How to Protect Yourself From Lawsuits When Running a Dealership

Whether you run a large dealership or a small independent dealership, your business may exposed to lawsuits on multiple fronts.

Accepting this reality starts with changing your perception. Instead of asking yourself, can my dealership be sued? The best strategy is to be prepared for the worse and thus minimizing the liability.

In this regard, we have prepared the following recommendations based on our extensive experience in the field.

  1. Have the buyer sign the Federal Buyers Guide. This important document basically lists what is (and is not) covered by the warranty. Also, a Buyers Guide must be posted on a side window of vehicles for sale while in dealer inventory.
  2. Have the customer sign a detailed car inspection report. It is recommended that a specialist carry out this inspection and that it includes the safety items that appear in California’s Vehicle Code (airbags, safety belts, brake system, bumpers, headlights, tail lights, stop lights & turn signals, horn, mirrors, muffler, and exhaust system, smog inspection, tires, windshield, windshield wipers, and windshield defroster).
  3. Have the buyer sign the NMVTIS Report. The National Motor Vehicle Title Information System report is crucial to preventing allegations of fraud, theft, and unsafe vehicles.
  4. Provide the buyer with a conditional sales contract. This contract distributes the cost of the vehicle into its parts, which makes it easier to limit liability to certain systems or parts and not to the total cost of the vehicle.

While these simple measures do not exempt the dealership from being sued, they minimize potential financial costs. Moreover, by incorporating these recommendations into your workflow, you can scare away fraudsters who exploit cracks in the system to take advantage of your business.

Simply put, in our opinion, it is better to invest a few minutes of your time and be prepared for a lawsuit than to regret not having these documents when you need them.

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Redline Dealer Education has been providing California DMV approved used car dealer training since 2018.

We are dedicated to providing the best Dealer Education and Consulting Services in California,
and provide everything you need to not only complete your DMV dealer licensing exam,
but to ensure you’re successful in your new career.