Dealers question fairness, legality
General Motors’ new Factory Pre-Owned Collection portal, which sells used vehicles directly to consumers, is off to a rocky start. GM dealers nationwide gave it a tepid welcome, with only one in four signing up, and California’s dealer association has challenged the portal’s legality.
The online portal went live Tuesday, Feb. 9. GM says almost 1,100 dealerships have agreed to participate. As of Jan. 1, GM had 4,245 U.S. dealerships.
In a Feb. 9 letter addressed to GM North America President Alan Batey, the California New Car Dealers Association said it has “strong concerns” about whether the program violates a number of California consumer protection laws and other legal requirements.
“We have had our attorneys review the program and they have raised various legal issues that need to be addressed by GM,” said the letter, signed by Brian Maas, the association’s president. Automotive News obtained a copy. At least 169 of the association’s 1,100 members are franchised GM dealers.
The letter questions whether the program puts GM in unfair competition with its dealers for used-car sales. It also expresses concerns that GM is engaged in auto brokering — for which GM would need a California license — and that the Kelley Blue Book suggested price that accompanies each vehicle listing is “unrealistic” and “therefore misleading.”
“There are a whole host of issues relative to the Pre-Owned Collection program, and it’s not clear to us, based on what we can surmise from the program itself, whether [GM has] thought about these issues,” Maas told Automotive News.
Brian Sweeney, Chevrolet U.S. vice president, when asked about the broad issues raised in the California association’s letter, acknowledged that the program “probably came on the dealers a little quickly” but said the Chevrolet National Dealer Council supports it. “They understand it,” he said.
“It’s a lead source,” Sweeney said. There also was “noise” from dealers when GM’s Shop-Click-Drive online buying program started in late 2013, he added.
“It’s the unknown. They’re not used to it,” he said. “They’re used to either buying on the online auction or going through the physical auction. And now there’s another portal.”
The website is “an opportunity to really just connect the customer back to the dealer,” and “it moves some of our product quickly through the system,” Sweeney added.
Before the launch, GM tweaked the program in response to feedback from dealers. It added a reconditioning allowance. And if the vehicle qualifies for certification and the customer wants the vehicle to be certified, the dealer can put it through the certification process for a discounted fee.
Here’s how the program works.
GM’s site, factorypreownedcollection.com, offers low-mileage Chevrolet, Buick, GMC and Cadillac vehicles that have come off lease, have been retired from daily-rental operators or are from GM’s company-car program. That site links to the websites of those brands, as well as the sites of participating dealerships.
Dealers must opt in to the program.
The vehicles get an extended factory bumper-to-bumper warranty: 12 months/12,000 miles for Buick, GMC and Chevy vehicles and 2 years/20,000 miles for Cadillacs.
As of Friday, Feb. 12, the site listed nearly 41,000 vehicles in inventory. Site visitors can sort by make, model and other factors. After choosing a vehicle, a buyer selects a dealership to take delivery, through GM’s Shop-Click-Drive site.
Breaking broker laws?
The association letter said “it appears” GM and its captive finance company are violating California auto broker laws.
California code defines brokering as “an arrangement under which a dealer, for a fee or other consideration, regardless of the form or time of payment, provides or offers to provide the service of arranging, negotiating, assisting or effectuating the purchase of a new or used motor vehicle not owned by the dealer, for another or others.”
When a vehicle is sold to a consumer under the program, the dealer’s price to purchase the vehicle from GM Financial at GM’s “Buy Now Price” is higher than the price at which a dealer was able to purchase the vehicle before the program. The difference, the association said in its letter, appears to be “a fee or other consideration,” which would make GM a broker.
The letter also raises questions about GM competing unfairly with its dealers and whether the program amounts to a modification of dealers’ franchise agreements without proper notice.
The program, Maas said, “really puts dealers in a difficult position.”
You can reach Arlena Sawyers at firstname.lastname@example.org.