Former Ford Dealers Hit by Bank Fraud Charges

Dealers facing up to 30 years in prison

This isn’t your everyday bank fraud story.

Authorities charge that the former owners of a Ford dealership in upstate Wisconsin defrauded a local bank in a scheme that lasted over four years and resulted in losses of over $2 million.

According to a press release from the U.S. Attorney’s office and reports in the LaCrosse Tribune and the Chippewa Herald, the accused men who are brothers, have agreed to plead guilty to charges stemming from a fraud that court documents say cost two banks more than $2 million.

You can’t blame this one on the lousy conditions in auto retailing.

The scheme allegedly began in January 2004 and wasn’t uncovered until August 2008.

Information filed by federal prosecutors indicates that the pair falsely claimed to be buying vehicles for their inventory. But it turns out that some of the loans were for vehicles the brothers never bought. In other instances, the pair were simply out of trust by failing to report to the banks that vehicles had been sold.

The fraud resulted in a $1,767,353 loss for Farmers and Merchants Bank and a $296,861 loss for First Bank.

The banks discovered the fraud in August 2008 and reported the matter to federal authorities in August 2008. The dealership is still operating but is under new ownership.

The former dealers each face a maximum penalty of 30 years in prison plus restitution.

A government spokesperson said that some funds have been repaid by selling personal property.

Wow.


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Red Flags Q&A Webinar with Michael Benoit

Compli Hosts Complimentary Webinar: Red Flags Q&A Webinar with Michael Benoit.

This is a very good webinar on Red Flags and is worth a look. November 1st is a few days away!!!

Cheers, AFI

Please fill out this brief form to view Compli's "Red Flags Q&A Webinar with Michael Benoit." Once you have submitted the form you will be directed to a page where you will be able to view the Webinar.


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Good Motivation

A message to all members of SELLING IRON

Any day we wish; we can discipline ourselves to change it all.

Any day we wish; we can open the book that will open our mind to new knowledge.

Any day we wish; we can start a new activity. Any day we wish; we can start the process of life change.

We can do it immediately, or next week, or next month, or next year.

We can also do nothing.

We can pretend rather than perform.

And if the idea of having to change ourselves makes us uncomfortable, we can remain as we are.

We can choose rest over labor, entertainment over education, delusion over truth, and doubt over confidence.

The choices are ours to make.

But while we curse the effect, we continue to nourish the cause.

As Shakespeare uniquely observed, "The fault is not in the stars, but in ourselves."

We created our circumstances by our past choices.

We have both the ability and the responsibility to make better choices beginning today.

Those who are in search of the good life do not need more answers or more time to think things over to reach better conclusions.

They need the truth. They need the whole truth.

And they need nothing but the truth.

We cannot allow our errors in judgment, repeated every day, to lead us down the wrong path.

We must keep coming back to those basics that make the biggest difference in how our life works out.

And then we must make the very choices that will bring life, happiness and joy into our daily lives.

And if I may be so bold to offer my last piece of advice for someone seeking and needing to make changes in their life—If you don’t like how things are, change it!

You’re not a tree.

You have the ability to totally transform every area in your life—and it all begins with your very own power of choice.


Happy Selling!
Keele Fishel


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Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures

Everybody does it

Another "reality check" by Gil Van Over

I’ve read more than a few depositions over the last couple of years. Some of the questions asked by plaintiff’s attorneys shed light on the risks faced in a dealership’s operations. Today I will discuss the best rate discussion.

Background

This consumer sued the dealership under the state’s unfair and deceptive practices act alleging that the finance manager arranged for a straw purchase and inflated the vehicle’s book value to the lender in order to obtain a credit approval. The consumer was also countersuing the lender to get the deficiency balance waived.

Interrogation

Attorney: Ms. Finance Manager, do you remember my client?

FIM: No.

Attorney: You don’t remember completing this transaction?

FIM: No, it was over three years ago.

Attorney: Let’s look at Exhibit A. This is from the deal jacket your dealership provided. Would you agree it is a credit application?

FIM: Yes.

Attorney: Can you read the name in the ‘Applicant” box?

FIM: Joan Straw.

Attorney: Now let’s look at Exhibit B. This is also from the deal jacket your dealership provided. What is this form?

FIM: It is a retail contract.

Attorney: Can you read the name of the buyer in the top left box?

FIM: Tom Purchaser.

Attorney: Is Joan Straw listed?

FIM: No.

Attorney: Did Joan Straw sign the contract?

FIM: No.

Attorney: Can you explain why Joan did not sign the contract, yet applied for credit?

