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GM: Dealers Must Disclose Non-GM Parts, Service Contracts

DETROIT — In a pair of bulletins and a letter signed by its head of North American operations, General Motors (GM) issued a new set of dealer mandates that pose a serious threat to the aftermarket F&I product industry and has dealer trade groups scrambling for answers.

Dated Aug. 10, the letter states that GM dealers who sell non-GM-branded vehicle service contracts, parts and accessories must disclose that fact to their customers. In states like Mississippi and New York, similar disclosures are already required. The question is whether the penalties for noncompliance, including termination of a dealer’s franchise agreement, violate dealer-protection laws.

“If a non-Chevrolet, Buick, GMC or Cadillac vehicle service contract is sold to a customer, dealers must disclose to the customer that the service contract is not endorsed by GM. The disclosure requires an acknowledgment by the customer,” Alan Batey, GM’s executive vice president and president for North America, states in the letter obtained by F&I and Showroom magazine. “The failure to complete this required disclosure is a material breach of Article 5.1 of the Dealer Sales and Service Agreement (DSSA).”

Dealers on Hold

In addition to termination of their franchise agreement, GM dealers face a $500 penalty per vehicle, and could lose access to incentive programs such as GM’s Standards for Excellence and Essential Brand Elements. Noncompliance could also render a dealer ineligible for additional dealership opportunities.

The letter and bulletins don’t make clear whether the disclosure requirement applies to other F&I products. Also missing is the policy’s effective date and compliance deadline, which has been a source of dealer confusion.

General Motors officials did not respond to requests for comment.

The National Automobile Dealers Association reached out to GM within days of the new policy’s release, according to an Aug. 17 memo obtained by F&I and Showroom. Authored by Jim Moors, the association’s senior counsel, the memo questions whether GM’s disclosure form is consistent with the automaker’s DSSA and certain state laws that dictate disclosure content.

The memo also raises several questions, such as whether the disclosure is required in cases where a vehicle sold to a customer contains non-GM parts not installed by the selling dealer. It also points out that a number of states have enacted restrictions on manufacturers that attempt to influence which products its dealers sell.

“NADA believes that these requirements and the threatened sanctions may go beyond what appears to be required or authorized by the DSSA. It is also unclear exactly what products are subject to the disclosure requirements,” Moors’ memo states, in part. “While NADA cannot offer dealers legal advice, we strongly recommend you not take any action that indicates agreement with the new requirements without consulting with legal counsel.”

Preventive Measures

In 2014, dealer associations in Florida, Mississippi, New York, and Oklahoma successfully lobbied state lawmakers to pass measures prohibiting captives from pressuring dealers to sell only their F&I protections. But it wasn’t a complete victory for dealers in two of those states. The bills passed in Mississippi and New York include a requirement that F&I offices specifically disclose to customers whether or not they are purchasing F&I protections backed by their vehicle’s manufacturer.

In advance of the Mississippi bill’s effective date, the Mississippi Automobile Dealer Association (MADA) developed a one-sentence disclosure for its members. It requires that dealer have their customers initial the disclosure, signifying that they were advised — both verbally and in writing, as stipulated by the state’s updated Mississippi Motor Vehicle Commission Act — that the products they are purchasing are not provided or supported by a manufacturer or distributor.

“Disclosure to the buyer is already covered under the Mississippi franchise law,” Marty Milstead, president of the MADA, stated in an email to F&I and Showroom. “However, MADA is reviewing the bulletin over concerns of potential violations of the [law] with regard to the fines and penalties for not using the newly prescribed form.”

In New York, the disclosure isn’t mandated by the state, but a franchiser can require a dealer to make the disclosure in “a separate statement, acknowledged by the consumer.”

States like California and Ohio have statutes in place that prohibit manufacturers from discriminating against a franchisee for selling F&I products not approved, endorsed, sponsored or offered by the manufacturer. Brian Maas, president of the California New Car Dealers Association (CNCDA), said there is one exception: The statute does not prohibit a franchiser from requiring its dealers to disclose to customers whether or not a service contract is backed by the manufacturer. Maas, however, believes GM’s new disclosure form goes beyond what the statute allows, noting that this isn’t the first time GM has overstepped dealer franchise laws.

“This seems to be following a pattern from GM. I don’t know what’s going on in the Renaissance Center in Detroit,” Maas said, putting the association’s GM dealer count in the low hundreds. “Why they’re announcing all these policies that seem to make the relationship with their dealers more difficult boggles my mind.”

