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Experts Speak on Auto Finance Industry Defends Spot Deliveries During FTC Panel By Jeffrey Bellant
DETROIT - The challenges of spot deliveries were the focus of a panel discussion during the Federal Trade Commission’s recent roundtable on vehicle financing. Attorney Michael Charapp, who represents several franchise dealer associations, said the concept of spot delivery began in the 1970s. Before that, consumers paid for cars before they were delivered. Although consumer advocates are the ones who complain most loudly about the practice, it was consumers themselves who prompted the practice, Charapp said. “That’s what the customer wants,” he said. “They want their car. So that became the trend.” Charapp said the definition of the term is murky, since in some cases, delivery would occur when the dealers
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thought the deal would be approved. Today, however, it often means delivery of a vehicle before the dealer is actually paid. “With that definition, 100 percent of the cars are spotdelivered,” Charapp said. That’s because under indirect finance agreements, there’s generally a representation of warranty that says the vehicle has been delivered, he said. “That now takes place prior the vehicle being assigned the finance source that is funding (the deal),” Charapp said. Consumer attorney Ian Lyngklip said some dealers will take advantage of customers when a spot delivery goes bad. In many cases, the customer is not aware that the deal is still contingent on bank approval. “When they sign these documents, they think they are walking out of the door with a done deal,” Lyngklip said. However, Charapp said language in retail installment contracts already inform customers about the requirements of spot deliveries and the potential for it being rescinded. Allen Monello, CEO of Automotive Industry Center for Excellence, said dealers often have a pretty good idea of whether a deal is going to get financed. But problems come up when a consumer fails to
Photo by Jeffrey Bellant FOR THE DEFENSE: AttorneyKeith Whann, outside general counsel forthe National Independent Automobile Dealers Association (left), and S. Allen Monello, CEO of Florida-based Automotive Industry Center for Excellence, discuss spot deliveries at an FTC roundtable meeting in Detroit recently.
provide complete or accurate information on a credit application. Another problem comes up in spot deliveries in the subprime market, Monello said. In some cases, a lender may require a dealer to pay an additional amount of money to the lender to finance a deal. If the dealer cannot afford that extra cost, he may have to back out of the deal, he said. In a traditional spot delivery, a customer has options, from accepting new financ-
ing terms, to unwinding the deal and getting his trade back. But Lyngklip said some dealers will not let customers know they have these options. So dealers might unwind the deal and fail to return the down payment, or simply muscle the customer into a deal with more unfavorable finance terms. Plaintiff ’s attorneys often refer to spot deliveries that go bad as “yo-yo sales.” But Charapp said that’s unfair. Yo-yo sales are decep-
tive deals in which sellers know the deal is coming back, while a spot delivery is a legitimate sale that may have a hitch in it that causes the deal to bounce back. Panelist Keith Whann, outside counsel for the National Independent Automobile Dealers Association, said even buy-here, pay-here deals are sometimes contingent on a customer bringing in stipulations – such as proof of residence or proof of employment – to make the deal go through.
IN THIS ISSUE • Lexus and Honda vehicles retain their values best. – Page 3
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• Conference aims to improve the image of dealers. – Page 5
• Repeat business makes life easier for everyone. – Page 10
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