The proverbial saying, “For want of a nail,” means, Wikipedia reminds us, that “small actions can result in large consequences.”

When it comes to auto dealership compliance matters, these unpleasant and seemingly never-ending tasks – if unattended – can torpedo a profitable auto dealership.

Make no mistake; abiding by the many compliance regulations governing correct dealership business practices is a topic of utmost importance to dealership principals and managers.

Yet many dealer principals and their managers have but surface understanding of what compliance is and what it demands of them and their dealership.

Why compliance?

Federal compliance regulations are written and enforced to: protect consumers, thwart terrorists or those who would support them, stop identity theft, protect worker safety, and protect employees’ employment rights.

Here are the broad regulatory areas for which dealerships must comply, in general. Each of these broader categories will incorporate a number of sub-categories:

• Gramm, Leach, Bliley , pertaining to customer information security
• OSHA, pertaining to worker safety and health
• F&I, pertaining to consumer financing and aftermarket sales practices
• EEO, pertaining to employment, hiring, and discrimination practices

Compliance also pertains to:

• managed gateways and other IT systems, which hackers might access to steal customer and dealership financial information
• warranty claims practices, which can help dealers avoid OEM warranty chargebacks and ensure that all claims are filed and filed correctly.
• how consumer funds are handled, to comply with The Office of Foreign Assets Control (OFAC) and Patriot Act to stop funds from moving to foreign enemies
• Red Flags, designed to identify identity thieves before it is a problem for your dealership

How to keep compliant

Given the many and various ways in which a dealership must comply with one regulation or another, dealers must keep eyes roving over their compliance risk points. Having a compliance plan in place and knowing how to implement, use and update it is a practice very dealer principal and general manager should have in place.

As each of the broad compliance categories already mentioned consists of numerous detailed subcategories, dealers would be well served to look up these regulations on the web to understand better what each means for the dealership.

After you’ve done this, practice the WICS model of compliance to discover the areas of vulnerabilities that might exist in the dealership. The auto industry and thus auto dealerships will continue to come under increasing scrutiny as time moves on. We are already seeing this play out with more aggressive encroaching of personal finance responsibility onto dealers’ shoulders through subtle FTC actions.

The WICS compliance model consists of:

• Walk-through: A thorough, in-depth physical walk through all areas of the dealership to gain insight into how processes work and where obvious compliance violations might be inadvertently happening.
• Inspection: What compliance practices are in place, documented and up to date? For instance, how does the dealership handle deal jacket content to ensure its privacy? Are OSHA compliance necessities like grinder shields or welding masks available and being used?
• Compliance: What documents, processes and evidence does the dealership maintain to show its compliance to regulations such as Gramm, Leach, Bliley, OSHA, Red Flags, EEO, and F&I?
• Security: More robust, always-on, self-monitoring network management is usually needed to keep ambitious hackers from customer and dealership data.

You can do nothing, or….

Dealers always face a choice and that is true when it comes to compliance as well. They can choose to do nothing and hope they avoid scrutiny and penalties, if found in violation.  The risk is one the dealer alone must weigh.

For instance, an OSHA audit isn’t a big risk for dealerships, but possibly costly – up to $90,000 for each violation — if audited and found in violation. OSHA covers a broad area. Areas of risk include:

• The shop is not DOT (Department of Transportation) certified. Every dealership today must be, as the business handles hazardous materials, including used motor oils, activated air bags and other wastes.
• Missing required signage, including door markings, i.e. “Exit” or “Not Exit”
• Missing egress or exit route maps as required by law.
• Parts, parts shelving and crates stacked up adjacent to and blocking access to electrical panels
• Personal safety equipment is missing around grinders, welders and similar tools and machinery.
• Missing fire extinguishers or extinguishers not properly marked or located where easily visible.

I-9 employment law is another rarely audited area, but, again, penalties for noncompliance can be stiff. Fines can range from as little as $250 per incident of improper I-9 forms completion to $11,000 per incident of knowingly hiring or continuing to employ unauthorized workers.

Employment laws continually require auto dealerships to review harassment laws with employees. This will be of increasing importance as co-called hate-speech laws become an increasing reality.

Discrimination suits based on gender, race and other factors, for which the Equal Employment Opportunity Commission (EEO) gets involved, can cost the dealership $1 million and more, in compensatory and punitive damages if found guilty.

As to process compliance matters, poorly managed and maintained warranty claims can result in factory audit chargebacks of $100,000 and up. Unpaid claims, whatever the reason, cost the dealership money – money owed to it by the factory.

Automotive compliance is a big area, made up of many pieces. Where even minor details are missing, the consequences can be big – and costly – for the auto dealership having violated mandated compliance laws.

By following the WICS model of compliance, your dealership should be better prepared to face any compliance audit and expect a more positive outcome.