What’s with all these customer’s cars stacking up out back?” What advice does a Risk Manager give his clients regarding these ever-increasing recalls?

Lately, I find myself fielding calls from clients around the country concerned about how to manage the potential risk they face in selling a vehicle to a retail customer when that vehicle is awaiting a replacement airbag. At first, late last year, the calls were focused on the retail sale; only recently have I started seeing more concern regarding running a vehicle through an auction lane or wholesaling the vehicle. Sure, the fact and figures are readily obtainable via a quick Internet search as to how different state’s laws affect a sale. The range seems to run from silence on the issue from a state’s legislative and regulatory arms to outright mandates and bulletins on how to handle the sale of an open recall vehicle. While the federal government runs the recall “train” from the locomotive, many of the individual cars (state’s laws and regulations) are wobbling down the track.

If the product safety and recall issue is a national highway safety issue, and the titling and registration of a vehicle belongs to the individual states, the potential liability is a scary one.


Compounding matters is the fact that the manufacturer may be of little help when asking specific questions regarding pre-owned, open recall vehicle. Just this week, Toyota dealers participated in a conference call regarding “best practices” while handling vehicles that are in your inventory and how to sell the cars properly. The suggestions did not sit well with many of my dealership clients.


On another liability front, what about the customers’ vehicles sitting in back, on the side or all over your dealerships lots? There are some serious “care, custody and control” issues. In March of this year, one Honda dealership I visited had 116 customers’ cars in a cramped back/side lot just awaiting airbags. This was on top of the usual 30 to 45 cars in for service on any given day. Knowing this particular dealerships’ insurance program had a limit for the “garage keepers” coverage that would only account for the typical 50 cars, I quickly pointed out the need to increase the limit for this location to accommodate a potential loss.


With recent news of yet another 4.3 million GM vehicles being added to the list, and on the heels of news that the NHTSA is expanding  the investigation to potentially include airbags manufactured by ARC, one wonders how

can a dealer navigate what to sell and what not to sell? What to trade for and what not to trade for? Which to buy and which to avoid. Again, this is a great topic to discuss with not only your management teams but important partners in your dealership’s overall risk management program. Ask your staff counsel, your state dealership associations and your insurance professional, as well. A quick email

to your insurance provider asking what the cost to increase your garage keepers (or customers autos) limit could be in order. You may be shocked to find it is rather inexpensive for the extra piece of mind.


Auto Dealership Security

Insurance companies want to know that you are taking measures to protect the vehicles you hold for sale. This means they question how you store, drive and repair these vehicles. Do you have fences around your lot? A closed circuit security system? Even a small measure like posts and chains will deter theft when your lot is not being manned after hours. Other items that help:

  • Well-lit lot
  • Heavy visibility locations – a 24 hour neighboring store can be a good thing! Especially if they have security cameras
  • Motion lighting in rear and sides of buildings

Hiring Someone’s History

Did you know that your employees’ driving record can and will make a significant impact on your dealership insurance rates, EVEN if they are not furnished a demo? It is a good idea to make sure you screen the drivers’ licenses and history of any sales person, manager, lot porter, detailer and especially dealer trade or auction drivers! Remember everytime you “lend” a dealer tag or transport tag to an employee or friend, that individual is driving around with your ability to afford and buy insurance in the future!

Weather Protection

What, if any, plans do you have to protect your vehicles from bad weather? Having an emergency inventory evacuation plan will help your insurance professional negotiate the best possible deal especially if you are in an area prone to bad weather like: hurricanes, flash flooding,  high wind, ice storms or hail. Many of our dealers have existing deals with local shopping malls or owners of vacant land that is elevated. These “on demand” leases allow for the dealer to move inventory in the event of impending bad weather.

Test Drives

Are you gathering the right information before letting them “take a spin”? Unaccompanied test drives can spell disaster for your rates and for costly court cases. Did you know in many states a test drive that is not immediately returned and later reported as stolen may not be actionable by law enforcement? The “customer” that took the car for an extended test drive need only tell authorities that he/she had your permission for an extended demo and charges may be difficult to bring.

Having a set rule about test drives and a set route (we recommend all right turns to avoid the risk of crossing heavy traffic) will help keep potential claims down.

Lipstick for your “PIGS”

Our professionals deal with hundreds of dealerships; believe it or not even the marquee, large franchises have some “pigs” that the underwriting insurance company may find less then appealing. These “pigs” aren’t always vehicles. Sometimes they are the children and relatives of the owner. Past liability claims by key employees who are still with the company, or perhaps a frequency issue with the same type of claim happening over and over can cause major havoc with your ability to reign in your rates.

Our staff are experts at making the “pigs” look better (adding some “lipstick”); allowing our dealers to get the best coverage available. While we will not misrepresent a “pig” to the insurance company, there are ways to keep them from negatively affecting a dealership’s ability to obtain competitive and through coverage.

Contact one of our dealership risk managers for more information about reducing your risk today.