Proper risk and compliance management is crucial for protecting dealerships from legal issues, as failure to do so can result in substantial financial losses, potentially costing millions of dollars. This scenario is highlighted by Thomas Kline, a leading consultant and founder of Better Vantage Point, who discussed this topic on CBT Now. Drawing from insights in his book, “Tuck The Octopus: A Better Vantage Point For Dealership Risk and Compliance,” Kline emphasizes how dealers can safeguard their businesses from the myriad risks they face daily. He likens managing these risks to attempting to tuck an octopus into bed—a challenging endeavor where risks continually surface despite the best efforts to contain them. Risk is a constant in business, but it can be meticulously managed to prevent significant losses and, when done correctly, can even offer considerable gains.
Understanding and Categorizing Risks
Thomas Kline categorizes risks into three primary types: preventable, external, and strategic. Preventable risks are those that can be controlled and identified before they negatively impact the business. These are the risks that should be proactively managed with proper policies and processes in place. For instance, ensuring all staff are adequately trained to follow specific procedures can significantly reduce preventable risks. On the other hand, external risks originate outside the business and are beyond the owner’s control. Natural disasters, political changes, and economic downturns fall into this category. Despite their unpredictable nature, dealerships can mitigate external risks by having robust contingency plans. Lastly, strategic risks are integral to entrepreneurship and involve calculated risks that can yield high rewards if successful. These risks are controllable and should be understood and managed within the broader business strategy.
Effective mitigation of these risks doesn’t just stop at identification; it requires continuous, consistent implementation and enforcement of policies, processes, and the appointment of dedicated individuals to ensure compliance. One common pitfall noted by Kline is the oversight in not appointing a specific person to ensure adherence to these policies. Without a designated individual monitoring compliance, the business is left vulnerable to preventable risks. Furthermore, Kline highlights the importance of F&I (Finance and Insurance) managers using detailed menus to document products that customers accept or decline. This practice creates a crucial paper trail that protects the dealership in instances where there might be allegations of deception or fraud. Recording this information comprehensively in multiple documents, such as the sales contract and a separate product enrollment form, is recommended to solidify this protective measure.
Critical Role of Compliance in Dealerships
Another major concern is “astroturfing,” where businesses pay for fake positive reviews to mislead public perception. Kline warns dealerships to avoid this at all costs as it harms the business’s integrity. Ethics in customer relations should be key; being transparent and trustworthy offers long-term benefits far greater than any short-term gains from manipulation. Dealerships should focus on building genuine customer relationships and encouraging authentic feedback to foster a reliable reputation.
In addition, Kline advises dealerships to regularly consult their insurance professionals to fully understand their policies, including knowing exclusions and coverage limits in detail. Aligning insurance coverage with the dealership’s total worth is crucial. Failing to do so might lead to significant out-of-pocket expenses if a claim exceeds policy limits, adding financial strain. A dealership well-versed in its insurance policies is better prepared for unexpected financial challenges arising from claims.
By staying vigilant and proactive in managing risks and compliance, dealerships can protect their financial stability and reputation. Establishing robust policies and ensuring they are followed consistently is crucial. Appointing dedicated individuals to maintain these standards is another key strategy. Understanding their insurance coverage thoroughly helps mitigate potential risks, enabling dealers to handle legal issues more effectively and ultimately improve the business’s overall health and longevity.
