smiling now.

The general manager of Carl Gregory Chrysler, Dodge, Jeep, Hyundai of Albany, Georgia was arrested on charges that he stole up to $9000 from customers.  The sheriff’s office claim that general manager, Joseph Martin, and “top salesman,” Mark “Bo” Kennedy, worked together to steal money from customers. Allegedly, the pair revised customers’ paperwork in order to scoop their down payments.  They were also accused of taking in trades, not paying them off and then pocketing the money.  They were caught when a customer complained to another Carl Gregory employee and produced a receipt that was not an official receipt from the store.

The sheriffs deputies caught former GM Martin when they spotted a Hyundai Sonata that he had reported stolen parked next to his car at his apartment.  Apparently Martin loaned out the car and then reported the car stolen when he could not explain the car’s whereabouts.  The “top salesman,” Bo Kennedy, is still at large.  According to reports, he has a long criminal background that includes deposit account fraud, aggravated assault, terroristic threats, criminal trespass and battery.

Carl Gregory immediately reimbursed the customers.  He also said that he is implementing procedures to do a more extensive background check on his employees. 

So what is the lesson from this situation?  Carl Gregory is a good dealer, and this case highlights one of the biggest problems of a good dealer – you have to trust your managers.  Carl Gregory can’t be in all of his stores all of the time.  He has to trust his GM’s to protect his interests.  When your GM is a thief, things can get out of control very quickly.  Obviously, a good background check would have caught the salesman because he had a long criminal history.  But what about the GM?  Carl Gregory has to ask himself why he trusted that man to run his business.  I’ve been in this business for a long time, and I have seen a lot of good, professional GM’s.  I’ve also seen a lot of GM’s who are blowhards and thieves.  The interesting thing is that the blowhards and thieves always find jobs.   

AlbanyHerald.com

WALB News

WFLX News

The Georgia Governor’s Office of Consumer Affairs raised new allegations against Bill Heard Enterprises.  The Governor’s Office claims that Bill Heard engaged in deceptive and misleading sales practices in violation of Georgia’s Fair Business Practices Act of 1975.  Specifically, it asserts that Bill Heard failed to pay off trades and engaged in “power booking” (overstating the equipment on vehicles to induce a lender to finance a larger amount).  Bill Heard disputes the allegations.

Bill Heard is based in Columbus, Georgia and operates five stores in Georgia and nine stores in other states.  It is one of the largest General Motors retailers in the country.

The current allegations arise from a long-standing dispute between Bill Heard and the Governor’s Office.  According to the Governor’s Office, between July 1, 2005 and April 5, 2007, it received 113 complaints about Bill Heard’s stores.  Instead of settling those claims, Bill Heard sued the Governor’s office in May, 2007 under Georgia’s Open Records law seeking the names of the consumers and dealerships who filed complaints against it.  The Governor’s Office then sued Bill Heard for $50 million claiming that a sales mailer sent to thousands of consumers was misleading.  The mailer allegedly looked like a factory recall notice. 

The new allegations are simply the latest round of this bitter dispute.  But they come at a particularly difficult time for Bill Heard.  According to news reports, GMAC Financial Services recently discontinued Bill Heard’s new vehicle inventory financing. 

“State Says Bill Heard Used Deceptive Practices,”  Atlanta Journal-Constitution

“State Levels Accusations Against Bill Heard” Ledger-Enquirer.com

U.S. Representative Vern Buchanan’s Florida dealerships have been hit with a number of suits by customers and former employees.  At first, I didn’t pay close attention to these suits because they smelled to me like a political smear campaign.  But as I looked closer, they are becoming more interesting and illustrate how the right combination of a professional expert witness, a plaintiff’s lawyer, and some disgruntled employees can generate a firestorm for a dealer.

Background

Vern Buchanan is a U.S. Representative for Florida’s 13^th Congressional District.  Two years ago, he won a tight, highly contested election and is now running for re-election against the same opponent.  Rep. Buchanan is a successful dealer, and formerly owned 22 stores.  He now owns five stores. 

Duane Overholt is a former car guy turned expert witness.  According to the website for StopAutoFraud.com, Overholt has participated in a number of class action and other suits against some well-known stores in Florida and other states. 

A single plaintiff’s attorney in cooperation with Duane Overholt has filed several lawsuits against Rep. Buchanan’s stores on behalf of former employees and customers.  The former employees are notable because they are former F & I managers.  These managers claim that they were fired for refusing to engage in fraudulent activities that include falsifying credit applications, manufacturing tax returns, “powerbooking” (submitting loans to banks with equipment that is not on the car).  The managers also claimed that they were cheated out of commissions (“pencil-whipped”).

