Many dealers roll their eyes or hide at the thought of risk and compliance. However, ignoring these critical concepts could cost dealerships millions of dollars and lead to an excruciating headache if legal issues occur. In today’s episode of CBT Now, Thomas Kline, lead consultant and founder of Better Vantage Point, will discuss key takeaways from his latest book, Tuck The Octopus: A Better Vantage Point For Dealership Risk and Compliance, and what dealers need to know to protect themselves and their business.
Managing risk and compliance in the dealership setting is a lot like trying to tuck the octopus into bed. Despite best efforts, the octopus’ tentacles keep finding a way to sneak out. Businesses cannot exist or make any progress without risk. However, any risk must be carefully observed and handled appropriately to limit potential losses or experience incredible gains.
Kline breaks down the difference between three common types of risks:
- Preventable: This controllable type of risk can be identified and stopped before it becomes detrimental to the business.
- External: This type of risk is beyond a business owner’s control and originates outside the business. Common examples include natural disasters and political policy changes.
- Strategic: This type of risk is controllable and is often an integral part of entrepreneurship. These types of risks are typically highly calculated and will pay out high rewards if successful. With calculated risks, it’s also vital to have a backup plan or financial cushion.
The key to mitigating risks and ensuring compliance is ensuring that the policies and processes have been put in place and enforced consistently. One of the common mistakes that Kline witnesses is dealers neglecting to appoint someone who consistently checks for adherence to the policies and holds others accountable. This opens the dealership to a preventable and controllable risk that could have severe consequences.
Kline also highlights the importance of F&I managers utilizing menus. At the state and federal levels, there have been allegations of deception within F&I departments. It’s alleged that some dealers have forced or misled their customers into purchasing certain F&I products or sneakily included them within the purchasing price of the vehicle.
Utilizing a detailed F&I menu outlining what products the customers accepted and declined during the transaction provides a paper trail to protect dealers if a customer claims they were misled. Kline recommends recording this information in four places: the menu as mentioned above, the retail installment sales contract, the buyer’s order, and a separate product enrollment form.
Kline also recommends that dealerships avoid participating in “astroturfing,” a term that refers to paying someone to put up a review that’s not true. Examples include paying employees to post reviews, paying people to pretend they’re customers, or any other deceptive behavior that manipulates the dealership’s public perception.
For dealers who realize that they have work in the risk and compliance area, Kline recommends enlisting the support of their insurance professional. Be sure to read the exclusion in the policy to fully understand what is and what isn’t covered under insurance. In addition, be attentive to the limits of the policy as well. For example, suppose the dealership is valued at $20 million, and the policy only covers up to $5 million of liability insurance. In that case, dealers must pay out of pocket for whatever is over that limit.
"Identify how much your whole dealership is worth: land, building, equipment, blue sky–everything! Then go to your insurance policy, you may see that you only have $5 million dollars of liability coverage while the dealership might be worth $20 million. If you have a $6 million claim, you're going to have to come out of pocket for a million dollars." – Thomas Kline
