2010-11 Dealer Defense Case Studies
Consumer class action covering over 20,000 sales of Window Etch theft deterrent at 15 dealerships alleging that sales were deceptive and misleading as part of dealer
group unlawful plan.
Analysis for defendant dealer and dealer holding company included the following elements:
- Full Disclosure of Etch. Analyzed F&I menu, Etch contract and RISC disclosure of Etch characteristics and cost and whether full disclosure of Etch was discouraged.
- F&I Sales Training. Analyzed F&I sales training for Etch and other F&I products with respect to full disclosure and accuracy.
- Profit per Retail Unit (PRU) Target. Analyzed whether the PRU target was consistent with industry custom and practice.
- Dealer Certification. Analyzed dealer group “dealer certification rating system” to demonstrate that customer satisfaction was a more important goal than F&I gross profit.
- F&I Pay Plans. Analyzed F&I pay plans, training modules, corporate F&I staff emails and other dealership and dealer group documents to demonstrate Etch sales and F&I training and profit goals were reasonable and consistent with industry standards.
- RISC Disclosure. Analyzed whether Etch disclosure conformed to Regulation Z requirements.
- Potential Damages. Demonstrated plaintiff damage model errors related to Etch price, sales tax, interest and other variables including the methodology employed for leases that would create a windfall for Etch purchasers.
- Damage Calculation. Created alternative damage model that reduced potential plaintiff damages by 43%.
Consumer allegations that consumers were misled and overcharged when leasing vehicles.
Analysis for defendant dealer and dealer holding company included the following elements:
- Lease benefits. Comparison of leasing and financing costs included an analysis of different consumer benefits and risks in leasing versus purchasing. I created an economic model to account for those differences in computing a cost comparison.
- Lease disclosures. I analyzed the vehicle lease disclosures showing the amounts agreed to be paid by consumers and the fully disclosed derivation of monthly payment amounts, to which plaintiff consumers had agreed.
- Lease vs. purchase cost comparison. Plaintiffs claimed as damages a simplified comparison of purchasing the vehicle at MSRP versus all leasing costs including purchase of the vehicle at lease end and including amortization of all vehicle equipment additions and insurance coverages. I identified ten deficiencies in plaintiff’s methodology and relying on the Federal Reserve Board’s Comprehensive Consumer Leasing Guide constructed a model that: equalized all vehicle equipment and finance and insurance products; included the cost savings on trading the vehicle at lease end based on actual wholesale auction values and industry data on dealer trade-in offers and created a net present value of the resulting payment streams. The damages per plaintiff were thereby reduced from more than $18,000 to less than $4,000 if the vehicle were retained or less than $2,300 if the vehicle were returned at lease end.
- Value of settlement offers. Comparison of the lease cost difference versus defendant’s settlement offer (i.e., return of the vehicle after 7 to 18 months and refund of all amounts paid) required a model that accounted for the value of using the new vehicle for the period until it was returned. My methodology compared the net present value of the purchase payments using the implicit interest rate plaintiff had agreed to in the lease to the net present value difference of leasing and purchasing (i.e., the damages claimed by plaintiffs), and demonstrated that the settlement offers averaged more than $10,000 per plaintiff compared to actual damages of either $4,000 if the vehicle were retained or less than $2,300 if the vehicle were returned at lease end.