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Common Issues with DMS Programming

Aaron Hartshorn /
tire repairer checking the tire integrity

In the course of performing many audits over the years, and closely examining countless deal jackets, it becomes rather apparent when the same mistake (or mistakes) is seen over and over again on sale documents. Most of the time, in my experience, these likely can be chalked up to DMS programming and printing errors. A minor mistake on one or two contracts won’t put you out on the street, but that small error spread out over nearly every deal is where things start looking grim. As you can imagine, the potential for these so-called harmless DMS programming errors can multiply exponentially. I have been able to drill down the top DMS programming errors and/or dealership oversites we have identified over the last few years. Let’s look at some of them.

Incorrect Fee Amounts Charged on New and Used Vehicles

This is by and large the biggest area of DMS programming error we have come across during our audits; the most common incorrect charges we find revolve around smog abatement, smog exemption, and California tire fees.

Smog Abatement

The DMV has been very transparent on the guidance for this charge. Generally, this charge can be added into the litany of DMV fees disclosed on line 2.B. of the 553-CA-ARB Retail Installment Sale Contract. However, many dealers choose to separately itemize such a fee on line 2.D. If your dealership chooses to do this, it must not double charge the fee online 2.B. and must have the correct abatement fee amount. Let’s look at the most detailed DMV update about smog abatement. The DMV:

  • Requires an annual $20 smog abatement fee for vehicles that are six model years old or less. 
  • Exempts vehicles eight model years old or less in a biennial smog check area from smog certification.
  • Requires an annual $25 smog abatement fee for vehicles that are seven and eight model years old. (This is a new addition to the rule as of January 2019).
  • Exempts seven model-year-old vehicles (2012 model year vehicles) that obtained a smog certificate in 2018, from paying a smog abatement fee.

Smog Exemption and Smog Certificate

A vehicle that is four model years old or less is exempt from a transfer smog, and an $8 smog exemption fee is due instead of the smog certification. However, an $8.25 smog fee is charged where the vehicle was required to be smogged before the sale. Dealers can never charge both these fees at the same time, and should not charge either of these fees on a new or an electric vehicle.

Now even though you may think that these fees are pretty straight forward, you would be surprised about how many smog abatement fees we see right above the line that shows a smog certificate fee of $8.25. You should not charge both a smog certificate fee and a smog abatement fee on the same contract.

Tire Fee

The range of incorrect tire fee charges we see can be quite interesting. Countless times I have seen new car contracts not having any tire fees listed, used car contracts listing tire fees for five new tires, six-tire heavy-duty truck contracts showing only $7.00 in tire fees, and the examples go on. Let’s review these fees a bit, and then break down the requirement, which is possibly where you are leaving money on the table.

First, let’s speak about where these charges go. The California Department of Tax and Fee Administration (CDTFA) requires that for every new tire sold, the dealer must pay the state $1.75 per tire. Now this charge may be passed onto the customer, and normally this is programmed into a dealer’s DMS system automatically for all new vehicles. Keep in mind, though, that if you are charging $8.75 on line 2.C. of the 553, this means that you are purportedly selling five (5) new tires. However, some manufactures do not equip their vehicles with a spare tire. So, if some of your vehicles fall within that arena, it may be time to reprogram your DMS software so that the charge only reflects $7.00 for these specific vehicles. 

The area where we see the most mistakes are on used car sales, and especially on demonstrators.  I have found many instances where the dealer is charging the customer fees on five new tires for a used vehicle, or similarly, not charging the customer at all even though new tires were replaced in the reconditioning of the used vehicle.  Remember, if you replace tires during recon, you are allowed to charge the consumer a tire fee for the tire you replace. Regarding brass hats, demonstrators, executive vehicles, and punched vehicles, you must self-remit the tire fees to the CDTFA for the tires on the ground (i.e., cannot pass the fee onto the customer), and may only charge the customer on the spare if the vehicle comes equipped with one. 

Incorrect Dating

We find that this occurs most during contract rewrites, and it can affect various other deal file forms. Although the intent was not to backdate the contract, I have seen many instances where a DMS system reverts back to the date of the original contract. Issues with backdating aside, many dealers in this situation have the customer fill out an Acknowledgement of Cancelled Contract form indicating the original contract was rewritten. Most standardized versions of this form will have a place for the “original contract date” and the “new contract date.” All too often, we see these dates being the same even though there are other documents in the deal that show the new contract was signed days after the original contract date.

Something so simple as this, if not fixed, can potentially lead to major headaches down the road.  Let’s not give anyone that leg to stand on.

Contract vs. Menu Finance Terms

We always recommend that your “final” menu match the terms of the contract “to a T.” However, all too often, when one program pushes to another, or to an outside menu program, terms and numbers start to go haywire. 

Remember, it is crucial that the terms are accurate on your menu, and that your program is accurately calculating the products and pricing. If there is any type of discrepancy, your F&I manager should not let that slide and should have the client initial beside any handwritten adjustment in the menu. However, this is a band-aid to the larger issue that is incorrect programing, and by not spending the time to correct the programming properly, you are creating potential documentation issues that can be ubiquitous in all your deals. Be aware that even though slight discrepancies between your terms can be just a simple DMS calculation error, they may try to be construed as things far more sinister, such as potential payment or rate packing. Term discrepancies may also point to a manual adjustment or override of the programming by an employee on the fly–generally, employees should not be overriding any DMS programming without management’s consent.

So Now What?

At this point, and with all that is going on in the world, now is a good time to check with your finance directors and make sure you do not have any programming issues.  If you find an issue for, say, a fee overcharge, you will likely need to look into providing refund checks to affected customers. Conservatively you should try to go back as far as when the programming error started. You will also need to quickly contact your DMS provider and request an immediate program adjustment.

Remember, make it a point to consult with your managers on this. Our auditors are trained to find these errors and provide additional information to your staff, and can offer additional training if need be. Proper documentation and consistency go hand in hand with transparency and compliance.  Also, if you are contemplating switching desking tools or DMS software, be sure that implementation is done correctly. As the saying goes, “Do it right or don’t do it at all.” — Catherine Bybee


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