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ATTACKS ON DEALER ADDENDUMS ON THE RISE

By: Shawn D. Mercer, Esq.

ATTACKS ON DEALER ADDENDUMS ON THE RISE

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We at BSM have seen a recent increase in consumer complaints about dealers using an addendum to the Monroney sticker for new motor vehicles.  Dealers are strongly advised to consult with experienced legal counsel about restrictions on the use of dealer stickers.

An addendum is a tool many dealers use to increase trading margin in light of shrinking amounts between sticker price and the vehicle invoice.  An addendum is also used by some dealers for pricing low volume, high demand vehicles. In those instances, the addendum will reflect “additional dealer profit”.

Other dealers use an addendum to reflect hard additions to the vehicle.  These adds may include such things as running boards, mud flaps and pin stripes.  Others charge a premium for such things as using nitrogen instead of air in tires.  Legitimate additions to a motor vehicle are generally permitted, provided that product pricing is reasonable and further provided that the dealer properly includes these additions when vehicle price advertising.  It is advisable to also have vehicles available for purchase or lease that do not include dealer adds.

The bulk of the complaints we are seeing pertain to either unreasonable pricing for product or the inclusion of products and services that are typically sold in the F&I department.  These items include key replacement, maintenance and service contracts. In a couple of instances, class actions have been threatened based on the theory that the dealer addendum includes F&I products in the “total price”, but such products and services are actually optional and must be selected from an F&I menu.

Another area of concern is using a dealer addendum to create a “dealer retail price” for every vehicle that is higher than MSRP.  In some cases, the dealer has neglected to advertise the dealer retail price (instead advertising a price below MSRP) and the increase is not attributable to added product and services or market conditions.  The addendum merely serves to increase trading margins and can lead to consumer confusion. Dealers are advised to refrain from such business practices unless it is permitted by applicable law and the dealer properly discloses the dealer retail price whenever engaging price advertising.

Dealers are also encouraged to refrain from using an addendum that resembles the Monroney sticker.  Many we review even include a depiction of a gas pump and other elements that are designed to resemble the government mandated sticker.  Such use could be deemed an unfair trade practice in certain circumstances. Finally, dealers are also encouraged to utilize separate pricing for individual additions to the addendum in lieu of a package price.

Questions concerning dealer addendums should be directed to your dealer lawyer.