As a car dealer, you’re likely to know motors inside and out - but that’s not all there is to running a successful business. There are many pitfalls and traps out there that can impact dealers, especially around less motor-oriented aspects of running a business. Motor trade insurance
is an indispensable way to protect yourself against risk in your business. Make sure your cover is comprehensive enough to address the full range of risks you face. Insurance Choice can find cover suited to your particular circumstances.
Let’s take a look at some of the most common risks for motor traders below.
Although dealers based in England and Wales do not require a specific licence to trade (in Scotland a second hand motor vehicle dealer’s licence is required), there are many aspects of running a dealership that require authorisation or registration. These include:
- Obtaining ‘trade plates’ from DVLA to drive untaxed stock vehicles on public roads, and following the terms for their usage.
- Registration with HMRC to comply with the terms of money laundering regulations that require high value dealers to put anti-corruption measures in place.
- Consumer credit authorisation from the Financial Conduct Authority (FCA) if you offer finance packages to customers.
- If you sell any form of insurance (for example, motor warranties), this activity may be regulated by the FCA and you may require authorisation.
- Authorisation from DVLA if you carry out MOT testing. To be authorised, you will need to submit a plan of your premises and permit an inspector to visit and check your equipment.
- Petroleum storage certificate if you store your own fuel, either for sale or to refill hire vehicles.
- Environmental health permits for certain industrial processes such as paint spraying.
- Registration with DVLA as a licence number plate supplier.
- A licence permitting you to play copyrighted music from PPL PRS Ltd.
- Operator licence to use large goods vehicles such as a car transporter.
- Registration with the Information Commissioner’s Office as a data user in some situations where you keep a record of individuals’ personal details.
Where you have a licence, permit or authorisation it is very important that you understand the terms under which you may operate. In most cases, failure to comply with the terms could mean your permit or authorisation is withdrawn, risking your business’ ability to operate.
The law now requires strict controls to protect consumer data, under GDPR regulations. A recent case saw a dealer fall foul of the law
by failing to remove previous registered keepers from service history records, which was held to be a breach of the regulations.
Claims for breaches of the regulations may be more about people seeking to make a quick buck than any genuine loss resulting from a breach, but that does not mean that dealers should take the risk any less seriously.
You should understand your responsibilities for data protection and ensure that you comply with the law. Adding legal expenses protection to your motor trade insurance
policy could help you to head off any data-related claims before they become too costly and time-consuming.
Implementation of controls
It’s in the nature of smaller dealerships that you often play many roles, from business manager to sales representative, perhaps even taking a turn as a mechanic or valet when required. Switching from role to role makes it hard to ensure that all controls to manage risk are applied appropriately and completely.
For example, you might understand what the law requires of you in terms of risk assessment, data protection and authorisations that are needed for different aspects of your business, but forget to complete some tasks due to work pressure. Some dealerships choose to merge in order to achieve better efficiency with these processes, or use outside help to manage certain aspects of the business.
Even if you want to retain full control of your business yourself, you might benefit from consulting an expert from time to time in order to identify any shortcomings or find ways to boost performance.
As a dealer you will sometimes have stock worth a fortune on the road at any particular time. This is true of volume deliveries or vehicles that are particularly valuable or unique. Storage and transportation of these high-value vehicles is a risky area for your business.
An incident such as a road accident could present a real challenge to your business unless you have full motor trade insurance cover
. You should always understand the terms of your cover to ensure that you meet the requirements, otherwise a claim could potentially be refused.
Dealerships manage high volumes of electronic money transfers, often for substantial amounts. Cybercriminals know this and target dealerships in increasingly sophisticated ways.
According to expert accountants BDO,
phishing is the most common form of cybercrime targeted at motor dealerships. Fraudsters might infiltrate email systems and change the details of bank accounts, or may call the company pretending to be a senior manager requiring an instant transfer of funds.
Other scams include the use of ransomware, which makes all or part of a company’s computer systems and data inaccessible unless they pay a fee. Even big names like Honda and Kia have fallen prey to these types of scams.
Sometimes criminals are not seeking to take money from the dealership directly, but instead they want to steal customer data that can be exploited or sold on. You should ensure you have secure computer systems to help protect against cybercrime attacks.
There is a lot for thieves to take from a dealership: stock that can be either shipped out and sold on rapidly or stripped for parts; tools and machinery in the workshop; computers and other tech in the offices. Location is a key consideration for a thief. They want to know they can grab their target quickly and make a quick getaway, so dealerships with poor security or good access to motorways are ideal.
