Automotive Risk Management Partners ARMP

Why Dealers Must Read Compliance Vendor Contracts Closely

Terry Dortch President, Automotive Risk Management Partners

Key takeaways

  • Dealers who are careful with customer paperwork like buyer's orders and retail installment contracts often fail to read their own vendor contracts closely.
  • A vague compliance vendor contract may state only that the company will provide 'compliance remedies' without specifying any actual services or visit schedules.
  • Contract language such as 'regular visits' can be interpreted loosely, allowing a vendor to go six months without visiting a dealership.
  • Dealers should verify that what they are signing matches what they actually receive from a compliance vendor.
  • A vendor contract should describe in detail what services will be performed, such as the number of dealership visits and the specific compliance processes used.

Summary

Vendor contracts often get far less scrutiny than the paperwork dealers use with their own customers, even though a buyer's order, retail installment sales contract, and any WIO forms are typically prepared with great care to document exactly what is being sold or added to a deal. That same discipline frequently disappears when dealers sign agreements with vendors, including companies hired to handle compliance work. Vague language such as "regular visits" or a promise to "provide compliance remedies" can leave a dealer with no real recourse if a vendor underdelivers, since the contract never defined what performance was actually required.

Terry Dortch describes reviewing a compliance vendor's contract that ran a page and a half, mostly signature and contact information, with no specifics on deliverables, and notes the vendor in question had not visited the dealership in six months despite that "regular visits" language. He contrasts this with ARMP's own contract, which spells out visit frequency and the specific compliance work performed, without hold-harmless or liability-limiting language. The takeaway for a dealer principal or GM is to read vendor contracts as closely as customer paperwork, confirm deliverables and visit commitments are spelled out in specific terms, and verify that what is promised is actually being provided before renewing or relying on that vendor for compliance protection.

Transcript

Introduction to vendor and customer contracts

Hi, my name's Terry Dortch. I'm with Automotive Risk Management Partners. I'm going to talk to you today a little bit about contracts and everything that's, well, things that the dealer has to contend with, with vendors as well as customers.

How dealers structure customer paperwork carefully

You know, it's amazing to me, all the years I've been in the car business, a dealer is so particular about how they structure their deal. You know, you've got a buyer's order which is going to list out any add-ons or anything that's being done to the vehicle. They're very, very strict about making sure that you document any added amenities or any service that needs to be done to it, or anything that's going to be done outside of the normal confines of buying a vehicle with four wheels, a steering wheel, and an engine, right.

In addition to the buyer's order, you've got a retail installment sales contract, usually, because typically most people are going to finance that vehicle. In addition to all of that, you may even still have yet a WIO that outlines any added things that need to be done to the vehicle after the fact, after the purchase. It could be anything as simple as replacing windshield wiper blades, or as complex as putting a ground effects package on a vehicle, or any number of things that are being done after the fact. And actually most dealers go to the extent of attaching a WIO that says "nothing else promised."

So there are a lot of different ways of structuring deals and how they put them all together. And what's amazing to me is that we in the car business, on the retail end of it, are so picky about making sure that paperwork is meticulous, right, and yet you deal with a vendor and you never read the contract.

Vague vendor contract example from a dealer group

The reason I'm bringing this up is a few days ago I happened to be in a meeting with a fairly decent sized automotive group, and we're looking at a contract from a vendor that they had that takes care of some of their compliance issues, some of the compliance mandates that are out there currently. That contract was a page and a half, and in that page and a half, most of it was a signature page outlining the point of contact, outlining the address of the dealership, the name of the company that was providing this service, and it was signed off by both parties, right. But throughout the body of the contract there was no cement, in my, what I term is, or no glue. There was nothing that stated what that company was going to do for that dealer, other than saying they were going to provide compliance remedies. Very vague, very nondescript, didn't do anything.

ARMP's detailed contract approach

Now you look at my contract, or our contract, it's for pages, we're going to tell you that we're going to come in, we're going to visit your dealership four times, we're going to tell you exactly what we're going to do. We're going to also explain to you that anything compliance related we're going to look at for you, we're going to go through, and we describe in detail our processes, how we map everything out and the things that we do. And not once in our contract do we actually go into any kind of hold harmless, or tell you that we're not going to, that there's no liability on our part. Nothing of that ever enters our contract.

So it amazes me how dealers can be so tight and so conscious of the contracts they do with their own customers, and yet when it comes to their vendors, they're not quite as diligent in their process of following that. So I guess what I'm saying to you is, take your time, look at these contracts, and make sure that what you're signing is what you're getting.

Consequences of a vague contract: missed vendor visits

This particular situation turned out that the company that signed this contract with this dealer hadn't even been in to see the dealer for six months. Now there was nothing in there that spelled out that they had to be there, other than it said "regular visits." Well, you and I both know that could mean anything. So my point in all of this is you really do need to make sure, as a dealer, who you're doing business with, and really what you're getting out of it.

ARMP's transparency and contact information

One of the things that you'll find with Automotive Risk Management Partners, we're very, very transparent. We're going to tell you exactly what we're going to do, and we're going to be there to hold your hand through basically anything that's related to the compliance world. If you're doing business with us, because that's what our job is, we're there to be a consultant, we're there to help you get through that, and we're going to tell you in our contract that that's what we're going to do.

So if you have any questions or anything, please feel free to give us a call, check us out, you know, you can send us an email or anything from the website. Our number, our web address, is right here on the screen. Feel free to give us a buzz, we'll be more than happy to talk to you. So thanks for listening, and take care.

Questions this video answers

Why should dealers read compliance vendor contracts closely?

Dealers are very careful with buyer's orders and retail installment contracts with customers, but often sign vague vendor contracts without reading them. One dealer's compliance vendor contract was only a page and a half and never spelled out what services would actually be provided.

What happened when a dealer signed a vague compliance vendor contract?

A dealer group signed a contract with a compliance vendor that only promised 'regular visits' without specifics. It turned out the vendor had not visited the dealership in six months, and the contract language was too vague to hold them accountable.

What should a good compliance vendor contract include?

According to the speaker, a solid vendor contract should spell out specifics, such as how many times the vendor will visit the dealership, what compliance areas will be reviewed, and a detailed description of the processes used, rather than vague promises of 'compliance remedies.'

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Covered in this video

  • vendor due diligence
  • dealership compliance vendor contracts
  • compliance remedies