When automakers and their captive finance companies attempted to block the dealer-protection measures in Florida, Mississippi, New York and Oklahoma, they stood behind the Federal Trade Commission’s Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses, also known as the Holder Rule. Published in May 1976, it says a finance source that accepts assignment of an installment sales contract from a dealer can be held responsible if a customer who purchased ancillary products takes legal action.

The rule, however, was noticeably absent in GM’s bulletins. Instead, Batey’s letter opens with the automaker’s new disclosure policy regarding the sale of non-GM equipment, parts and accessories, and reminds dealers about the National Traffic and Motor Vehicle Safety Act. It states that a person may not sell a motor vehicle or motor vehicle equipment unless the vehicle or equipment complies with applicable federal safety law.

“In addition to potential violations of federal law, there are other consequences that can result from the installation of unauthorized, non-GM equipment on a GM vehicle,” Batey states in his letter. “First, unauthorized modifications or alterations to the vehicle are not covered under GM’s ‘bumper-to-bumper’ new-vehicle limited warranty, and may void existing warranty coverage. Second, unauthorized vehicle modifications are not permitted on most retail vehicles leased through GM Financial.”

Profit Play

As for the disclosure form, GM requires that it be presented and signed by the customer during the sales or service process. Dealers must also keep a copy of the form in the customer’s sale or service file, along with copies of the purchase order and/or bill of sale.

At the top of the form is a box dealers need to check if a non-GM service contract is sold. Below that is a paragraph that reads: “Buyer/Lessee acknowledges that the dealer is selling her/him a Non-GM Service Contract (not specifically branded Chevrolet, Buick, GMC or Cadillac Protection).” It then states that the buyer understands that GM is not responsible for any claims under the non-GM product, has no obligation in connection with the sale or use of the non-GM service contract, and that it may not be accepted by other GM dealerships.

Dealers are then required to list the name of the provider and the contract number. The non-GM parts and accessories disclosure appears below that. At the bottom of the form, the dealer must list the 17-digit VIN and the name of the sales or service representative, and have the customer sign and date.

“It is little more than a document attempting to scare a consumer away from a non-GM accessory or service contract, which may run afoul of a number of state laws that prohibit an OEM from discriminating against a dealer’s use of non-OEM products,” said Randy Henrick, vice president and compliance counsel for Mosaic Compliance Services LLC. “I know a number of auto dealer attorneys are considering a declaratory judgment action against GM on the basis that the consumer consent is little more than a document attempting to cause the consumer to refrain from buying a non-GM service contract and therefore improper conduct on GM’s part.”

The fear among F&I product providers, many of which are conducting their own legal analysis of the new policy, is that other automakers will follow GM’s lead. Carl Woodward, a partner with accounting firm Woodward Associates, said GM’s policy is all about profit.

In an April 2016 report, investment bank Colonnade estimated the F&I products market to be a $77 billion industry, with retail sales of vehicle service contracts estimated at $28 billion in 2014. And according to the NADA, 41.9% of new vehicles sold have a VSC attached to the deal.

Woodward, whose firm services a number of GM dealers, said there are many reasons why dealers would choose to sell an aftermarket VSC. Dealers who reinsure their service-contract plan with a third-party administrator can offer more coverage for less — a point he said dealers should stress to consumers when presenting GM’s disclosure to customers. Dealer fees for captive reinsurance programs are often higher as well.

“I talked to at least 10 dealers, and their blood is boiling. My perspective is GM is doing this for a profit motive,” Woodward said, adding that he spoke to several GM dealers who were unaware of the new policy. “All GM should be worried about is making good cars priced reasonably and staying out of its dealers’ pockets.”

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GM, Jim Koons and Lithia Settle FTC’s Complaints Regarding CPO Claims

WASHINGTON, D.C. — The Federal Trade Commission (FTC) announced today that General Motors, Jim Koons Management and Lithia Motors Inc. have agreed to settle the regulator’s allegations that each touted rigorous inspections for certified pre-owned vehicles, but failed to disclose that some of the vehicles they were selling were subject to unrepaired safety recalls.

According to the FTC, Jim Koons Management, which has 15 dealerships in the Mid-Atlantic region, and Oregon-based Lithia Motors Inc., which operates more than 100 stores in the West and Midwest, are two of the largest retailers of used cars in the nation.

“Safety is one of the biggest considerations for consumers shopping for a car,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “So companies touting the comprehensiveness of their vehicle inspections need to be straight with consumers about safety-related recalls, which can raise major safety concerns.”

