SEATTLE and EVERETT, Wash. — Litigation and settlements
associated with what legal experts have warned dealers about — compliance in
connection with advertising — were back at the forefront again last week; this
time in the Pacific Northwest.

A potential scenario discussed in a special issue from sister
publication Auto Remarketing focused on advertising coming on Dec. 1 played out
between Performance Nissan and Performance Kia, dealerships in Everett, Wash.,
and the state's attorney general.

Nicole Munro, a partner with Hudson Cook LLP who was
appointed as the youngest chair ever of the American Bar Association's consumer
financial services committee, articulated several questions dealers should
answer when it comes to their advertising initiatives.

—Are dealers offering the product they say they are?

—Is the product compliant with state rules and regulations
governing advertising?

—Are dealers really monitoring the advertising they're doing
or are they relinquishing rights to various third parties?

Based on the lawsuit the Washington attorney general's
office brought against Performance Nissan and Performance Kia, prosecutors
firmly believed the dealerships did not comply with the points Munro raised.

In a settlement reached last week, store owner Hugh Hall
will pay $150,000 in attorneys' fees and penalties to resolve the lawsuit first
filed back in 2010.

The attorney general said Performance Jeep-Eagle, the
business that operated Performance Kia and the former Performance Nissan, is
also on the hook for another $55,000 fine if dealership practices — what
officials called violations of the Consumer Protection Act and other state laws — continue.

Hall issued a statement following the settlement
announcement.

"Performance Nissan and Performance Kia signed a consent
decree ending a two-and-half-year dispute with the Washington State Attorney
General over alleged violations of consumer protection laws," Hall said.

"We were ready to go to trial as we felt we would prevail,
but agreed to settle the dispute in order to avoid the high cost of litigation
and the uncertainties inherent in any trial. The agreement does not contain any
admission of violation of any law, nor does it represent agreement with any of
the allegations made by the attorney general's office," Hall continued.

"In fact, we absolutely and flatly deny that any laws were
violated," he went on to say. "We continue to operate our business as we always
have … in an ethical manner, compliant with the laws of the State of
Washington.  This is reflected with the
attorney general dropping many of its original allegations including ‘packing'
and ‘bait and switch,' neither of which is contained within the consent decree.

"We are surprised by the press release by the attorney
general's office as it is not representative of with the tone or substance of
our settlement discussions with them and contains innuendo an inaccuracies we
feel are inappropriate," Hall added.

As the dealership owner referenced, the version of the
settlement agreement Washington's attorney general's office released contains
language Hall mentioned.

Officials said a 2010 lawsuit was filed after numerous
consumer complaints to the attorney general's office. Even while the lawsuit
was pending, officials indicated consumers continued to complain.

"One complaint described Performance Kia's television
commercials for the Kia Soul. The ads claimed the dealership was over-stocked
with the compact cars supposedly marked down to $9,988, along with guaranteed
trade-in values of $4,000," the attorney general's office said.

"But the reality, according to consumer complaints, tells a
different story," prosecutors continued. "One consumer complained that when
they visited the dealership, none of the advertised vehicles were on the
lot.  Performance relied on language
buried in the television ad that was ‘one only.' A sales associate also claimed
the trade-in offer did not apply to the Kia Soul.

The attorney general's office also shared communication it
received directly from consumers.

The office indicated one consumer wrote, "I just sent a
message to the dealership and said I thought their commercials are misleading
and their sales tactics were bait and switch. He replied that their commercial
was approved by the attorney general. If you watch this commercial and still
approve it, I would be very surprised."

Assistant attorney general Mary Lobdell shared her reaction
to the consumer's letter and the dealership's advertising campaign.

"We were surprised because we don't approve television
commercials. We're not authorized to do so and we certainly don't approve of
these kinds of sales tactics," Lobdell said.

"We also don't approve of ads that show pictures of junkyard
jalopies, suggesting the dealership will pay $2,000 for trade-ins, no matter
what condition, because we know that offer is seldom honored," she continued.

The attorney general's office also shared another consumer
complaint that included "bait and switch" language. Officials said one consumer
who complained when the dealership did business as Performance Nissan spoke of
seeing a promotion for a Nissan Altima.

"We test drove a car we liked and decided to purchase it,"
the consumer wrote in his complaint to the attorney general. "The sales person
came back and told us this particular car was not part of the promotion and it
would cost $2,000 more than the advertised price. We felt like it was a ‘bait
and switch.' After further negotiation, the sales manager said he would split
the difference and sell us the car for $1,000 more."

Selling a vehicle at a higher price than advertised is a
violation of both the revised code of Washington and Washington Administrative
Code, according to the attorney general.

No matter, officials said the settlement filed in Snohomish
County Superior Court resolved the attorney general's 2010 lawsuit against
Performance and established a commitment by the dealer to revise its policies
and practices.

Among other conditions, officials said the dealership
agreed:

—Not to run ads that suggest the dealership will match
buyers' down payments.

—Not to sell a vehicle over the advertised price.

—Not to engage in "false premise" advertising.

—To clearly identify used vehicles in its advertising,
including not using the term "previously titled."

—To advertise only those vehicles that are in its possession.

—To mark unavailable vehicles as sold or withdraw advertised
vehicles from publication.

—Not to engage in advertising that suggests a high trade-in
value for cars in disrepair.

—Not to send out recall notices unless required by the
manufacturer.

—Not to use terms in any advertisement that state or imply a
connection or endorsement by a governmental agency

—To write policies and procedures that promote lawful and
ethical sales and advertising practices and to train, monitor and discipline
employees appropriately.

Speaking to Auto Remarketing before the developments in
Washington arose, Munro said, "Dealer advertising has been the subject of
attorney general settlements for as long as I can remember. But as there is new
media, I think there are more ways dealers and finance sources to slip up."

More commentary and strategy recommendations regarding
dealer advertising is contained within Auto Remarketing's
Dec. 1 print edition.


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