More dealers are requiring customers to accept third-party arbitration of disputes as an alternative to consumer lawsuits.
Arbitration typically is quicker and costs less than taking consumer disputes to court. Industry lawyers say dealers can slash legal exposure by including mandatory arbitration provisions in sales orders, provided such clauses can withstand legal scrutiny.
But plaintiffs' lawyers and consumer advocates say the clauses often are deceptive and unfair to customers. They accuse dealers of hypocrisy, noting that dealers successfully lobbied Congress to prohibit automakers from using franchise agreements that stipulated mandatory arbitration.
Both sides agree that dealers' reliance on arbitration is growing rapidly, although precise figures are not available.
A buyer's refusal to sign a mandatory arbitration agreement and give up his or her right to sue generally kills the deal. Advocates of arbitration say that rarely happens. Critics counter that consumers often don't know they've agreed to arbitration.
Cherry Hill, N.J., dealer Tom Hessert Jr. was a defendant in two recent consumer class-action lawsuits. To avoid further litigation, he says, "We have arbitration clauses in all the buyer's orders."
The typical consumer arbitration case takes about five months, says Richard Naimark, senior vice president of the American Arbitration Association, a nonprofit organization in New York that administers arbitration proceedings.
Most automotive arbitration cases involve customer claims that the vehicle is a lemon, Naimark says.
Many cases are settled before the arbitrator makes a decision. A consumer's chances of winning an arbitration proceeding are about the same as they are in court: slightly more than 50 percent, Naimark says.