How much should you tell a potential customer about the condition of a vehicle in your inventory? You sell your vehicles As-Is and try to make sure the customer understands what this means. How much disclosure makes sense and where should you draw the line between being totally honest and doing what is best for your business?
First, let’s look at the legal requirements that pertain to this question. Some states require a vehicle damage disclosure statement to be completed for certain transactions. Some states require disclosures for vehicles 5 years old or newer, some 7, some regardless of age. The amount of damage that triggers a disclosure requirement also varies by state. Vehicle damage disclosure statement laws can vary widely by jurisdiction, so local laws should be consulted for specific requirements in your area.
Most states also have Unfair and Deceptive Acts and Practices (UDAP) regulations on the books. While there are generally no specific disclosure practices mentioned in these regulations, a plaintiff’s attorney would love to find information that you knew something detrimental about a vehicle and failed to disclose it to the purchaser. That kind of decision not to disclose can turn out to be a very expensive one if they can prove it in court.
But beyond the legal requirements, what are our moral obligations to tell our customers everything we know about our vehicles? How much disclosure makes the most sense from a business standpoint? Since the goal of every BHPH dealer is to have the customer make all their payments and pay off their loan and since we know that “when the vehicle stops running, the customer stops paying”; most dealers fix significant issues. If they decide not to fix them and do not disclose them, they have helped create their own collection problem. That decision is then a poor one from both an honesty and a business perspective.
Sometimes, however, telling a customer everything you know about a vehicle might lead a customer not to buy that vehicle, even if it’s not really a critical problem. For example, telling a customer the sun roof in the car doesn’t work might turn them away from the sale. The decision not to disclose all information in that case might seem to make sense from a business standpoint.
Let’s take that a step further. Let’s assume we do not tell the customer that the sunroof doesn’t work and they never test it. They buy the car. They will certainly discover it doesn’t work on the next nice day. Now you have an unhappy customer. He or she feels you misled them on the condition of the vehicle. They wonder what other problems you hid from them. The level of trust they have with your dealership has just taken a big hit. They are now unwilling to recommend your dealership to their friends and unlikely to buy another vehicle from you. In the long run, the decision not to make known any issues with the vehicle also turns out to be a poor one from both an honesty and business standpoint.
Conversely, let’s take a look at what is likely to happen if you do tell your customer everything you know about a vehicle. Using the same scenario as above, the customer may decide the sunroof is very important to them and not buy the car. It is likely, however, that they appreciate your honesty and will select another vehicle and still buy from you. Or, they may decide they can live with the inoperable sunroof because they like everything else about the car and buy it anyway. In either case, you are the winner both from an honesty perspective and from a business perspective – you have sold a car and have a happy customer.
One other point to consider is that we expect our customers to be honest with us in the application process and throughout the term of their loan. Can we really expect our customers to be completely honest with us if we are not totally honest with them? Or, once they discover that we hid some things from them, will they begin to hide information we need from us?
Failure to disclose known defects to potential customers can be damaging in a number of ways. It can create legal issues that can and should be avoided at all costs. It will certainly damage the relationship between customers who feel deceived and your dealership. And, as the number of these customers grows, it will damage the reputation of your business. It’s been said many times and it is as true today as ever – honesty is the best policy.