The Internet is an accident waiting to happen. As online traffic grows, dealers are rushing to set up Web sites. Although dealers have been safe to far, it's only a matter of time before dealers collide with the law.
Legal experts say the typical dealer Web site violates at least one state or federal law. The consequences could be costly. The sites could become easy targets for plaintiff's lawyers if they realize dealers are not spending the same time dotting i's and crossing t's on Web sites as they are on traditional forms of advertising.
And as Internet volume grows, automotive Web sites are beginning to catch the eye of state and federal regulators. Regulators have been slow to crack down on Web sites because of the Internet's novelty. But some are getting ready to strike. Dealers must do their legal homework.
'We think the Internet has a wonderful future, as far as expanding markets,' said Bill Brauch, director of the consumer protection division for the Iowa Attorney General's Office. 'But we are not going to cede our ability to protect our citizens.'
The Internet's global nature also poses unique problems for dealers trying to comply with the law. The same goes for regulators who enforce it. With the Web, dealers become national advertisers. If they want to sell vehicles out of state, they have to comply with out-of-state laws.
In the meantime, the Internet has raised legal questions that confound experts.
Some states, for example, require a dealer's license just to display motor vehicles for sale. 'What does that mean?' asks Michael Benoit, a Crofton, Md., attorney who has online buying services as clients. 'If you show a picture of a vehicle on a Web site, are you displaying it for sale?'
More confusion rises from state laws that prohibit off-site sales. 'In many states, you can't sell away from your licensed location,' explained Keith Whann, a Dublin, Ohio, dealer attorney who used to work for the Ohio Attorney General's Office. He believes dealers who sell vehicles in states where they do not have a licensed physical location could run afoul of state licensing law.
Internet transactions also could subject dealers to state door-to-door sales laws. Consider a dealer who negotiates a sale over the Internet, delivers the vehicle to the customer's home, and asks the customer to sign the contract. In Iowa, this is considered a door-to-door sale. Under the law, the sale transpires when the paperwork is signed.
'With a door-to-door sale, the dealership must give the consumer three notices that he has the right to cancel within three days' of the transaction, said Brauch. 'If the dealer has not given the notices, the right to cancel is indefinite and the consumer can void the financing.'
Door-to-door sales violations are not the only infractions that give consumers the right to rescind the deal. Any violation of licensing or consumer protection law can give consumers the right to ask for their money back, said Whann.
Ignorance no excuse
Dealers are at risk if they overlook the differences in state laws.
'Dealers forget that what's on their Web site is an advertisement to the free world,' said Whann.
Say, for example, a dealer in Ohio wants to sell used vehicles 'as is' without a warranty. The dealer promotes the 'as is' vehicles on a Web site. But New York requires a warranty on a used car. 'The dealer couldn't sell to a guy in New York,' said Whann.
Or suppose a dealer wants to post vehicle prices online. To lure customers, the dealer promotes prices $100 over invoice. Many states prohibit any mention of invoice prices.
One common mistake dealerships make could be interpreted as a violation of laws against bait and switch - the practice of luring customers by advertising vehicles that are not available. Dealerships who neglect to update their Web sites could see their online 'inventory' grow stale. Prices and offers also could change. Consumers who find that a promoted model is unavailable could assume the dealership never had it in stock, said Whann.
Another potential 'honest' mistake involves blue laws. What if a customer surfs the Net on a Sunday and decides to negotiate a car transaction online? In a state that prohibits Sunday sales, the dealership that does business with the consumer could be violating those blue laws.
Regulators have been quick to say that ignorance is no excuse. They are becoming less patient with Internet advertisers, and they are beginning to expect Web sites to meet the same requirements as national advertisers.
Legal experts say the No. 1 mistake dealers make on the Web is failing to make the same disclosures they do in conventional advertising. Reservations, exclusions and limitations not only must be clear, but the disclosures must be near the promotional message, said Whann.
Sales pricing also is an issue. States often require businesses to make sale prices available to all their customers.
'The traditional way we have run into this is with credit union sales. Credit unions have had to offer the same sale prices to non-credit union customers,' explained Joel Aronson, a Washington, D.C., dealer attorney. 'The Internet is the electronic equivalent of this.'
To stay within the law and still offer Internet specials, dealers could offer coupons to Internet customers. 'With a coupon sale, you actually have to present the coupon to receive a discount. It is not generally available to the public,' Aronson said. 'You have to give the coupon a special code and have the customer request the Internet discount for it to be legal.'
Legal experts say it is best to work the legal bugs out of a Web site before the site is online. But if the site is already operating, dealers should review it with their attorneys and bring the site into compliance before the crackdowns start.
'We haven't started getting consumer complaints about Web sites,' said Chuck Supple, chief of dealer licensing in Wisconsin and president of the National Association of Motor Vehicle Boards and Commissions. 'But if we don't get on this while it's small, in five or 10 years, what if the Internet represents 50 percent of car sales? That means 50 percent of the population will have some protection (under consumer protection laws), and 50 percent of the population will have no protection.'
Donna Harris is an Automotive News staff reporter in Washington, D.C.