Taking an ethical approach may seem hard but has long-term benefits
By Jim Radogna
Ethics and compliance are different from each other, but both are vitally important to the long-term success of dealerships and automotive professionals. Often the terms “unethical” and “illegal” are used interchangeably. Ethics is personal. It means the process of discerning what the correct action is. Law is impersonal and requires no discernment, just compliance. Ethics refers to moral principles and values that guide a person or an organization, and ethical conduct refers to knowing the difference between right and wrong and choosing to do what is right. A company or person can be unethical without breaking laws.
For instance, it’s not illegal per se to charge different prices for the same F&I products – and many finance practitioners do so on a regular basis. They’ll charge one customer $795 for GAP and another $1500 for the same coverage because “X Bank allows that much”. Another example I recently read about is that some dealers charge a “certified pre-owned” fee to customers on CPO vehicles they sell. Although that practice may be against OEM guidelines, it’s not necessarily unlawful from a strict legal standpoint.
One more illustration of dubious ethics in my opinion is vehicles that are marketed as a “CarFax One Owner,” even when the “one owner” was a rental car company. Even though the “one owner” statement may be technically true, the descriptions I’ve seen for some of these vehicles are questionable at best: “With just one previous owner, who treated this vehicle like a member of the family, you’ll really hit the jackpot when you drive home with this terrific car;” “This 2010 Elantra is for Hyundai fans that are searching for that babied, one-owner creampuff” and “From the looks of it, I’d say this car has been garage kept and babied regularly. If only my wife treated me as nice!!!”
Is It Puffery or Deceit?
Now some will argue that these statements are just harmless puffery that is intended to make the vehicles stand out, but isn’t it safe to assume that most consumers place more value in a true one-owner car than a prior rental? Even if the dealership discloses the vehicle’s previous histories at some point, is it OK for the first contact with a consumer to be secured by misleading claims? Even if it’s legal, is it truly ethical?
The reality of the car business is that pay plans and sales quotas can sometimes make acting ethically a challenge. Dealership personnel may be under continuous pressure to abandon their personal standards to achieve sales goals. The actions of salespeople mirror the behavior and expectations of their managers. The words and actions of sales and F&I managers often reflect the moral and ethical considerations of top management’s philosophy.
Ethics can be a very personal decision and different people will have different opinions about the above scenarios, but here’s where the lines have gotten blurry: While I agree that “profit is not a dirty word,” it appears that regulators and consumer attorneys have been redefining what is “legal” by applying their own interpretations of “ethical” standards.
Government intervention against dealers
In the last few years we’re seeing more and more enforcement actions and lawsuits against dealers for a number of seemingly “legal” activities. Recent cases have charged dealerships with assessing dealer fees that were deemed excessive even though they aren’t regulated by state laws.
Another target for regulators is pricing of add-on products. For instance, NY Attorney General Schneiderman said in a statement announcing a $14 million settlement “New York consumers must beware: Car dealerships sometimes pad their pockets by charging for worthless after-sale items, which inflate the price of their car. These items are often ones that consumers don’t need, did not ask for and often are not even told about. Businesses need to make a profit to survive, but it’s illegal to do so by duping consumers.” Whether or not these products are “worthless” is a matter of opinion, but these consumer watchdogs seem to think so.
Another notable case is where a dealer group agreed to pay $1.6 million to settle a class-action lawsuit that claimed the dealerships sold car buyers an over-priced window etch package (and they were only charging $295!).
Former CFPB official Rick Hackett had this to say at an industry event: “If I found out that Walmart set the price of their products at different levels, and they were all the same product, and they were just hoping I would buy one for $20.95 because I was a particularly gullible consumer, I’d be grumpy. That’s the bureau’s perspective of variable pricing of ancillary products.”
We can complain all we want that it’s not fair for the government to limit our profits but it’s clear that they’ve drawn a line in the sand and there’s no relief in sight.
Values of an Ethical Approach
But here’s the good news. Taking an ethical approach has several benefits beyond just avoiding legal issues:
Increased Closing Ratios and Higher Product Penetrations – Higher levels of satisfaction with the selling process result in higher closing rates and higher sales. The more people trust you, the more likely they will buy from you.
Lower Cancellations and Chargebacks – How many times do your customers read the contract after the sale and realize they paid much more than they thought? How many times are credit unions, insurance companies, friends or family members telling your customers they paid too much? Even if you hold their feet to the fire for non-cancellable products, what are the chances you’ll ever see that customer again?
Improved Reputation (your REAL reputation, not necessarily the one you “manage” online) – A dealership’s reputation is difficult, if not impossible, to maintain when staff members depend on “old school” practices. Customers often make decisions during a vehicle sale transaction that they come to regret after the “ether has worn off.” You can be sure they’re telling somebody about the transaction. Or perhaps they’re telling thousands of people online?
Increased Customer Satisfaction – Lack of ethical behavior and old school tactics invariably diminish the customer experience. Nobody likes surprises. Sure, you made the deal but are your customers truly satisfied with your processes or do you just wear them down? At the end of the day higher customer satisfaction translates into more repeat and referral business.
Increased Customer Loyalty – Customers only have loyalty if you earn it from them. Ethical processes help build customer loyalty and retention. You’ll find that customers will be willing to spend more when they feel they’re buying from a business they can trust.
You’ll Exceed Customer Expectations – Your potential customers have unprecedented access to information in real time. The increase in the amount of data available to consumers has brought them a quick and easy way to analyze not only different prices but also to identify who they want to do business with. Car shoppers simply have too many choices and will quickly discard dealers they feel are hiding something. Holding back information or playing fast and loose with the truth will only make them trust you less.
You’ll Stand Out From Your Competition – Progressive dealers can easily differentiate themselves by marketing their ethical processes and demonstrating their honesty. Consumers will respond – after all, how many consumers prefer old-school tactics?
Good ethics can be the pot of gold at the end of the rainbow. An ethical business model can greatly enhance your sales, reputation, customer retention, and bottom line. The most successful dealerships have not only a standard of “don’t break the law” but a standard of “always do the right things.”
Here’s something to think about: If you treat each customer as you would like your mother to be treated, you’re most likely practicing good ethics. After all, it was probably your mom who first said “just because you can, doesn’t mean you should.”