E-Commerce For Dealerships: Online Vehicle Sales And Digital Retail Compliance Considerations
Updated: Feb 18
The auto industry recently experienced unprecedented change in the span of a few months due to the coronavirus pandemic. The impact has been felt by OEMs, dealers, and their customers. Although online sales are commonplace for purchasing certain consumer goods, even groceries, vehicle transactions have historically not kept pace with other digitally retailed goods. Visits to dealership showrooms to consummate deals remains the norm. This is partially due to the need for original, or “wet”, signatures being required for certain documents that comprise the entire vehicle sales transaction (e.g., title, odometer, secure POA, tax forms).
With the onset of COVID-19, however, and the related shut-down orders issued by state and local governments, dealers became more inventive using the internet, their websites and social media to drive online vehicle sales. Online sales have continued to pick up traction even in the wake of stay-at-home requirements being lifted. Customers favor seamless transactions, including pricing transparency and the efficient use of their time. The area of online vehicle sales is nonetheless fraught with challenges. Additionally, companies like Tesla, Carvana and Vroom, have made a significant foray into the realm of online digital vehicle sales competing with traditional dealers and manufacturers for customers. To address some of these challenges and meet customer expectations, it is important at a minimum for dealerships that engage in online vehicle sales to develop and implement a set of best practices.
Dealerships that engage in online vehicle sales should ensure their understanding about certain aspects of the transaction, such as off-premises delivery, to avoid violating the FTC and Illinois “cooling-off” laws. Specifically, conduct that rises to the level of solicitation, negotiation and sale of the vehicle at a customer’s residence rather than at the dealership, gives rise to these laws and requires certain written and oral disclosures by the dealer and affords the buyer a 3-day right to rescind the transaction. Additionally, these laws limit the dealer’s ability to assign the contract. Depending on the circumstances, delivering the vehicle to the customer at his/her residence can trigger the customer’s 3-day rescission right and other requirements. Moreover, consummation of the transaction off-premises can also create problems for dealers under the Illinois Vehicle Code, the state’s dealer licensing law, and perhaps under the dealer’s sales and service agreement with the OEM, as well as under agreements the dealer may have with the financing entities. Finally, if the point of sale is deemed to be other than the dealership premises, sales tax questions may arise. Ensure the online sales transaction was conducted at the dealership by following certain guidelines.
First, make certain all terms of the sale are mutually agreed upon prior to vehicle delivery. There should be not be any negotiating of terms away from the dealership premises. If the customer insists on delivery of the vehicle to his/her residence, consider having dealership personnel, other than sales employees, deliver the vehicle that is sold online to the customer to avoid any “last minute” contract negotiations or the appearance of same. If the customer has a trade-in, be sure to value or appraise the trade at the time of the mutual agreement of all sale terms prior to vehicle delivery.
Second, if the vehicle is to be delivered to the customer’s residence, ensure all sales transaction instruments (that do not require an original customer signature) are completed and signed online in advance of delivery provided compliant with e-signature legal requirements. As mentioned, in Illinois, there are some documents that require an original or “wet” signature. Try to have these signed and delivered to the dealership in advance of vehicle delivery.
Other examples of best practices when conducting online vehicle sales include: (i) considering requiring the customer to sign an acknowledgment that the sale was not solicited at the customer’s residence and that the vehicle was delivered to the customer as a courtesy or at his/her request; (ii) ensuring test drives be taken at the dealership premises; (iii) delivering the finance contract to the customer in advance to satisfy Truth-in-Lending requirements; (iv) ensuring compliance with state and federal privacy laws such as Gramm Leach Bliley and Illinois data transparency and privacy laws. Also, ensure the dealership has an identity theft program in place under the Red Flags Rule to confirm a customer’s identity which applies to online sales as well. The dealership information technology vendor should be consulted to ensure e-contracting compliance and appropriate security and encryption for storage and transmission of customer personal information.
Online transactions and e-commerce open new opportunities for dealerships in the ever-changing digital retail landscape. Adhering to best practices helps to ensure compliance with numerous applicable state and federal legal requirements and facilitates satisfied customers.