The FTC’s complaint against General Motors cites the company’s representations regarding certified pre-owned vehicles, such as: “Our 172-point vehicle inspection and reconditioning process is conducted only by highly trained technicians and adheres to strict, factory-set standards to ensure that every vehicle’s engine, chassis, and body are in excellent condition. The technicians ensure that everything from the drivetrain to the windshield wipers is in good working order, or they recondition it to our exacting standards.”

The FTC alleged that GM advertised numerous certified pre-owned vehicles at its local dealerships using these claims without disclosing that certain used cars offered for sale were subject to previously announced open and unrepaired recalls for safety issues.

According to the FTC’s complaint, those cars subject to recalls had defects that can cause serious injury, including a key ignition switch defect that can affect engine power, power steering, braking and airbag deployment, problems in the body control module connection system that can affect braking, and chassis electronic module defects that can cause engine stalls.

The FTC’s complaint against Jim Koons, which also does business as Jim Koons Automotive Cos., notes the company’s purported guarantee that: “Every certified Koons outlet vehicle must pass a rigorous and extensive quality inspection before it can be sold. Our certified mechanics check all major mechanical and electrical systems and every power accessory as part of our rigid quality controls.”

The complaint alleges that some cars were subject to unrepaired recalls, including those involving the key ignition switch, alternator-related defects that could cause unexpected vehicle shutdown or an electrical fire, and a rear suspension defect that could result in a fuel leak or fire.

The FTC’s complaint against Lithia Motors cites claims the dealer group made about its “60- day/3000-mile warranty, including: “… Vehicles are put through an exhaustive 160-checkpoint quality assurance inspection. … We inspect everything from the tires and the brakes to suspension, drive train, engine components and even the undercarriage.”

The FTC’s complaint alleges that some of the cars Lithia advertised were also subject to unrepaired recalls involving defects in the key ignition switch and other safety issues.

Under the proposed consent orders, which would remain in effect for 20 years, the companies are prohibited from claiming that their used vehicles are safe or have been subject to a rigorous inspection unless they are free of unrepaired safety recalls, or unless the companies clearly disclose the existence of the recalls in close proximity to the inspection claims. The proposed orders also would prohibit the companies from misrepresenting material facts about the safety of used cars they advertise.

These proposed orders will also require the companies to inform recent customers, by mail, that their vehicles may have an open recall. For GM, this requirement applies to certified pre-owned used vehicles purchased between July 1, 2013, and the final order date. For Lithia, the requirement applies to Lithia Warranty used vehicles purchased during the same time period. For Koons, it applies to certified used vehicles purchased between July 1, 2013, and June 15, 2015.

The FTC’s actions are part of its ongoing crackdown on deceptive advertising, officials said. Since 2012, the FTC has brought 40 actions in auto-related transactions.

The commission vote to issue the administrative complaints and to accept the consent agreements was 4-0. The FTC will soon publish a description of the consent agreement packages in the Federal Register, the regulator said. The agreements will be subject to public comment for 30 days, beginning today and continuing through Feb. 29, 2016, after which the commission will decide whether to make the proposed consent orders final.

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Exclusive: U.S., Major Automakers to Announce Safety Accord Friday

The U.S. government and a group of global automakers are set to unveil a voluntary agreement at the Detroit auto show on Friday aimed at improving auto industry safety and spurring culture changes, according to company and government officials.

The accord could set the framework for further discussions on safety reforms and mark a new era of cooperation between automakers and regulators after a record-setting year of safety fines, recalls and investigations into malfunctioning vehicles made by General Motors Co, Fiat Chrysler Automobiles NV, Honda Motor Co and others.

But it stops short of what many safety advocates have urged Congress and the National Highway Traffic Safety Administration (NHTSA) to adopt: new binding legal requirements to toughen safety rules. And automakers may be able to raise the voluntary agreement to argue against future proposed regulations, saying the accord makes legally binding rules unnecessary.

 The agreement, under discussion for several weeks, would also attempt to improve vehicle cyber security and the use of early warning data to detect potential defects that might lead to safety problems or large-scale recalls, sources said. It would also create new government-industry task forces to work to improve auto safety.

Despite the voluntary agreement, NHTSA Administrator Mark Rosekind said the agency will not hesitate to fine automakers that fail to follow the rules and will not give up its aggressive enforcement of auto safety rules.

Automakers recalled a record-setting 63.95 million vehicles in the United States in 2014, incurring large fines from NHTSA.

Companies in the talks leading up to the agreement include GM, Toyota Motor Corp, Ford Motor Co, Daimler AG, Fiat Chrysler, BMW AG, Honda, Nissan Motor Co and Hyundai Motor Co.

