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Why Auto Dealers Need to Avoid Claims at All Costs

Every year there are numerous cases of claims being filed against various businesses, and car dealerships are no exceptions. With the unprecedented number of recalls by major automakers this year, it won't be any surprise if more disgruntled consumers file claims than usual, even though it's not the dealerships' fault.

You may be an honest dealer and give your best in everything you do, but that does not mean you are immune to claims. Even if all of your business practices are spotless, it is still wise to avoid claims at all costs, even those you think you might win. Here are just a few reasons in support of this claim (pun intended).

#1 Disputing a Claim Will Cost You Money, Time and Stress

Let's start with the very obvious. A lot of people consider lawsuits only as a last resort, because lawsuits are known to be very costly. Sometimes, the final bill's a lot bigger than you might have imagined, even if you win. In the worst case scenario -- i.e. if you lose -- the trial alone might cost you more than the original settlement. In some cases, you may even be mandated to pay the legal fees of the claimant.

If you decide to go to court, be prepared to dedicate hours and hours on end preparing for your case, getting documentation in order, talking to lawyers, etc. And all this will come on top of your regular workload, so before you rush into defending a claim, think about whether it will be worth the stress and the risk.

#2 You May Lose Your License


Each year, when you file your application to have your licensed renewed, you are also applying for а new auto dealer bond. When the surety underwriting the bond reviews your application, one of the things that will most strongly affect your likelihood of getting bonded will be whether or not you have claims in your history.

Even if you paid off previous claims and the case is over, the fact that you once triggered a claim will be seen by the surety as an increased risk that you might do it again. Don't forget that sureties vouch for your work when underwriting the bond, and are also financially responsible in case of a claim. And remember: without a bond you are not a licensed dealer.

#3 A Claim Will Damage Your Reputation

We live in an era when, Google Think Insights shares, 95 percent of car shoppers use the internet as part of the shopping process, and 90 percent of them are influenced by online reviews. Regardless of whether you sell cars online or not, you need to encourage good word of mouth, since word of mouth spreads faster than ever these days, thanks to online review websites.

Having a history of claims, or even just one, will not only affect your reputation in front of surety bonds companies, but it can effectively destroy your online reputation if the claimant is emotional and decides to "get back" at you.

#4 A Claim Might Hurt Your Long-Term Relationships

Handshake - 2 men

It's common sense among car salesmen that they shouldn't try to treat every sale as if it is their last -- i.e. there's not point in trying to sell a vehicle at all costs. A customer might cave in, but later regret the purchase and never seek your services again. Long-term this is costlier, as dealerships actually make more money from services and repairs than from sales of vehicles. That's why it is important to keep a good standing with your customers as much as possible.

Imagine you are having a dispute with a customer who has used your services a few times already, or one you were hoping to turn into a loyal customer. Even if you think you have every chance of winning in court, you might still want to seek out a settlement and leave the customer happy, rather than win the battle, but lose the war.


Keep in mind that a dispute with a customer is not the only situation that may lead to a claim. A claim can also be filed by the state or federal government for violations like breaking your surety bond agreement, the Lemon Law or FTC regulations. So take the extra time to familiarize yourself with these important regulations, to further protect yourselves from claims. This pays back significantly in the long run.

Have you had to settle a dispute or a claim with a customer or government body? How did it go? Please share your experience in the comment section below.

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