FIM: It looks like we put the car in Tom’s name. Maybe Joan did not qualify.

Attorney: Moving on. Exhibit C is a condition report from the repossession company. Exhibit D is the NADA book-out sheet from the deal jacket your dealership provided. Exhibit E is a sheet listing the differences in the options on the vehicle. Can you explain why the book-out sheet lists more options than the condition report?

FIM: Maybe the bank needed a higher book value to approve the loan.

Attorney: Why would you put the car in someone else’s name and inflate the value of the vehicle to the lender in order to get a credit approval?

FIM: Everybody does it to sell cars.

Solution

First, realize that “Everybody does it” it both a lame excuse and a blatant misstatement of the truth. Most dealerships do not encourage or allow straw purchases or power booking or other forms of potential bank fraud.

That does not mean that a rogue F&I or Sales Manager won’t periodically cross the line and put your dealership at risk.

Protect yourself by implementing a few common sense policies.

Expressly Forbid Bank Fraud – I just finished watching the NCAA men’s basketball championship game. Memphis coach John Calipari will forever be questioned about why he did not call a time-out with ten seconds left in regulation to review and set up his defense. As the leader, he potentially left a question in his player’s minds about what was expected to close the deal.

Do not put yourself in the same situation in litigation. Let there be no doubt about your policy with your employees. Make it known, through your actions and through your employee manual and through your F&I and Sales Procedure Manual that bank fraud is not acceptable or tolerated. Fire the next person who you find committing bank fraud.

Belt and Suspenders Auditing – The guy in front of me yesterday at the airport security check-in line had to take extra time to get undressed for the Magnometer. First, the belt. Next, the suspenders. The TSA agent asked the obvious question, “Why both?” the man’s answer; “If one breaks, the other one will hold up my pants.”

Set up your own belt and suspenders approach to auditing deals. Start with the billing clerk. Make it part of the checklist to briefly review credit applications for alterations or numbers being printed after the rest of the application is completed. Require that every used deal have a book-out sheet signed and dated by a manager that is affirming that the options listed are indeed on the vehicle.

The second level audits should be completed by the Office Manager or Controller or Compliance Officer. Randomly pull five deals per F&I Manager on a monthly basis and scrutinize the file for potential bank fraud issues.

Finally, get independent help. Periodically, but at least annually, have a sampling of files reviewed by your attorney, accountant or compliance consultant.


Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I, Sales and Red Flag Rule compliance consulting and training firm (www.gvo3.com).


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Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures

It's Time to Play Monopoly

Do not pass “Go,” do not keep your franchise agreement

by PETER BRANDOW

In today's game of franchisee survival, only a few things are certain.

State-enacted rules and protections are no longer the controlling law of the land regarding dealers' rights, and very few people will ever again completely trust a manufacturer's word, warranty, or franchise agreement.

Perhaps even more bizarre than a belief that too many dealerships, rather than cheap products, cause failed manufacturers, is certainty that fewer dealers in the marketplace will somehow make failed products fashionable. I was raised to believe that monopoly reduces service levels and inhibits competitive pricing.

Somehow, a country that grew rich on the conviction that anti-trust was pro-American, now has decided that a smaller, less competitive, more monopolistic dealer franchise system will better serve consumers, while at the same time putting easier profits into corporate hands. Less competition does not usually result in increased customer value.

Am I to believe that those same hard- hearted and hard-headed martinets who are cutting dealers off at the knees will become caring, loving merchants as soon as the blood washes from the streets?

What will unhappy customers do when the dealer that has been fighting for them so long is no longer franchised? Will they petition the same Congress, that sanctioned that dealer's beheading, for legislation to insure that the manufacturer not sell more cars than its diminished dealer network can service? Will independent service centers finally have their day?

By what logic will a surviving dealer invest in facilities, inventory or service staff when the name of their once-proud predecessor arrives in their shop on the bumper of every other car to serve a daily reminder that the future is only as bright as this season's sales?

I can't figure out how this latest round of dealer terminations and “participation agreements” (based purely on unilaterally imposed standards thrown down by frenetic manufacturers) won't heighten the antagonism between retailers and manufactures to a level that pummels any chance of dealer investment in customers for life.

If the dealers terminated were too short sighted, what has changed to support their successors in adopting a different strategy?

I am confused by the complete lack of public and governmental demand for regulation over the attention to be paid to individual consumers by surviving dealers.

Recent stories of warranty customers turned away by dealership fearing a lack of payment is just the tip of the iceberg. I didn't see in the calculations put before Congress the historic measure of service costs borne by dealers.