The agreement is to be announced at the auto show in the U.S. auto capital of Detroit by U.S. Transportation Secretary Anthony Foxx and top auto executives, sources told Reuters.

In a letter last week to the NHTSA seen by Reuters, the group of 16 automakers said industry support of an agreement “reaffirms our shared commitment to safety, and signals to the public the areas in which government and industry intend to collaborate to further improve automotive safety.”

Automakers met with the NHTSA in Chicago on Dec. 16 and since then exchanged proposed “Principles for Working Collaboratively to Enhance Motor Vehicle and Traffic Safety.”

In recent days, NHTSA and automakers have continued to propose revisions, including discussions about government-industry working groups, according to auto industry officials who spoke to Reuters at the Detroit show.

The talks come after NHTSA came under intense criticism in 2014 for failing to detect ignition switch defects in 2.6 million older GM cars linked to at least 124 deaths. Since then, NHTSA has been more aggressive in handing out fines and demanding outside monitors oversee automaker safety compliance.

NHTSA Administrator Mark Rosekind said on Monday in an interview on the sidelines of the Detroit show that the agency cannot make vehicles safe simply by imposing new regulations and handing down fines. He said he hoped a deal would be announced Friday.

“We’re going to have to find new tools – that means new collaborations, new partnerships,” Rosekind said.

But the voluntary agreement will not be enforceable – and is not as tough as what some safety advocates have called for. With only a year remaining in the Obama administration, there is a shrinking window to complete new legally binding auto safety rules.

Sean Kane, president of Massachusetts-based Safety Research & Strategies Inc and an auto safety advocate, praised NHTSA “for having a dialogue” with automakers and prodding them to do more on safety “and be strong on enforcement.”

Kane raised concerns about a voluntary agreement that is not legally enforceable. “It also eliminates input from outside parties” like safety advocates and consumers, Kane said, “and that is a little troubling.”

Foxx met with top executives from major automakers on Dec. 1 in Washington. A spokeswoman for Foxx said there have since then been “productive discussions with auto manufacturers toward agreement on steps to bolster safety.”

Foxx “is hopeful that they will soon result in concrete commitments that lead to significant safety improvements that will strengthen public confidence,” said his spokeswoman.

Fiat Chrysler CEO Sergio Marchionne said on Monday he agreed with the NHTSA that the auto industry needs more collaboration with regulators. He said he wanted the industry to “get to a stage where safety is no longer a competitive edge used by one automaker against another.”

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GM Unveils Technology to Help Avoid Child Heatstroke Deaths

General Motors Co said on Tuesday it will introduce a new safety system to remind drivers to check for children in the rear seats, and that it could eventually develop features to detect forgotten children, reports Reuters.

The Detroit automaker showed off its 2017 Acadia SUV that includes what it says is an industry-first feature that will alert drivers who had opened the back door at the start of a trip to check the beak seat once they get to their destination.

“Too many children are inadvertently left behind in vehicles, often with tragic results. It’s hard to fathom but it does happen, leading to dozens of fatal heatstrokes in children under 14 every year,” said GM product planning chief Mark Reuss.

The system “does not detect the presence of a child in the back seat but as a simple extra reminder to look in the rear seat on the way out of the vehicle regardless of what may be there,” Reuss said.

He also said that the Acadia is one of the most popular GM vehicles for buyers with children.

While the new GM system won’t be able to sense if a child has been left behind, Reuss said GM could eventually add that capability.

Reuss said GM “has some pretty sophisticated anti-theft motion deterrent systems” and it is possible the automaker could add technologies to detect a child left in a parked vehicle.

The move comes as GM looks to bolster its safety reputation after it recalled a record-setting 30.4 million vehicles in 2014 in North America. GM paid a $900 million U.S. Justice Department fine in September to end an investigation into ignition switch defects linked to 124 deaths and 275 injuries.

In July, the National Highway Traffic Safety Administration said it has no plans to require automakers to add in-vehicle technology that would alert those who leave young children behind in hot cars.

NHTSA Administrator Mark Rosekind said in July that if automakers “develop (systems), and they work, and they’re effective, we don’t need to get into it.”

Between 1998 and 2014, there were an average of 38 U.S. deaths a year in hot cars, according to San Jose State University.

Around half were children accidentally left in hot cars, 29 percent were children playing in unattended cars and 18 percent were intentionally left behind. That means a technological fix would likely address only about half of the total deaths.

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December Auto Sales Soar 9% in Record Year

Automakers posted a solid 9% sales gain in December, an exclamation point that sealed 2015 as the biggest sales year ever for the industry, reported USA Today.