One of the lawsuits alleges that Rep. Buchanan imported illegal immigrants to work on his house.  This claim was made by a former service director.

Some of the former employees allege that they were coerced into writing checks donating to Rep. Buchanan’s campaign.  Some of the employees claim that they were reimbursed in cash.  Another claims that he was given use of a vacation home in exchange for his check.  During a one-week period, the campaign raised $110,000 from dealership employees and their families.

Rep. Buchanan Fires Back

Sarasota Ford, which is owned by Rep. Buchanan, has filed a lawsuit against Duane Overholt accusing him of “churning.”  The suit alleges that he called former customers of Sarasota Ford and promised them between $50,000 and $90,000 if they participated in the suit.  The suit also alleges that the callers had confidential information about the customers’ financing arrangements.  Overholt denies that he directly called any former customers or employees.

What Does This All Mean?

Politics Are Rough:  Why would anyone with money go into politics?  I just don’t understand it, especially if you have car dealerships.  Any car dealership is going to have some disgruntled employees and customers.  If you are in national politics, you are just begging to give these employees and customers a media stage, regardless of the truth of the allegations.

Ownership vs. Control:  One of the more interesting exchanges is the degree of control that Rep. Buchanan had over the stores.  Rep. Buchanan has taken the position that he is a “hands-off” owner.  Anyone in the car business knows that a dealer’s day-to-day involvement can vary dramatically from store to store.  The lesson here is that if you have an ownership interest in a store, you must realize that it is YOUR reputation on the line.  If you are not checking the F&I bucket randomly to look at the deals, then you are trusting someone else and that’s always risky. 

Professional Expert Witnesses:  Another interesting part of this story is the role of Duane Overholt, the professional expert witness.  Being an expert witness can be a very lucrative business, and it seems like Duane Overholt is doing very well with it.  I can’t wait to see how the suit against him shakes out.

Arbitration Agreements:  When evaluating whether to use arbitration agreements, consider the comments of the plaintiffs’ attorney in this case.  He told the newpaper that he was “discouraged” about his opportunity to recover because everyone involved had signed arbitration agreements.  He noted that unlike the public hearings in courts, the arbitrations would be private and his chances of recovery were not good.

All in all, this case has generated a ton of publicity at a critical time in Rep. Buchanan’s campaign.  It will be interesting to follow the development of these cases.

The Real News Network

“Dealer Suing Over Charges” HeraldTribune.com

“Another Buchanan Dealership Has Been Sued” The Suncoast News

Kansas’ Attorney General filed suit against Chad Franklin Suzuki alleging that its ads violated the Kansas Consumer Protection Act.  Chad Franklin Suzuki ran a $1.9 million dollar ad campaign that, according to the AG, promised consumers they could  “drive a new Suzuki for life with no payments or drive a new Suzuki for a fixed time period at a fixed price.”  Apparently, the ad worked because 650 customers hooked up.  Customers were apparently happy with their free Suzukis.  The problem arose when the the customers had to start paying price for the cars.

Apparently, this was a case where the mouse type in the ad explained the limitations on the deal, but the overall message of the ad gave consumers the impression that the buyers could have a free lunch.  According to the news report, the ad generated over 100 complaints to the AG’s office and the BBB.  If you watch the news report below, it will make you cringe.  Imagine receiving that kind of bad publicity.  

The message here is pretty clear – there is a line that we walk.  You have to get customers in the door, but if you cross the line, you will face bad publicity and lawsuits.  The more we examine what sets off the AG’s, the better we can see the line. 

Kansas AG’s Website News  Kansas City Business Journal

But that was nothing compared to what is alleged to have happened in Michigan.  A lawsuit alleges that the owner of Star Lincoln-Mercury in Southfield, Michigan sent letters to 65 lease customers of Varsity Lincoln-Mercury in Novi, Michigan claiming that Varsity Lincoln-Mercury was closing its doors.  Good idea – the problem is that Varsity has no intention of closing.  Oops!  Apparently, the dealer intended to say that “a” Lincoln-Mercury dealer was closing its doors – not “your” dealer.  Nevertheless, Varsity Lincoln-Mercury was not amused and filed suit.  

nbc4.com

Does any of this sound familiar?  I’ve done a mailer or two in my past that sounded a lot like this, so I am not going to get on my soapbox and tell you to stay away from mailers, etc. etc.  But how can you conduct a sale that will generate 50 complaints to the AG’s office?  That has to be some kind of record.  These people must have really thought that they won something.  So what’s the moral to the story?  I guess if you do a mailer that really, really makes it sound like people have won something, you better either give them something or have someone waiting who is pretty smooth.  50 complaints!  I just can’t get over it . . . .

You can read the original article here.