Years ago, the rule of thumb was that as much as 15% of the expenses associated with consumer incentives and warranty service came out of dealers' pockets. Have the surviving dealers budgeted that burden?

The theory that fewer, but bigger, dealers will service customer equally well and cost the manufacturer less, is rooted in the notion that the critical difference between Toyota and Chevy is fewer Toyota dealers.

So if we limit the access to Chevys, they'll become more well-liked. While you're pondering that, recall that every Chevy on the lot has been paid for before it left the assembly line. So tell me again, how piling them up farther from my home will make buying one more attractive or more lucrative to its manufacturer?

We have moved from a society that so loved a discount, that its people are now craving the ultimate bargain, the steal. Customers are hovering in wait to buy over stock at huge reductions. I get calls almost daily suggesting that a good price today will trump the promise of future service.

What's more, dealers themselves are literally tripping over one another to pick over the inventories of recently terminated brethren without sufficient concern that they might be next.

Peter Brandow is a veteran dealer in Pennsylvania and New Jersey.


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Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures

Questions Surround Cash-for-Clunkers Program

AFI - We are all curious about this one.

By Byron Pope WardsAuto.com

Details of the federal government’s “cash-for-clunkers” legislation have yet to be confirmed, but a Ward’s analysis of the program reveals numerous holes and the possibility it may not boost vehicle sales significantly.

Under terms of the Car Allowance Rebate System (CARS), dealers largely will oversee implementation of an incentive that provides up to $4,500 for consumers scrapping used vehicles rated at 18 mpg (13 L/100 km) for new cars that achieve at least 22 mpg (11 L/100 km), or light trucks capable of 18 mpg or more.

Trade-ins must have been insured for the past year - (No pulling out of the backyard allowed).

One potential pitfall of the program is how dealers will provide proof the trade-in vehicles will indeed be scrapped and not wind up on used-car lots, which would negate a primary objective of taking inefficient cars and trucks off the road.

The program is tentatively set to begin Aug. 1, with final rules reportedly due by July 23.

NHTSA spokesman Rae Tyson says the agency “has a lot of details to work out,” but adds careful consideration is being paid to ensure dealers can’t exploit the program.

Potential fraud “is one reason we’re being very careful,” Tyson tells Ward’s. “In order to complete the process, (dealers) have to ensure (the vehicle is) scrapped.

Dealers must first be certified in the program. Go to http://www.Cars.gov for more information.

Following certification, a dealer accepting a trade-in would have to make proper disposal arrangements, then submit documentation to NHTSA showing the process had been handled correctly and the vehicle had indeed been scrapped.

Once NHTSA approves the documentation, the dealer would receive the refund within 10 days.

NHTSA already has warned dealers not to begin signing up customers for the program until the final rule has been released.

NHTSA says in a statement, noting violators face fines of up to $15,000 per transaction.

While NHTSA is working to ensure dealers don’t take advantage of the program, some argue most dealers wouldn’t attempt to do so even if the situation presented itself.

“Some dealers will take advantage, but if you’re going to be blatantly stealing from the government, which that would be, they're going to find out,”

Another issue yet to be addressed is how dealers would prove to NHTSA vehicles will be scrapped, as well as how the actual scrappage will be carried out, Tyson says.

In the U.K., which earlier this year launched its own cash-for-clunkers incentive plan, salvage yards disposing of vehicles must submit documentation available online, along with digital images of the destroyed vehicles, according to British salvage firm Douglas Valley Breakers Ltd.

“One (option) would be to figure out how to render the drivetrain inoperative, or at least the engine; and the other would be perhaps do something to the title to allow it not to be re-titled, or some combination (of the two),”

If the vehicle’s body is in good condition, its parts could be sold off, although NHTSA has yet to decide whether or not that would be allowed. In any case, the priority would be to render the vehicle inoperable, he says.

The program is capped at $1 billion and runs through Nov. 1, 2009, or when the funds are exhausted, whichever comes first.

If the entire $1 billion were used with an average rebate being $4,000, it would result in 250,000 additional new-vehicle sales, barely enough to impact even a down U.S. market, which last year totaled 13,493,165 units, according to Ward’s data.

In May, the U.S. seasonally adjusted annual rate was 9.9 million units. Assuming that figure holds steady, the program would result in a mere 2.5% annual sales increase. If the SAAR improves as many predict, the impact would be even less.

Although European scrappage programs have been deemed successful, it’s largely because their respective markets are much smaller than in the U.S.

Perhaps the most important question concerning the CARS program is what vehicles will qualify.

