Is Your Dealership Ready for a Recall?

Jun 14, 2013 | | 16267 |

Is Your Dealership Ready for a Recall?

By Peter Rangel, ADP, and Shawn Mercer, attorney

Originally published in Fixed Ops Magazine July/August 2013 Edition

This article is for general information purposes only. Neither the author nor the publisher is providing any legal advice. You must contact your legal counsel if you have any legal questions or concerns.

If there were a safety recall on your personal vehicle for an oil leak that could cause a fire, you would have the recall performed as soon as possible. However, if you did, you would not be the typical vehicle owner.

In 2009, GM recalled 1.4 million cars with their 3.8-liter V6 engine because of reported cases of an engine oil leak causing a fire. But according to a May 2012 article by Edmunds, more than 800,000 vehicles from that GM recall have not been repaired. Additionally, 131,128 of the recall letters -- almost 8% -- have not even been delivered, for various reasons.

This is just one example; there are many more involving almost every manufacturer. What this highlights is the challenge the auto industry faces today regarding recalls. Manufacturers want the recalls performed and dealers want to perform them. So why aren’t they being done?

Looking at recalls

Do you see recalls as a new opportunity to create loyal customers? To sell incremental Service and increase revenue? To increase your customer satisfaction scores? If not, you should. Recalls have the potential to pull customers, who might not otherwise come in, into your Service Department. When that happens, you need to take advantage of the opportunity.

Some people overlook the human element, and even the legal aspect, of recalls. Unperformed safety recalls can put lives at risk as well as expose your dealership to unnecessary legal risk.

Dealers have deep pockets

Lawyers can get creative when it comes to lawsuits involving injuries and unperformed recalls. Dealers can be hit with a negligence claim in a civil lawsuit, because they are perceived as having so-called “deep pockets.”

The Federal Motor Vehicle Safety Act prohibits a dealership from selling a new car that has an open recall. In cases like the Toyota unintended acceleration issue in 2009, which resulted in a stop-sale for a period of time, the manufacturer compensated dealers for cars that were sitting on their lots that they could not sell, at 1% of the car’s value per month.

If a dealership does sell a new vehicle with an open recall, and a lawsuit is filed, the OEM will typically indemnify and defend the dealer, according to state statutes and franchise agreements. Most dealers know this and rely on this arrangement. However, in our litigious society today, many attorneys will continue to pursue the dealer, in search of larger settlements. Ideally, the dealer would be dismissed from the suit and the OEM will defend it, but depending on the state and the plaintiff, some attorneys will continue to pursue the dealer in an attempt to force a settlement. Dealers should be more aware of the potential to get pulled into these types of situations and have better processes in place to make sure that open recalls are performed.

While most dealers are clear on their obligation to perform open recalls on new vehicles, used vehicles are a grey area.

Recalls and used cars

There are no universal laws regarding recalls and liability on used cars. You would be foolhardy to sell a vehicle with an open recall of any make. While there is no federal law regarding used cars and recalls, there are often pretty stringent state laws. For example, vehicles sold in many states come with an implied warranty of the merchantability. This type of law says that if a dealer fails to ensure that a used car was in reasonably safe condition and free of defects that could render the vehicle inoperable when sold, the seller could be held liable in a lawsuit for the vehicle defect.

Additionally, the National Highway Traffic Safety Administration (NTHSA) and do not always report all recall repairs. While many Service Managers might think managing recalls on used cars is the Used Car Manager’s job, and vice versa, the Dealer can be left with a gaping liability if there is not a process in place to research open recalls on used cars and insure they are done. When it comes to competitive makes, do some research online or call a dealer of that make.

Some OEMs have found ways to alert dealers to completed recalls, which helps when selling a used car of a competitive make. Toyota, for example, puts a sticker in the driver’s doorjamb to alert other technicians that the recall repair has been completed. The bottom line with used cars is that dealers put themselves at legal risk if they are not diligent about every car that comes and goes on their used lot, even if it is not from the OEM whose name is on the sign out front.

Technology can help

Manufacturers and dealers, like other retailers, gather and guard their clients’ contact information. But, do you use this information to make sure recalls are performed? Most manufacturers have vast Customer Relationship Management (CRM) databases, but are not using them to send recall postcards. It’s very likely that the information you have in your DMS is more current than the information in the OEM’s ownership database. Your customer interactions are more frequent and more personal than with the OEM. Use the lists the OEMs send you and use the customer contact data in your DMS.

To help ease some of the pain of maintaining high quality contact information for your customers, dealers can use various technology products. One is a data cleanser. This type of solution will send your DMS data to a third party to have them double-check that the name, address, e-mail and phone number of every client is correct and that they still do, in fact, own the vehicles your DMS says they own.

You can also contact your DMS provider to see what solutions they have available to monitor your inventory, as well as the vehicles that come through your Service lane, for unperformed recalls. Many DMS companies provide integration with the OEMs to alert you to open recalls when you open a repair order (RO) on a vehicle in your Service Department. There are also products available that will sweep your new and used inventory on a regular basis and alert you to vehicles sitting on your lot that have unperformed recalls. A used vehicle can be ready to sell after servicing and reconditioning, but if it sits on your lot for 30, 60 or more days, and a recall is announced during that time, you need to perform that recall before you deliver it to the customer. Otherwise, you could be leaving your dealership open to legal liability.

Investing in a new solution can seem costly, but new work for your Service Department can help make up the difference. According to the NADA, the average warranty RO is worth $250. If your dealership misses one campaign or recall per month, you could be losing out on $3,000 of revenue annually, plus any incremental sales while the customers are in your dealership. The convenience of having both a recall and general maintenance performed in one trip is an added bonus for your customer. Review your existing processes and determine if they are thorough, easy-to-use or if changes could benefit your operations. Investigate which tools can help improve how your dealership approaches and manages recalls. Handling recalls in a professional and courteous manner should be a positive experience for your customer, boosting the reputation of your Service Department and reflecting positively on your dealership.

Peter Rangel, ADP, and Shawn Mercer, attorney