Imagine owning a Bugatti Veyron, one of the most luxurious and high-performance vehicles in the world, which will cost between $1.2 million for a used one and up to $2.5 million for a new one. Would you ever consider taking it off of the lot, much less driving it, without insurance?

Of course not, nobody in their right mind would. The thought alone is nerve-wracking. You could be sitting at a stop light, minding your own business, then WHAM, someone plows into your beautiful ride from behind and does untold damage.

The same principle applies to running a car dealership without adhering to compliance regulations and best practices. Both scenarios expose you to immense risk and potential devastation.  Does any of this sound familiar?

Recently, I had a conversation with a dealer about his compliance strategy and proactive measures. When I inquired about his, he sheepishly admitted, “I don’t have one.” I wish I could say that this was a rare occasion, but sadly, it’s not.

We all know that compliance can be boring and can make even the most enthusiastic dealers fall asleep. That doesn’t mean it’s unimportant.

Compliance should be given the same priority as any other key business function. Sales make you money, but compliance helps you keep that money in your pocket.  Make no mistake, compliance is your own form of insurance, acting to protect the years of financial investment and sweat equity that you’ve invested in your business.

The high stakes of non-compliance

Just as driving a Bugatti without insurance can lead to catastrophic financial loss, operating a car dealership without compliance can spell disaster for your business.

Compliance laws and regulations are daunting, often written in terms that can be challenging to follow and provide for hefty penalties for non-compliance. Essentially every function of your business can present risk.

When it comes to running your dealership in the age of the FTC, CFPB, state regulators and plaintiffs’ lawyers, you aren’t keeping your Bugatti locked up in the garage only to be admired, you’re driving it on a treacherous roadway filled with obstacles, and one wrong move can be catastrophic.

Financial repercussions

Here are just a few examples to give you an idea:

—Wrongful repossession: A Texas dealer wrongfully repossessed a vehicle, violating multiple laws. The jury awarded the consumer almost $100,000 and another $40,000 in attorney’s fees, not to mention the defense costs the dealer incurred. The dealer already lost when the buyer failed to perform under the contract, and then lost even more money due to non-compliance.

—False advertising and deceptive practices: A car dealership in California was fined $3.6 million for false advertising and deceptive sales practices. The dealership misled customers about the true cost of vehicles by not including mandatory fees in the advertised prices.

—Failure to disclose information: A New York dealership was fined $1 million for failing to disclose important information about used vehicles, such as prior accident history and previous rental use, violating state laws.

—Unfair lending practices: A Texas dealership was fined $500,000 for offering high-interest loans without clearly explaining the terms and conditions, leading to financial hardships for many buyers.

—Data privacy violations: An Illinois dealership was fined $200,000 for failing to protect customers’ personal information, leading to a data breach that exposed sensitive information of thousands of customers.

The penalties have never been greater

The FTC and state attorneys general have moved to revoke business licenses against dealers.

In recent actions, general managers, board members, and owners have been found individually liable.

Proactive steps for compliance

Some folks may interpret this article as fearmongering, but I’d argue that if a dealer is staying on top of its compliance obligations, an article like this shouldn’t create fear and apprehension.

Here are a few easy ways to improve:

—Stay Informed: Keep up to date with all relevant laws and regulations affecting the automotive industry, including state and federal requirements. Join your local dealer association and learn what behaviors examiners and plaintiffs’ lawyers are targeting.

—Employee training: Ensure all employees are trained on compliance protocols and understand their importance.

—Regular audits: Conduct regular internal audits to ensure compliance with all regulations. This helps identify lapses early and take corrective action. Consider asking a qualified third party to conduct a risk assessment to identify improvement opportunities.

—Consult experts: Work with legal and compliance experts to navigate complex regulatory landscapes and maintain up-to-date practices.

Whether purchasing a Bugatti or running your dealership, a major investment of time and resources is required.  It’s important to protect this investment so as not to be exposed to financial loss and legal trouble. By prioritizing compliance, you safeguard your business, build trust with your customers, and ensure long-term success.

Joe Allen serves as a compliance analyst with Ignite Consulting Partners, which provides guidance to car dealers, finance companies and other industry participants on compliance issues, best practices, and provides tools to protect clients’ business. He can be reached at Joe.Allen@ignitecp.com.