January 1, 1900

by Edward H. Herman

Car dealerships are unlike any other business in a very important way. The dealer does not design the vehicle, does not build the vehicle, has little if any input into what types of vehicles will be available for sale, and has very little input into the cost of the vehicle. The same vehicle can often be purchased down the street at a competitor’s store for essentially the same price. Many other businesses have the same situation. However, the difference is in the emotion with which the customer buys a vehicle. There are very few, if any, purchases which evoke more of the buyer’s emotion than the family automobile. The size, shape, color and style reflect the personality of the buyer, and the dealership must try to satisfy all of the customer’s needs.

Customer Complaints Leading to Litigation

Many customer complaints do not involve the dealership directly but must be addressed in order to satisfy the customer. Marketing literature shows that the repeat customer costs the dealership less and produces more sales than all other forms of advertising. Therefore, it makes economic sense to try to satisfy your customer whenever possible. Having said that, we recognize that some customers do not want to be satisfied requiring the dealership to resolve those complaints as quickly and cost- effectively as possible.

Dealership litigation comes in a variety of forms, such as claims involving lemon-law, repair and service, personnel and cost. Often, several of these issues are blended together to form the basis of litigation. In almost every case, the claim results in litigation, at least in part, because of poor customer communication. What did the dealer promise, but fail to deliver to the customer? How did the dealer tell the customer that the warranty did not cover needed repairs? Did the dealership treat the dissatisfied individual as a "valued" customer? These are but a few of the issues to which the dealer must be attentive.

In lemon law cases, a good working relationship with the zone personnel and others representing the manufacturer can help resolve many of the customer’s concerns before costly litigation. While the law allows the dealer to seek a defense and indemnity from the manufacturer for all manufacturing defects and design flaws, manufacturers usually refuse to accede to a dealer’s demand until after costly legal fees and costs for inspections and discovery proceedings have been incurred. Thus, it is better to fix the problem with the manufacturer’s assistance than to litigate who is responsible for the customer’s dissatisfaction.

Our experience indicates that repair and service issues are the largest cause of unhappy customers as to the dealer. No amount of free coffee, state-of-the- art waiting rooms, or detailed estimates will make up for poor performance in the service bays. No amenities in the service waiting area will overcome a service writer or manager who fails to recognize that she has been given the customer’s most prized possession for safekeeping and repair. Time, care and skill are all required to satisfy the customer.

Recommendation to Avoid Litigation

How does the dealer, then, make its customer happy, avoid litigation and thus, improve its own bottom line? We recommend the following four rules:

1. Deal with the problems-they will not go away by ignoring them. Train your sales force, service personnel and management to treat the customer the way they, themselves, would want to be treated. Dealership employees are all drivers and understand the issues involved in purchasing and maintaining a car. Often, a small concession on the part of the dealership can make a huge difference.

2. Recognize that, even when you are "right", it will cost you dearly to prove your point. It is often cheaper in the long run to make the customer happy, if possible, than to proceed to litigation.

3. When hiring key personnel, make certain to invest the time and expense necessary to select such employees carefully and train them to deal properly with the customer. Do not make promises that cannot be kept. Always treat the customer with respect.

4. Place an arbitration clause in the dealership’s sale or lease contract. This forces a "refuses-to-be-satisfied" customer to go to arbitration rather than to court and may save the dealer significant time and expense in resolving the claim!

Whether it involves a $10.00 replacement part not covered under the warranty or a lemon-law rescission claim, litigation will be time consuming and expensive. Each case must be defended as vigorously as the most complex litigation. Discovery must take place both in the form of written interrogatories and oral depositions under oath. Dealership personnel are required to take time away from their duties to appear for testimony and to review the file materials to be used at trial which may require spending endless hours of sitting in court waiting for the case to get reached due to long dockets. Many of these cases are in the Special Civil Part of the Superior Court and, more often than not, the customer is not represented by counsel; he simply wants to tell the judge what the dealer did to him.

As a practical matter, of course, the dealer cannot avoid all lawsuits. Those which the dealer simply cannot resolve should be defended vigorously and vindicate its reputation for honest, fair dealing with the public. Hiring skilled lawyers that understand the special nature of the automobile business is essential.

Hill Wallack has defended many suits against automobile dealerships over the past 35 years in which we have demonstrated both our sensitivity to the special needs of the dealership and our ability to provide a vigorous, cost-effective defense to claims by customers who simply refuse to be happy. We stand ready to assist you in evaluating customer claims before suit or defending you once litigation has commenced.

Edward H. Herman is a partner of Hill Wallack and partner-in-charge of the Automotive Dealers Business & Liability Practice Group. He has 30 years of experience representing automobile dealers. He concentrates his practice in the many issues facing automobile dealerships.