Kevin Hurst offers a gotta-have online product for auto dealerships. Or so he and his partners thought.
Instead, their fledging firm, Infinity Compliance, has stumbled in trying to draw dealers' interest in software created to help them comply with a long list of federal regulations.
Those range from Red Flag rules, intended to thwart identity theft, to anti-money-laundering legislation, which requires dealers to notify the Internal Revenue Service of customers who pay for cars with cash.
To his consternation, Hurst has learned that few dealers feel the need to follow all of those rules.
“Dealers are interested in selling cars and making money,” he tells me. “Put simply, they don't want to be bothered with government regulations or anything else that interferes with that selling activity.”
Many dealers choose not to comply with all those regulations “or are ignoring them altogether,” Hurst says. That puts them out of the market for Infinity's software that systematically goes down the regulation checklist.
“We spent $1 million on codes and thought everything was in place,” he says. “We figured we had a slam-dunk product, because law requires compliance. But we didn't anticipate the lack of interest at the level we're seeing.”
Big dealerships, especially publicly owned chains, usually obey all the rules, he says. Some franchised dealers think they are doing that, but unwittingly aren't. Still other dealers, particularly independent used-car lot owners, don't even try.
“One guy told me the federal government doesn't have the resources to catch a mouse running across his desk,” Hurst says. “Some are thumbing their noses at the laws.”
Some independent operators claim they can't afford a Web-based compliance product as yet another expense of selling cars. “I told one guy, ‘We have a pay-as-you-go plan,’” Hurst says. “‘It costs $1 a hit. You sell 40 cars a month, it only costs you 40 bucks.’ He said, ‘Not interested.’”
Hurst likens such attitudes to driving a car without insurance. It is illegal, but some people do it anyway, playing the odds and hoping nothing will happen. “It is not a particularly good way to do business,” he says.
His firm has managed to sign up 164 dealers. It has persuaded only one dealership-management system provider to integrate Infinity's software.
“Big DMS providers have their own compliance software and aren't interested in using ours,” Hurst says. “But we've talked to more than 50 smaller providers and they said, ‘If our dealer customers aren't interested in this, why should we be interested?’”
Infinity gave 160 dealers a free trial offer; only 50 used the product. When the freebie ended, just two stayed on. “The others said, ‘Why do I need this?’”
A day likely will come when full compliance with federal regulations is a given. The government could at some point speed up compliance by making an example of some offending dealerships, hitting them with big fines.
“But the mindset of many dealers is, ‘What are the odds of the Federal Trade Commission auditing my operation?’” Hurst says. “They accept the possibility that someone might get cracked, but they don't think it will be them.”
I compare this to someone fudging on their taxes, figuring the IRS won't audit them, what with the avalanche of filings each year. But Hurst sees a difference.
The chances of an IRS audit in those cases are much greater than the FTC going after a dealer for, say, failing to send risk-based pricing notices to customers who do not receive the best loan rate because of their imperfect credit scores, he says.
“With the IRS, money is due to the government. It's a big difference.”
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