General Motors dealers could face major penalties, even termination, if they fail to use a new disclosure form for customers who buy non-GM service contracts, a new or used vehicle with non-GM accessories or used vehicles with non-GM? parts, the automaker told dealers last month.
But by enforcing the new disclosure process and draconian penalties, GM itself may be violating its franchise agreement, said dealership lawyers and associations, pushing back against the automaker’s notice.
Under GM’s franchise agreement, dealers for several years? have been required to disclose when a service contract, part or accessory is a non-GM product. But now they must use the standardized form to make the disclosure, Alan Batey, president of GM North America, told dealers in a letter dated Aug.10.
GM says the move is intended, in part, to make clear to consumers the limits of its responsibility and liability for non-GM products. But opponents see it as an attempt to promote GM products at the expense of competitors’. Given the size of the accessories, parts and service contract markets, the stakes are huge.
Dealers whose stores ignore the new disclosure form could be? required to pay $500 per incident. They could become ineligible to buy other GM dealerships or to benefit from GM’s incentive programs, including the Essential Brand Elements program. Ultimately, the dealer could face possible franchise termination.
The disclosure form makes clear to customers that GM “has no obligations to the customer under a non-GM service contract” and that “GM is not responsible for the consequences of installing non-GM parts, equipment, or accessories on the vehicle,” the letter says.
If dealerships have installed non-GM parts, say while reconditioning a used vehicle,? or accessories on a new or used vehicle, then dealership personnel must disclose that to customers with the form. Customers may receive a list of non-GM parts installed by the dealership on request. If a previous owner of a used vehicle has installed non-GM parts or accessories, GM does not require the dealership to make such a disclosure and customers will not receive a list of non-GM installed parts, a spokesman for the automaker said. Over-the-counter part sales are also exempt from the disclosure.
In a follow-up Aug. 24 letter to dealers, Steve Hill, vice president of U.S. sales, service and marketing, clarified that most dealers sell GM parts, accessories and service contracts or properly disclose when they sell non-GM products. The new, standardized disclosure form is meant to ensure that consumers understand the source of the product, he said.
“For the disclosure requirements to have any meaning, however, there must be a consequence for a dealer who ignores or refuses to make these very important disclosures,” he added. Automotive News obtained copies of both GM letters. The first letter was first reported in F&I and Showroom.
Dealers have 90 days from Sept. 1 to add the form to their sales and service process. After that, the GM zone and central office teams would consider the dealership’s disclosure practices and the severity of the violations before imposing penalties.
Dealership associations and lawyers for dealers oppose the new form and penalties.
Jim Moors, senior counsel for the National Automobile Dealers Association, said in an Aug. 17 letter to NADA members that some states restrict manufacturers from requiring dealers to sell or favor the sale of the automaker’s service contract or parts.
“These laws may be applicable to GM in this situation,” he said. “While NADA cannot offer dealers legal advice, we strongly recommend that you not take any action that indicates agreement with the new requirements without consulting your legal counsel,” he added.
Robert Vancavage, president of the New York State Automobile Dealers Association, requested in an Aug. 29 letter to Batey that GM rescind the letters and refrain from enforcing the policies as they are currently written in the letters.
Vancavage, with guidance from legal counsel Bellavia Blatt & Crossett, said that the policies do not comply with GM’s own franchise agreement. In response to queries from Automotive News, the GM spokesman said: “The new form is designed to be simple” and to create a consistent process throughout GM’s dealer network.
Vancavage also said the policies violate the federal Dealer’s Day in Court Act and six sections of the New York Vehicle and Traffic Law. Other states have similar provisions to New York’s Vehicle and Traffic Law, said Len Bellavia, a partner at the law firm.
Vancavage added that the purpose of the disclosure form seems to be to “persuade GM dealers to sell, on an exclusive basis, among other things, GM parts, service contracts and accessories,” adding, “Such a requirement would be prejudicial to the monetary interests of a GM dealer and, in contrast, only benefit GM.”
Because there is a disclosure requirement in the franchise agreement, dealers are provoked by GM’s claim that the form was developed to boost transparency with customers, Bellavia said. “The only thing that’s being accomplished is to make the requirement more onerous so that the customer is reminded repeatedly that he’s not buying a GM product,” he said.
“You could take that two ways. It could be belts and suspenders or it could be a ruse to try to increase sales of GM products.”
Bellavia doubts that the new disclosure form and consequences for disregarding it will be implemented, but if they take effect, dealers are unlikely to change the way they do business, he predicted.
“It’s not that [dealers] don’t want to sell GM extended service contracts,” for example, he said. “But there are circumstances where third-party contracts offer the same coverage at a lesser price.”
Dealers aren’t “looking to defeat General Motors,” he said. “They’re looking to [abide by] policies that make sense for everyone, especially consumers. This seems to be counterproductive.”
But if dealers don’t address their concerns with the automaker, other automakers may follow GM’s lead, Bellavia said.
“It has far-reaching effects not only for GM sales but also for other manufacturers who might view this as an ability to apply the same pressure to their dealers.”