A code of ethics adopted by every dealership would go a long way toward improving the industry’s image and would likely result in increased F&I production.
 - Photo via iStock

A code of ethics adopted by every dealership would go a long way toward improving the industry’s image and would likely result in increased F&I production.

Photo via iStock

Mark Twain once wrote that “Honesty is the best policy — when there is money in it.” If a consumer has a choice to purchase a vehicle from someone he trusts vs. someone he doesn’t trust, which choice will he make? If the attorney general investigates a dealer with a conspicuous ethics program, will that help the dealer?

These questions implicitly offer the answers. Ethical practices are important to consumer purchasing behaviors. And they are significant factors for investigative government agencies and juries. Perception is reality and it can be costly.

The Problem

Every December since 1977, the Gallup organization produces a list of American professionals rated by consumers based on honesty and professional standards. The sad news is that one of these professions consistently is rated at, or near, the bottom of these lists: car salespeople.

In 2018, car salespeople were ranked in 19th place, just above members of Congress. In 2017, car salespeople were ranked 21st, just above lobbyists. In 2011, car salespeople were ranked 19th, which was two places from the bottom of the rankings. (Gallup rankings vary from 20 to 22 professions.) In the worst honesty and ethics ratings in Gallup history, car salespeople won this title in 1988, 1994, and 1995. Remarkably, attorneys are not typically ranked in the lowest tiers. For many years, nurses have been the most trusted professionals. 

Consider as well the fact that car dealers may be the most heavily regulated industry in the U.S. Numerous federal and state regulations weigh heavily upon dealer operations. Much can easily go awry. An ethics program may help should something go wrong. 

Finally, each year, the Consumer Federation of America and the North American Consumer Protection Investigators Association publishes statistics regarding state attorneys general offices regarding which industries attract the most complaints. Automobile complaints are almost always No. 1 on this list. 

Dealers can do far better than this. 

Ethics Is Good Business

There are various ways an adopted ethics program is good business:

1. It may eliminate or reduce an intensive investigation. When a federal or state agency is deciding to prosecute a dealer the key inquiry is whether the violation occurred in spite of the dealer’s protocols or because of a faulty or nonexistent program. If a dealer has an ethics program, prosecutors are far more likely to prosecute the employee rather than the dealership as a whole. 

If an investigating agency sees that a dealer has an effective ethics program, or even one that isn’t fully effective, investigators may decide to investigate an easier target. Dealers should note that regulators have numerous targets to investigate and they choose ones that have ignored compliance and ethics.

2. It may reduce or eliminate liability. Damages are assessed based upon perceived culpability. If a dealer is attempting to deal fairly with consumers, on balance, fewer damages will be assessed or possibly none. An ethics program is a testament to this fair dealing. Intentional or negligent fraud and deceit is punished particularly with punitive damages, which can be exorbitant. Judges and juries consider these factors in assessing damages.

3. It may minimize or eliminate bad publicity. Regulators attempt to be fair in choosing which organizations to investigate and report to the media by way of press releases. A dealer who is attempting to be ethical and compliant will increase its chances substantially, in avoiding negative publicity, since the regulator will consider these attempts at ethical dealing. 

4. It can improve customer evaluations. Consumers who think that they have been treated ethically will report that experience. 

5. It can improve morale. Employees of a dealership which is attempting to operate honorably will be happier working in that environment. Good morale at any business only improves performance and profits. 

What Is Ethics? 

The U.S. Marine Corps’ maxim summarizes ethics in eight words: “Do the right thing, for the right reason.”

Economist Milton Friedman added to this maxim when he said, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engage in open and free competition without deception or fraud.”

Ethics are moral principles which govern a dealer’s behavior and should produce the greatest benefit for the greatest number of people and, quite importantly, the dealer himself. 

Codes of Ethics

Every profession has a code of ethics. The NADA has drafted one, which is an excellent exemplar as to how dealers should discharge their responsibilities.

NADA Code of Ethics Particulars: 

  • Operate this business in accord with the highest standards of ethical conduct.
  • Treat each customer in a fair, open, and honest manner, and fully comply with all laws that prohibit discrimination.
  • Meet the transportation needs of our customers in a knowledgeable and professional manner.
  • Represent our products clearly and factually, standing fully behind our warranties, direct and implied, and in all other ways justifying the customer’s respect and confidence.
  • Advertise our products in a positive, factual, and informative manner.
  • Detail charges to assist our customers in understanding repair work and provide written estimates of any service work to be performed, upon request, or as required by law.
  • Resolve customer concerns promptly and courteously.
  • Put our promises in writing and stand behind them.

If dealers implemented this code of ethics, much would be improved and, as a profession, dealers would significantly move up the Gallup rankings, profit more, and reduce their potential for liability. Every dealer should adopt such a code, post it where consumers can see it, and every dealer employee should sign it. Furthermore: 

  • Dealers should mandate ethics and compliance training.
  • Training and testing should be done routinely and periodically.
  • Training should be documented and attendance should be mandatory.
  • Pay plans should be reasonable, and dealership personnel should not have to resort to unethical tactics to achieve incentives.
  • Potential employees should be screened for ethical challenges in their employment histories. Unethical employees may yield early results, but they will create havoc and liability eventually.
  • Dedicate a telephone line, or some other option, where employees may report unethical behavior, be sure reports are anonymous and accessible only by the compliance officer. 
    • Dedicate another telephone line for consumer complaints that goes directly to the compliance officer.
    • Address all complaints promptly. 
  • Rogue employees should be disciplined and dismissed.
  • There should be stated penalties for violating company policies, including dismissal.
  • Beware of payment packing and other common deceptive practices.
  • Reward employees who follow rules.
  • Maintain product pricing variance reports.
  • Maintain menu log.
  • Maintain rate matrix of credit scores and interest rates.
  • Require a signed menu of the final transaction.
  • New employee orientation and training should include an ethics module and new employees should sign a commitment to ethical behavior. 

An ethics program should simply be part of the business plan of a well-managed dealership. The cost of an ethics program is minimal, and its benefits greatly outweigh its implementation. Ethics is good business.

Govern yourselves accordingly. 

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