There are many ways you can improve your security and deter thieves. It is good to have a balance of measures – some that can be seen easily and others that can’t – think high quality motion sensors and CCTV. With the help of a professional, security can be fitted in a way that does not detract from customer experience or create an unwelcoming atmosphere.
There are regulations that apply to tyres sold for road use in the UK, covering issues such as wear and defects. Part-worn tyres must be marked before sale to ensure they cannot be passed off as new products. There is also a British Standard that covers tyre repairs.
If you supply tyres to customers, you are required to pass on the supplied manufacturer information about the product’s fuel efficiency, grip and rolling noise. You must also dispose of old tyres in accordance with the law, using a registered waste carrier. You can check with the Environment Agency to confirm whether a particular waste disposal agent is authorised.
Your customers are entitled to certain rights under the law. For the most part, if you are a fair and honest dealer then you will not find yourself facing an expensive claim, but you should know the law inside and out to help avoid the risk of litigation.
You must only sell vehicles that are of satisfactory quality, fit for purpose and that are as described. This is not usually a problem if you are selling new vehicles, but with used vehicles it can be tricky to establish what ‘satisfactory quality’ means - customers are not entitled to expect a perfect car.
If a customer reports a problem within 30 days of purchase, they should allow your dealership to repair or replace the vehicle. If the fault persists, you could offer a reduction in price or a refund (with a deduction for use of the vehicle).
If a fault occurs within the first six months of a customer buying a vehicle, the onus is on your dealership to show that the vehicle was of satisfactory quality, fit for purpose and as described at the time of sale.
After six months, the legal burden falls on the customer to prove the vehicle was not of satisfactory quality, fit for purpose and as described at the time of purchase.
The Trading Standards’ Business Companion website
has more information on trading laws.
As an employer, you are expected to safeguard certain rights of your employees, for example ensuring they have a safe place to work and any hazards are minimised. If you fail in your duties as an employer, you could face a claim for compensation.
A dealership has many potential risks for employees, from threats from members of the public to chemical hazards to car repairs to risks around test driving.
When you welcome members of the public to your dealership, they have a right to remain safe. However, many hazards can result in injury and harm to customers. Depending on the nature of an accident or the frailty of a customer, the cost of managing this type of claim can be substantial. Common hazards include slips, trips and falls, slippery surfaces, poor lighting and defective vehicles.
You should always carry out the required risk assessments and take steps to remove or minimize any hazards. There may be some areas of your dealership where customers are refused entry to protect their safety, for example if you have a workshop area this could be out of bounds due to the higher level of risk in this space.
Insurance shortfallsMotor trade insurance
can feel like just another box to be ticked, but it’s vitally important to understand what is or is not covered by your policy and the terms that apply. You also need to ensure that the information you submit to your insurance provider is up to date and inform them of any major changes.
For example, if you decide to branch out into a new service, you should check whether this is covered in your insurance policy or if you need to purchase additional cover. In a worst case scenario, you could end up with uninsured loss that will have to be covered by the business, potentially dragging your company under.
The COVID-19 pandemic has shown us just how vulnerable we are to external events. Even if you manage risks within your business perfectly, there is always the chance that something like an adverse weather event, a fire, a cyber attack or a well-publicised vehicle safety issue could steer your business off course.
Guaranteeing continued cash flow even in challenging conditions is important for all businesses, but for small and medium-sized enterprises it is absolutely crucial. It’s easy for one problem to snowball into a crisis, for example if a cyberattack causes customer details to be stolen, which in turn leads to negative publicity, which leads to a downturn in business, which leads to withdrawal of credit to your business.
Thankfully, insurance for a motor trade business
can step in when you’re facing tough circumstances, helping to get you back on your feet.
Dealerships often store hazardous substances such as brake fluid and engine oil that need to be kept safely and disposed of in accordance with the law. You must ensure that you and your employees are protected from any unnecessary exposure to harmful substances, for example by using goggles, dust masks and protective gloves.
As stated above, you should also ensure you comply with all environmental legislation around the disposal of waste. This includes the disposal of tyres and other car parts through an authorised collection firm.
Insurance Choice offers comprehensive, quality insurance that can be tailored to meet the individual needs of your business.
Covering motor trade insurance, premises, content and stock, goods in transit, business interruption, employer’s liability, public liability, product liability and more, Insurance Choice can help deliver the protection your business needs.
Why not get in touch to ask about our combined motor trade insurance
?Policy benefits, features and discounts offered may very between insurance schemes or cover selected and are subject to underwriting criteria. Information contained within this article is accurate at the time of publishing but may be subject to change.