NHTSA fines are expensive lesson to learn for Tennessee dealer

Publish Date: 
Mar 26, 2013
By Holly J. Wagner

CHATTANOOGA, Tenn. – A $125,000 federal fine teaches an important lesson for any dealer: pay close attention to your internal processes and documentation. So advises the owner of Southern Honda Powersports (SHP), the Tennessee dealership investigated by federal authorities for allegedly selling recalled vehicles without repairing them first. 

In a settlement with the National Highway Traffic Safety Administration (NHTSA) this month, dealer principal Tim Kelly agreed to pay a $125,000 fine over five years based on allegations that SHP sold unrepaired, recalled vehicles between 2007 and 2012. A NHTSA statement said the agency is unaware of any deaths or injuries involving the vehicles. 

The $125K fine amounts to about $380 per vehicle, much less than the $6,000 per vehicle NHTSA could have levied.

The agency found that SHP possessed or sold 895 vehicles subject to at least one of 10 recalls (see list, next page) between 2007 and 2012, and 329 were sold without the appropriate repairs. NHTSA did not allege improper assembly. The NHTSA investigation of the Tennessee dealership began in May 2012.

The $125,000 NHTSA fine amounts to about $380 per vehicle. At the time of the alleged violations, maximum civil penalties were $6,000 per vehicle sold. In determining penalties, NHTSA considers the size of the business ($30 million in annual sales is defined as a small business) and the severity of the alleged violations.

NHTSA initially asked for $800,000 in its civil penalty demand, stating, “this reduction adequately addresses the size of Southern Honda Powersports’ business while taking into account the gravity of the violation.” 

Kelly was able to negotiate a lower figure, he said, by showing that a process error at the dealership led to the improper sales, that the error had been corrected and that new processes are in place. “I went to Washington and sat down with the investigators and lawyers,” he said. “They did their own investigation and realized it was a loophole in our system.” 

The dealership did not admit any liability or culpability in the settlement. 

“We’re glad to get it behind us. The fine is a shadow of what it might have been,” Kelly told Dealernews. “The bulk of the alleged infractions were six years ago, and there is different sales management now.” A sales manager allowed unrepaired vehicles to be sold for his own benefit, Kelly said, who added that the sales manager no longer works at the dealership.  

Kelly cited a number of former practices that were sub-standard, including recordkeeping issues. He has made one major change he said he believes will prevent the same thing from happening again: “The only person in the dealership who can unlock a vehicle for sale is the service manager, who has no incentive to shortcut the process,” he explained.

Under federal law, vehicle dealers must not sell a new vehicle they know to be recalled until the defect or noncompliance has been remedied. Any dealership that receives notice of a recall from the manufacturer and sells recalled vehicles without first making the required repair are subject to civil penalties.  (continued)