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The Auto Industry Profit ‘Deflategate’

Across the automotive industry, we see dealers on a daily basis hunting for ways to increase their profits and improve their odds of success on the playing field. Due to internet pricing, True Car, and a myriad of other tools at the hands of consumers, dealers have seen their profit margins suffer. In a business where managers are paid on gross profits, it’s this type of scenario that can turn even your star managers into unscrupulous dealership employees. In an effort to overcome slumping gross profits, along with slumping paychecks, even good people make mistakes when they are desperate. 

Recently the NFL experienced Deflategate and a load of bad publicity. One of its most storied franchises, the New England Patriots, along with a marquee player, Tom Brady, got caught cheating. For months we heard the owner of the team, Robert Kraft stakes his claim that his “boys” played by the rules, and nothing that resembled breaking those rules ever occurred. We now know he was wrong; even though Mr. Kraft may have had no idea that deep inside his organization was cancer so vile the NFL fined him $1,000,000. Additionally, Tom Brady will watch the first 4 games of the 2015 season from the comforts of his living room couch.

Just like the Patriots, in many stores, the person in charge of watching your back may be the one who needs to watch the closest. Before Deflategate, no one in the league, or certainly within the Patriots organization would ever have believed that Tom Brady would bend the rules. As the leader of the team, it is he who is supposed to set the example for all of the other players. In most stores, there is a person with that same type of responsibility and in many cases, it is that every person who ultimately was caught with his/her hand in the cookie jar. Many dealers trust their top personnel to make sure this type of thing never happens in their store but all too often fall short in applying simple checks and balances for even their most trusted employees. It’s this type of scenario that can turn even your star managers into the next scapegoat for the FTC and its consumer protection division.



In March of this year, the FTC’s Bureau of Consumer Protection rolled out the Operation Ruse Control Initiative. The FTC teamed up with 32 enforcement agencies to conduct a nationwide crackdown on deception and fraud in the automotive marketplace. It included 252 actions that include charges of deceptive advertising, criminal automotive loan application fraud, odometer fraud, and deceptive marketing of car title loans. There were 187 enforcement actions in the U.S. and 65 in Ontario and British Columbia, Canada, since the FTC’s last sweep in January 2014.


While the Patriots were fined and Mr. Brady will spend some time on his couch (a very nice one I am sure with his Super Model wife), auto dealers face not only fines but the very real possibility of jail time as well. Conspiracy fraud convictions can include up to 5 years in prison. A conviction against a dealer for wire fraud could carry a 20-year maximum sentence and a finance manager convicted of bank fraud could serve up to 30 years in federal prison. And just because the dealer “doesn’t know about it,” is not a defense in these cases. Claiming ignorance just doesn’t work. Dealers, managers, and even salespeople are all responsible and could face prosecution.


Whether it is held checks, deferred down payments, bogus signatures, or even fake documents, the battle lines have been drawn and the government is on the warpath with auto dealers. Gone are the days of inflated sales prices, increased down payments, and power booking vehicles to get a maximum advance. What may seem like a favor to help a customer get approved on the car they want can instantly become bank fraud for a car they can’t afford. Often times as dealers, we have blurred the lines of reality in an effort to make that one deal that we thought we had to have. Make no mistake about it, there is no deal worth thousands in fines, loss of a dealer license, or even worse, jail time. What steps have you taken in your store to protect all that you have worked for? As the person in charge, are you absolutely sure everyone in the store is playing by the rules? Mr. Kraft was certainly caught off guard and the worst that will happen to him is a hefty fine and some bad publicity. As the dealer, are you willing to bet everything on that all-star manager whom you are sure would never do anything to harm your operation?


The New England Patriots will forever be known as the team that pushed the limits too far. Compliance is the only way to operate in today’s market. You can either define it in your store or be defined by it.


It’s your call.

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