All told, automakers sold 17.47 million new vehicles for the year, Autodata reported, besting the previous record set in 2000 by 68,138 vehicles. Low gas prices, cheap credit, low unemployment, soaring consumer confidence and warm weather fueled a rush into showrooms in December.

“The U.S. economy continues to expand, and the most important factors that drive demand for new vehicles are in place, so we expect to see a second consecutive year of record industry sales in 2016,” said Mustafa Mohatarem, GM’s chief economist, in a statement.

Still, sales success for individual automakers presented a mixed bag. Detroit’s Big 3 fared well for December and the year. General Motors had a 5.7% sales increase in December, Ford Motor saw an 8.3% boost and Fiat Chrysler sales rose 12.6%, according to Autodata. Tesla Motors doubled sales during the month and sold 23,650 of its luxury electric cars in the U.S. for the year, but came in at the low end of its delivery guidance on worldwide deliveries.

Among Asian makers, Toyota saw a 10.3% increase for the month, Honda was at 9.9% and Nissan at 8.7%. But for the full year, they came in lower, with Toyota posting a 5.3% increase compared to the industry average of 5.7%

One laggard was German automaker Volkswagen Group, which still cannot sell diesel vehicles amid an emissions scandal, down 3.4% overall. The automaker’s Volkswagen brand sales fell 9.1% in December and 4.8% for the year. The company’s Audi luxury brand, which has felt a smaller impact from the scandal, achieved a 6% gain in December and 11.1% for the year. Another loser for the month was Hyundai, saddled with a car-heavy lineup during the SUV surge, down 1.5%.

Consumers continued their exodus from less-lucrative cars into crossovers, sport-utility vehicles and pickups amid low gasoline prices.

At 13.9% market share, the small SUV segment is now the largest category of vehicles in the U.S., trailed by small cars and midsize cars at 13.7% apiece, according to Kelley Blue Book.

“There’s no end in sight to those trends,” AutoTrader.com analyst Michelle Krebs said. “You’re going to hear the same broken record next year.”

Crossovers like the Toyota RAV4, the Nissan Rogue and the Jeep Renegade delivered a robust showing in December.

“The segment is in demand with Baby Boomers and Millennials both looking for increased utility. We think this is a long-term trend,” Ford sales analyst Erich Merkle said on a conference call.

Unlike 2000, when automakers were piling on discounts to sell vehicles despite a strong economy, the industry is financially fit and has spurned steep incentives. Average incentives rose 3.9% in December, compared with a year earlier, to $3,063 per vehicle, according to TrueCar.

Toyota division general manager Bill Fay told reporters it was a “standout year,” though he projects sales to “start to level off a bit” in 2016.

Even as crossovers gain, the industry’s stalwart full-size pickup trucks have also flourished, in addition to new midsize pickups.

The Ford F-Series pickup, the most popular vehicle in the U.S., rose 14.6% to 85,211 units in December. Sales were up 3.5% for the year to 780,354.

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U.S. Brands Tap European Auto Recovery as Volkswagen Left Behind

European car sales rose 13.7 percent in November, according to industry data published on Tuesday, with U.S. brands recording strong gains as Volkswagen continued to pay the price of its diesel emissions test-rigging scandal, reports Reuters.

Registrations rose to 1.12 million cars last month from 989,758 a year earlier, the Brussels-based Association of European Carmakers said, with Ford and General Motors’ Opel among the best performers.

Volkswagen, Europe’s biggest carmaker by sales, saw its core brand market share tumble to 12.2 percent from 13.5 percent, as sales edged just 3.1 percent higher, underperforming the market. The German group as a whole posted a 3.9 percent gain.

The VW brand, struggling to contain the damage after being exposed in September for cheating U.S. tests for toxic diesel emissions, suffered a more marked 20 percent sales decline in Britain, according to data release on Dec. 4.

The broader European auto recovery is set to continue into 2016 after an 8.6 percent expansion in January-November, Ernst & Young analyst Anil Valsan said.

“The car market is expected to remain on the growth track driven by the positive economic environment, low financing costs, low fuel prices, high discounts and some remaining pent-up demand,” Valsan said.

“However, growth is expected to be slower, with interest rates likely to edge up.”

Fiat Chrysler, Ford and Opel all saw November sales rise more than 18 percent, with GM’s European arm helped by the recently launched Astra compact.

Sales by France’s Renault advanced 15.1 percent, while domestic rival PSA Peugeot Citroen rose 12.8 percent, with a buoyant Peugeot brand tempered by a weaker Citroen performance.

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