“There aren’t many cars that get 18 mpg or worse,” Wolkonowicz says. “(The program) is not going to do anything but get trucks off the road, but that’s not its intent. It is a classic example of people (writing legislation) who don’t know anything about (the industry).”

Rikess agrees most car owners won’t qualify for the program, and raises yet another question.

“Affordability is an issue for some people driving 14- (and) 15-year-old cars,” he says. “A typical family with a cash-for-clunkers car couldn’t afford a (new car) payment.”

“The problem for a lot of dealers is if this creates a stampede of traffic and hurts them when they try and figure out what kind of vehicle is eligible and there are a lot of questions from consumers,” he says. “That could eat up a lot of manpower, and the majority won’t buy a car.

“It’s just (going to result in) incremental business dealers wouldn’t have gotten,” Rikess adds. “It’s more of a green initiative than a dealer initiative. It shows politics is the real winner.”

Read the entire article at: WardsAuto.com

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Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures

Whoopee, We're Bankrupt!

Auto Industry Finds Out Chapter 11 Has Its Benefits

by: PETER BRANDOW


Note from AFI: I have been reading Peter Brandows articles in Ward's Dealer Business magazine for the last several years - and am a big fan. It is impossible to find another dealer principal who writes with such clarity and emotion about current events as they affect his dealership and the auto industry as a whole. This article should live forever as the point of view of the dealers who are adversely affected by the madness in today's automotive industry.


Every dealer advocate I know is reeling from the news alerts about Chrysler and GM cutting dealers' throats to right their failing businesses. May 14, 2009 will go down in history as the day our government and Chrysler tore the heart out of our franchise system by endorsing the termination of 789 duly franchised dealers without paying them a dime for cars, parts, tools or goodwill.

GM followed that by announcing it will ax 1,100 dealers. GM big wigs are clearly taking careful notes on how the political and marketing winds are shifting. Their dealer nasty-grams come without the cover of bankruptcy; they've set the precedent for terminating dealers simply because they just don't want to deal with them anymore.

Time will tell whether and where that works. They are seeking absolution based on giving the death-row dealers notice that they may appeal. Could they not even deem to offer stock in the future GM should it prosper from their sacrifice? Clearly the bailout is fueled by the very taxes that suffering dealers paid.

Could it be right that they will be cut out of any way to recoup their investments? I may be cynical, but I suspect that the time they are giving dealers is the hammer with which they are pushing others to buy inventory or risk a similar fate (and this from companies propped up by taxpayer bailout money).

When I closed my Chevy store, I was forced to sell new vehicles for two thirds of what dealers were paying GM for the same vehicles.

Clearly the survivors will have very valuable franchises and improved territories at the expense of those forced out. They should recognize this, as should the manufacturers.

If federal bankruptcy or simple arrogance can be used to sidestep state-legislated dealer protections, even Ford (who prides its self on avoiding such tactics) will not likely resist the temptation of availing itself of some bankruptcy salve.

Once everyone is doing it, and the buying public accepts the “B” word, the spin doctors will turn Chapter 11 into a tonic for fixing the American economy.

But, look out before you slap on a bumper sticker “Bankruptcy — Leveling the Playing Field for Americans.” You're being played.

Chrysler's bankruptcy comes with 789 dealer closings leaving a wake of 38,000 lost jobs — American jobs. That's just the first round. One can only assume that the number of American tragedies occasioned by GM's cuts will take the number of victims to well over 100,000.

Bankruptcy is code for stiffing people who trusted you on the way to a reorganized payday.

Reorganization is a tool not a goal.

We have not yet been informed as to whom the emerging companies will most benefit.

Worse yet, no one has yet completed a plan for success.

We have only identified the first victims of past failure. We still need to find how future products will become popular.

No one seems to be asking that question. Everyone is so fixed on bailing out, that they have not decided who will still be in the boat when the holes are plugged and the ship is able to float unaided.

While forming an opinion on who should live and who should die, we should not forget that it is because the domestics provided so many benefits to our economy that imports were able to limit their investments to immediate profits, much of which was quickly shipped off shore.

This current dealer inquisition is brutal and neither the bankruptcy court nor our economy seems prepared for the potential fallout, or cognizant of the disproportionate sacrifices being made to build a brighter future.

The current gatekeepers have pitted us against each other on the appearance of having a handle on this. Let's hope we're not just helping them to dig a deeper grave and that those lucky enough to make fortunes off these changes not forget the debt they will owe to those suffering to get them through.

Peter Brandow is a veteran dealer in Pennsylvania and New Jersey.

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Dealership Death Watch: Car Dealer Photos, Car Dealership Pictures, Auto Dealer Pictures