Nissan says its factory audits will ‘ramp up'

Nissan will step up factory audits of its dealerships next year as the company attempts to bring itself more in line with peers in the industry.

Nissan declined to specify the level of auditing it wants to reach. A retailer who was briefed by the automaker told Automotive News last week that Nissan aims to audit about 10 percent of its retail network, compared with its audit level of about 2 to 3 percent in previous years.

Nissan North America spokesman Travis Parman confirmed that Nissan will "modestly ramp up" audits in fiscal 2021, which starts April 1.

"As a part of reviewing its governance standards, Nissan North America discovered its warranty claims auditing was below the industry average," Parman said, declining to disclose that average.

Nissan is conducting fewer audits in fiscal 2020 than it did in the previous fiscal year, Parman said, declining to specify by how much. The automaker suspended audits during the COVID-19 business disruptions and restarted them in August.

"We are slowly ramping those back up," Parman said. "Based on our benchmarking, we audit less than just about every other OEM."

Dealer audits are a standard procedure in auto retailing, ensuring that a dealership did not mistakenly receive warranty reimbursements from the factory for servicework that should not have been covered.

But Nissan's campaign is stirring up dealer discord.

U.S. dealers say the pace of factory inspections already has picked up. Several dealers interviewed by Automotive News say they have been stung by demands from the manufacturer that they repay amounts ranging from $40,000 to $140,000.

Nissan's National Dealer Advisory Board has received complaints from frustrated members, who say the audits are not triggered by suspicious sales or warranty claim activity.

One Southeastern dealer said 12 of the 13 Nissan stores in his immediate market have been audited since August.

The timing has made some retailers suspicious.

The clawback unfolds as parent company Nissan Motor Co. of Yokohama, Japan, is in financial turmoil. The company has forecast an operating loss of $4.5 billion for the fiscal year, ending March 31, 2021. Nissan executives are scrambling to find ways to tighten up company finances.

"Nissan has lost more money than they've ever lost in 20 years," said one dealer who said he was recently charged back about $60,000 in warranty claims. "It's an easy way for them to get cash."

Some of the dealers, who spoke with Automotive News on condition that they not be identified, said the new audits are tending toward nitpicking, calling for repayment for infractions such as incomplete paperwork.

"They certainly don't seem to be accommodating with a reasonable man's approach to doing a warranty audit at a dealership," said one retailer, who is facing a $40,000 chargeback. "Typically, warranty audits are looking for fraud. They're not looking for 'Did you time-punch everything to perfection?'?"

Another dealer faced $30,000 in chargebacks because a warranty ticket wasn't signed by the service manager. "But the service manager created the RO [repair order], his name's on top of the RO," the dealer said.

Nissan says the audits are meant to ensure dealerships comply with the factory's processes. The automaker has also stepped up dealership employee education to increase awareness about common infractions, Parman noted.

"Auditors are not looking for administrative or clerical errors," he said. "They are not looking to nickel-and-dime anybody. They are looking for significant policy issues that are often state statutes and safety-related."

Dealership audits by manufacturers also serve a larger purpose. The investigations can alert dealers to rogue employees committing fraud or help retailers address errors in their claim submission process.

But audits also can become a "revenue center" for automakers, said dealer attorney Richard Sox, managing partner at Bass Sox Mercer of Tallahassee, Fla.

"It's a tremendous transfer of wealth from dealers to the manufacturer," Sox said. "Auditors have admitted their instructions are to make sure they pay for themselves in regards to their findings. So they have to dig things up."

Nissan's recent audits are not triggered by unusual warranty claims activity or evidence of fraud, dealers said. While they agreed that audits are justified for dealers with a history of fraud or customer complaints, Nissan's approach penalizes the honest ones, they said.

"Nissan should be able to figure out who's cheating the system," a dealer said. "The thing I don't like is being tossed in jail with those guys."

Nissan's process for auditing dealerships is both "risk-based" and random, Parman said.

"Sometimes, we get tips on our ethics hotline from dealer employees. It could also be that we see numbers that don't quite add up," he said. "You also want to have some [audits] being random, just in case somebody has figured out how to elude the algorithm."

According to one dealer, "I've been a Nissan dealer for nearly a decade, and this is my first service audit. They hit me for $80,000 in chargebacks. I'm going to fight it."