In auto retail, selling cars out of trust is an old story. A dealership sells a vehicle but doesn't report the sale right away or pay off the corresponding floorplan debt immediately, as required.
Often, the money is diverted to other purposes, which could include improperly using it to pay off older floorplan debt.
The practice is a form of bank fraud. But it's becoming less common than it used to be, some industry experts say. That's in part a function of tighter controls at dealerships and lenders and faster communication in the age of the Internet. When it could take days for a lender to learn of a sale, even via express mail or shipping, there were more opportunities to fudge exactly when a car was sold without the lender getting suspicious.
Also reining in out-of-trust sales is that dealerships tend to do it only when they're in dire financial straits, a situation less likely today, amid robust industry sales, than it would have been, say, during the Great Recession.
"I believe this type of fraud is almost unheard of, more so today than in the past," said Gil Van Over, president of consulting firm gvo3 & Associates in Crown Point, Ind.