There was a Sunday morning television news program several years ago featuring a franchised car dealer who was going out of business in a small town. The town council expressed deep concern about this dealership’s closing and wanted to allocate tax dollars to keep it open. For legal reasons, the council was unable to do so.
The outpouring of concern for this dealership was the result of the tremendous amount of goodwill it had engendered through its business policies and its impact on the community through supporting restaurants, suppliers, Little League baseball, community events and charity. The news show shared stories from customers regarding their equitable treatment and their loyalty to the store, emphasizing their intentions of always purchasing a vehicle there in the future. This dealership, evidently, had few if any complaints filed against it nor any investigations.
Past Prosecutions
Prosecutors are motivated to investigate businesses with bad reputations. The enduring adage applies: Where there is smoke, there is fire. During my many years at the Florida Attorney General’s Office, it was unquestionable that one could never go wrong prosecuting a car dealer. Customers of dealers with bad reputations, and consequentially little goodwill, are far more likely to file complaints that trigger investigations by attorneys general.
The Vulnerability of Dealers
A National Automobile Dealers Association publication every dealer should have, “The Regulatory Maze,” lists all the laws dealers must abide by. The list is extensive. I would conjecture, and it’s my observation, that I could visit almost any dealer and find violations of the various relevant laws. It’s not that dealers don’t attempt to follow laws; it’s simply the fact that there are so many regulations that bedevil them. Developing goodwill is a shield against liability.
What Is Goodwill?
The basic accountant equation is assets minus liabilities equals goodwill or owner’s equity. In other words, goodwill can have a measurable value. The concept of goodwill reflects the reality that a dealership has a higher value than just its tangible assets and identifiable intangibles. This value is often attributed to factors such as strong brand recognition, loyal customer base, talented workforce, and the respect it receives in the community.
Prosecution vs. Goodwill - Personal Reflections
I was an aggressive prosecutor of dealers. However, I recognized that some dealers attempted to comply with the rigors of the law and be good corporate citizens. Conversely, some dealers were driven only by extorting money from their customers, believing that reputations need rely only upon advertising. When I investigated a dealer, almost always based upon consumer complaints, I considered its goodwill. A goodwill assessment included these inquiries:
Was the dealer attempting to follow the law?
Was there any evidence of the dealer trying to remedy the consumer complaint?
What compliance and training programs had it implemented (e.g., Association of Finance and Insurance Professionals training).
What was the general perception of the dealership in the community?
Even if I determined that the dealer was liable, I might have reduced the fine and not enlarged the investigation into other areas of the organization. A significant problem that dealers face is having a regulator expand an examination beyond the subject of the initial inquiry. I always found other violations whenever I engaged in a more extensive investigation. Most investigations produce the same result. Goodwill blunts these further inquiries.
Compliance Yields Goodwill
Dealers who actively engage in compliance efforts produce some measure of goodwill. Consumers have become more knowledgeable about dealer practices and recognize when dealers are not fully embracing compliant practices. A significant element of compliance is disclosure and transparency. All elements of the transaction, from the vehicle sales script through the signing ceremony of the documents, should be fully presented to consumers. A slogan from an old commercial: “An educated consumer is our best customer.” This is quite true in engendering goodwill with customers.
A Good Start
A good way to initiate a compliance program is to establish a compliance-management system. It consists of four elements:
Written program with an oversight committee (e.g., dealership owner, general manager and controller)
Appointed compliance manager who regularly reports to this committee
Complaint-management protocol
Regularly scheduled reviews of the program with the compliance manager and oversight committee.
Goodwill and compliance are intrinsic to one another. And most significantly, they insulate dealers from potential serious liability.
