When it comes to selling used cars with recalls, dealers seek refuge from scrutiny by turning to fellow dealerships for validation. We’re all doing it — it’s not against the law. Selling a vehicle with an open recall, while legal, is frowned upon by consumers. At what risk to the brand are you willing to go in order to move inventory?
There’s no point to a legal or ethical debate on a practice that is a pretty commonplace in our industry. Instead, unhealthy practices might be easier to abandon if we focus on the pillars of good business, risk mitigation and an eventual legislative outcome that will force your dealership to change.
Undoubtedly, recalls have taxed franchise dealerships. Parts shortages, not enough technicians, occupied service bays, dismal factory reimbursement, sales on new models down — it’s impossible to ask dealers to shelve used cars affected by recalls.
A few weeks ago, I found myself at an independent dealership discussing the subject of recalls with Hamit, the owner. To his dismay, of the 70 or so cars on his lot, about 20% have some type of open recall. He explained that shoppers already scrutinize an independent lot more than a franchised dealership. However, franchise dealers share the same disadvantage when it comes to selling an off-brand with a recall. In the shopper’s eye, a recalled vehicle holds less value without the ability to repair it.
Recalls are just another point of contention for shoppers who are already leery of the used car market. To offset fears, Hamit purchases fewer recalled vehicles at auction. To stay on top of recalls, he runs the VIN for recalls at acquisition and then again upon sale of the vehicle, recognizing that newly announced recalls make it impossible for him to own a recall-free inventory without comprehensive recall management.
“I don’t want to get stuck with a car that is going to be difficult to sell,” he explained. “It still happens, and I can only give the buyer two options because I don’t have enough margin to lower the price — give me a couple of days to arrange for the repair at the local dealership or let the new buyer take the car off the lot today and take care of the recall themselves. I’m not going to hide from a recall. I have to do the right thing because these shoppers are already aware of the vehicle’s history and will use any issue to negotiate price. If I can’t be honest and up front, consumers will not buy from me and my online ratings go down.”
In a sales environment where the consumer is armed with vehicle history reports and choice in dealerships, honesty matters and, in Hamit’s case, actually differentiates his independent dealership from others who are not as forthcoming with recall status. With the exception of price, differentiation is almost impossible to establish in the used sales market. But, as it turns out, by openly disclosing to the consumer that a recall exists, his dealership is disarming the consumer from using that omission at the bargaining table. Not only that, it’s simply good, honest business.
You may have to hold that recalled vehicle for a couple of days while the repairs are made, but there’s no better sales leverage than safety.
In a 2018 attitude survey about vehicle recalls, 55.2% of consumers revealed that they hold strong negative opinions of dealerships that don’t go out of their way to disclose a recall prior to purchase. In a similar December 2017 survey, 85% of Tennessee respondents indicated that recall repairs should be made prior to the sale. Only 13% felt that a printed disclosure was enough. When presented with a scenario that involved a dangerous recall like a faulty Takata airbag, 94% of respondents thought the dealer should not be able to sell the car. In an industry that depends heavily on customer retention, referrals and satisfaction scores, selling used cars with recalls clearly goes against the will of the people.
While written disclosures may meet a legal requirement, the practice is underhanded, misleading and in direct conflict with what consumers expect. If you don’t recognize that, you’re not positioning your dealership to win consumers over the long haul.
If approached proactively, recalls present more opportunities for dealerships than pitfalls. Is your dealership building a loyal base of customers by acting in their best interest or is your dealership setting its own hair on fire to get rid of the tangles?