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OEM Compliance & Dealer Advertising Infractions

An infraction in the automotive retail industry refers to a violation of Original Equipment Manufacturer (OEM) guidelines, most commonly in dealer advertising to maintain brand integrity and co-op program compliance.

An infraction occurs when a dealer utilizes advertising materials, across print, digital, and broadcast media, that do not adhere to the OEM's specific guidelines. These guidelines are set for two main reasons:

  1. Brand Uniformity: Ensuring the brand is represented consistently across all markets.

  2. Co-Op Reimbursement: Making sure advertising expenses are eligible for partial funding (co-op funds) from the OEM.

OEMs typically categorize infractions by severity:

  • Minor Infraction: Generally relates to branding elements, such as using outdated logos, incorrect font usage, improper color schemes, or minor layout errors. These are usually resolved by correcting the ad before it runs or is submitted for co-op reimbursement.

  • Major Infraction: Relates to substantive issues like misleading pricing, failure to include mandatory disclosures (e.g., APR, down payment, lease terms as required by federal regulations like the Truth in Lending Act), or using unauthorized "distressed language" (e.g., "liquidation sale," "below invoice").2 These violations carry a higher risk of consumer harm and regulatory action

Dealers are formally notified to correct the infraction.

Consequences and Penalties for Infractions

Dealers that are repeatedly found non-compliant, particularly for Major Infractions, are subject to escalating penalties from the OEM.

Severity Level Typical Action by OEM Potential Financial Impact
First Infraction Warning or a request to correct the ad immediately. Ad is usually ineligible for co-op reimbursement (loss of co-op funds for that specific ad).
Repeated/Major Infraction Escalating Penalty Systems (e.g., a "three-strike system" used by some OEMs). * Suspension of Co-Op Funds: Loss of the ability to accrue or claim co-op reimbursement for a defined period (e.g., a month or quarter).
Severe/Egregious Infraction Mandatory compliance training, heightened monitoring, or, in extreme cases, Franchise Termination (due to a breakdown in the dealer agreement). * Regulatory Fines: The dealer is also exposed to civil penalties from federal agencies (like the FTC, which can fine up to tens of thousands of dollars per violation) and state regulatory boards for deceptive advertising.

Note: The penalties listed above are specific to the OEM-dealer relationship and co-op program. They are in addition to any legal penalties a dealer may face from government regulatory bodies for deceptive or unfair advertising practices.

What is a Compliance Agency?

A compliance agency is an independent, third-party organization hired by the OEM to manage and enforce its advertising standards.

  • Core Role: To monitor and review dealer advertisements across all media platforms (digital, print, broadcast, social media) to ensure they meet the OEM’s branding, legal, and co-op guidelines.

  • Process: Dealers or their advertising agencies typically submit proposed ads to the compliance agency for pre-approval. The agency reviews the creative content against a strict checklist of OEM requirements.

  • Notification: If the ad is non-compliant, the agency issues an infraction notice, detailing the specific violation(s) that need to be corrected before the ad can run and be eligible for co-op reimbursement.

  • Focus: While the agency works within the structure of the Co-Op Program (as compliance is a prerequisite for funding), its primary function is enforcement and verification of the rules, rather than managing the co-op funds themselves.