In the old days, automotive dealers’ primary concern was selling cars, plain and simple. Yet as the industry has evolved, it has spawned a web of complex rules and regulations that govern the way that dealers can conduct transactions. Compounding the effects of these new rules is an increasingly litigious bent in American society. Today, dealers are forced to cope with these new realities by spending much of their time, energy and dollars on education and compliance. One of the issues plaguing the industry is the rise of class action and representative action lawsuits. Many people in the industry found these suits frivolous, as did several interested parties in the state legislature. This discontent led to last year’s passage of Proposition 64, which effectively restricted the ability of unfair business practice lawsuits, by requiring the plaintiff to show a loss of property or money. Yet in spite of Proposition 64, some say that the litigious climate of the state hasn’t been reined in enough. “These lawsuits have certainly increased in recent years. It has gone from an occasional filing six or seven years ago, to being very common today,” said Aaron Jacoby, a partner in the Beverly Hills-based law firm, Whitwell, Jacoby, Emhoff, LLP which has several auto dealer clients in the Valley. “Consumers have also become more litigious. They are less willing to work out errors or mistakes or complaints with people that they do business with. Additionally, plaintiffs’ lawyers have also determined that they can gain more leverage and mileage by filing these class action and representative action suits.” Tim Smith, the president and co-owner of Calabasas-based Bob Smith BMW/MINI has been very active in dealer circles, serving on the board of directors for the California Motor Car Dealers Association and the Greater Los Angeles New Car Dealers Association. From these vantage points, Smith has witnessed the rise of litigation in the automotive industry. “You had law firms that hired people specifically to read the classifieds of the San Francisco Chronicle, The Los Angeles Times, and other prominent newspapers. If a dealer quoted a payment price, that would trigger other disclosures that required certain font sizes in the ad compared to the payment being quoted,” Smith said. “They had people measuring font size. If the font size wasn’t right, they’d file a lawsuit. One law firm in San Francisco filed 450 of those suits and the party that was named wasn’t damaged.” Smith added that since the passage of Prop. 64, he has witnessed a decline in the number of suits. One-Document Rule Also related to the rise of class action and representative action suits is the One-Document Rule, which requires all financial obligations between the dealer and the consumer to be set forth on one document. Failure to comply can result in lawsuits. The rule has yielded mixed results, with some dealers appreciating its simplicity, and others alleging that it has only made things more complicated. “The One-Document Rule makes business more difficult for us. It actually makes the contracts so complicated that it’s hard to read them at all,” Steve Bussjaeger, the owner of the Glendale-based Star Auto Group said. “But we do what we can to work with the legislators to try to make the laws fair for both business and the consumer.” But Bill McClendon, the general manager for Keyes Lexus of Valencia, feels that the One-Document Rule has streamlined the process. “We’d actually been following the One-Document Rule since before it became a law. It clarifies things for us in a lot of ways. With the One-Document Rule, the client can understand what the dealer understands. This way, there’s no confusion.” Another matter that could potentially alter the way that dealers conduct business is the Car Buyers Bill of Rights, currently making its way through the State Legislature. Most experts expect the bill to pass without difficulty. Its contents mandate a three-day cooling off period in which buyers of used vehicles have up to three days to return it, as well as capping dealer finance income at 2 percent for deals of 60 months or less. While the proposed law has ruffled some feathers in the industry, other dealers tout it as an effective measure for both dealers and consumers alike. “The Car Buyers Bill of Rights addresses abuses in the industry and it curtails the ability for dealers to overcharge on the interest rates for car-buyers. It does this successfully and fairly,” Smith said. “I think the Bill is an equitable solution to the problem of overcharging on finance rates. I am in favor of it. I’m sure it will make it through the legislature.” One of the organizations taking credit for the bill is the Sacramento-based Alliance for a Better California. Jim Farrell, a spokesman for the group, maintains the bill will provide consumers with vast benefits. “This bill will be a historic first for the nation, in terms of placing protections for consumers. It will put an end to shady practices like loan packing, undisclosed dealer kickbacks for raising interest rates and it will end the sale of certified clunkers that continue to plague millions of car buyers,” Farrell said. “This does not go for all car buyers. However, there are sophisticated scams out there, and the working families of California need the protections that this Car Buyers Bill of Rights will put in place.” Facing all of these relatively new headaches, many dealers have found that the best way to combat the intricate rules and regulations is education. Focus on education According to McClendon, the legislation has made his dealership focus heavily on compliance. “It has forced dealers to educate and re-educate themselves in all areas of operation. Probably the best thing a dealer can do is look for outside consulting associates to help educate all their employees,” McClendon said. “Our dealership has turned to an outside consultant for compliance on all matters. We like to learn from the experts. It’s expensive but it’s certainly well worth it.” Bussjaeger agrees that the added regulations have led to an increased emphasis on compliance education. “Doing business today absolutely requires more education and more time spent on compliance. It requires constant training. It’s an added expense and time,” Bussjaeger said. “The most important thing to do is make sure that you give full disclosure of the entire business transaction. There aren’t any secrets anymore, everything’s out in the open.” Overall, the end effect of these laws adds to up to a higher cost of doing business in California. And some people don’t believe that the rules don’t even provide that great a benefit to consumers. “I’m not even sure that in general, all of these regulations promote the consumer interest. It does add a cost overall. A lot of effort goes into digesting the substance of the laws and training staff to be in compliance. There is more money spent here in defense of litigation than in other states,” Jacoby. “It’s a big cost to doing business. But you don’t hear a lot of dealers complaining about it very often. They are all good businessmen who want to make a profit, promote goodwill with consumers, and comply with the laws of the state.”