Purchasing a vehicle from a licensed automotive dealership comes with a set of expectations — a clear title, all necessary documents, and a legally transferable vehicle. However, when a dealership goes out of business, clients may find themselves facing unforeseen consequences and risks. In this blog post, we’ll explore what it means for consumers when a dealership closes its doors and the potential challenges they might encounter.
The Transfer Problem: Risks and Consequences
- Title Transfer Limbo:
- When a dealership files for bankruptcy, the last few cars sold could face title transfer issues.
- The risk arises if the dealership, just before going bankrupt, fails to pay off the cars they sold, leaving buyers in a precarious ownership situation.
- Floor Plan Financing:
- Dealerships often use floor plan financing or a line of credit to manage their vehicle inventory.
- If a dealership goes bankrupt before paying off the cars on their lot, buyers may experience title problems, as the dealership doesn’t legally own the vehicles.
Specific Cases of Concern: Shift and Others
- Shift’s Bankruptcy Filing:
- Recent bankruptcy filings by large online retailers like Shift have raised concerns about the potential fallout for recent vehicle buyers.
- Similar situations have occurred with other dealerships, emphasizing the need for awareness among consumers.
- Loan Payoff Challenges:
- Buyers who traded in a vehicle with an outstanding loan may face challenges if the dealership, as part of the deal, was supposed to pay off the existing loan.
- If the dealership goes out of business without settling the loan, buyers might be left with payments on both the old and new cars.
Mitigating Risks: Tips for Consumers
- Title Verification Before Purchase:
- When buying a car, especially a used one, request to see the title before finalizing the deal.
- Although the title transfer occurs during the purchase, verifying that the dealership has possession of the title can prevent future complications.
- Stay Proactive:
- In the event of a dealership closure, consumers should immediately inquire about the status of their title.
- Contacting the DMV or visiting in person can provide clarity on whether the title has been applied for and is in process.
- Lean Releases and Consultations:
- Understanding lean releases is crucial. More information can be found on our website, and consumers can seek consultations with certified title agents for personalized advice.
The Growing Problem and Future Outlook:
- Widespread Industry Challenges:
- Dealerships facing closure, bankruptcy, or going out of business before completing title transfers are becoming more common.
- As economic shifts and industry dynamics evolve, the risk of such situations is expected to increase.
- Preparation for the Future:
- With the anticipation of more dealership closures in the coming years, consumers are urged to stay vigilant and proactive to protect their interests in vehicle transactions.
In conclusion, the risks associated with dealership closures highlight the need for consumers to be vigilant in their vehicle purchases. Verifying title ownership, staying informed about the financial health of the dealership, and taking proactive steps can help mitigate potential challenges. As the automotive industry continues to evolve, staying informed and cautious is key to navigating the changing landscape of vehicle transactions.