This post was created with the help of Tom Kline, a risk mitigation expert and compliance consultant. Tom is a third generation “car guy” and former dealership owner with more than thirty years of experience. Outside of interviews and speaking events, he also shares his expertise in his recent book, Tuck The Octopus: A Better Vantage Point For Dealership Risk And Compliance.
Auto fraud is evolving faster than ever, with scammers employing increasingly sophisticated tactics. With the recent advancements we’ve seen across AI and fraud-as-a-service (FAAS), it’s not hard to believe that even greater risks lie ahead in 2025.
That’s why instituting the proper safeguards should be a priority for dealers and lenders going into next year. Here’s what you need to know about safeguarding your bottom line, according to risk mitigation and compliance expert Tom Kline.
1. Implement Rigorous Verification Tech
In an era where fraudsters are armed with generative AI and sophisticated forgery tools, manual document checks are no longer cutting it. Forward-thinking dealerships are managing risk by deploying verification technology early in the sales process to catch potential fraud before the deal closes.
For instance, a robust tech stack combines ID authentication systems for detecting identity fraud, vehicle history platforms for cross-referencing information, and real-time insurance verification tools for validating coverage. This proactive approach not only helps prevent fraud but also streamlines the sales process for legitimate customers.
2. Keep an Eye Out for Red Flags
While verification systems catch most fraud attempts, sophisticated criminals can sometimes slip through automated checks. That’s when human intuition becomes your last line of defense.
Pay close attention to discrepancies between buyer information and vehicle records throughout the purchase process. Don’t hesitate to question anything that seems unusual. Legitimate buyers will typically have simple explanations for inconsistencies, whether it’s a typo in their documentation or a unique circumstance in their history.
Tom Kline warns of a particularly telling red flag that often appears at the final stage of a sale. “They’ll call up and they say, ‘Hey, I know I was going to come in today and buy the car. I’d really like you to meet me in front of this office building, which is where I work, and we’ll take delivery there.'”
This request for off-site delivery, he explains, often signals fraudulent intent. “A bad guy doesn’t want to come in if you have cameras and take delivery at your dealership.”
Kline also cautions dealers about buyers who seem suspiciously agreeable. “If they don’t negotiate on the price and they just say, ‘Yeah, I’ll take the car, I want all the products you offer, I want to fully protect my new investment,’ and they don’t argue about the price– that’s another red flag.” In the auto sales business, when a deal seems too good to be true, it usually is.
3. Train Staff to Recognize All Types of Fraud
When it comes to fraud prevention, you’re only as strong as your weakest point. Your training program should equip team members with a thorough understanding of fraud risks in the auto industry, from common red flags to security protocols.
In this process, it’s important to give your team a full picture of the fraud landscape. Since synthetic fraud has seen a major surge in the past couple of years, it’s dominated many conversations. However, it’s far from the only threat in the industry.
According to TransUnion data, synthetic fraud and credit washing make up 29% of fraud cases. By comparison, income and employment fraud is most common, at 45% of cases. True name identity theft still makes up a significant portion of crime at 14%.
Hyper-focusing on just one or two types of schemes can leave dangerous blind spots in your risk mitigation system. By training your staff to recognize and respond to all types of fraud, you create multiple layers of protection throughout the sales process.
4. Track Incidents and Attempts
Learning from past mistakes is one of the most effective ways to improve your business. Yet surprisingly, more than a quarter of auto lenders report they have no system in place to track fraud losses.
Maintaining comprehensive records of fraud attempts and incidents can help you:
- Quantify the financial impact of fraud on your business
- Identify seasonal or cyclical patterns in criminal activity
- Measure the effectiveness of your prevention strategies
- Make data-driven decisions about security investments
- Target staff training to address specific vulnerabilities
Without this data, it can be difficult to take the action you need to prevent further incidents.
5. Don’t Over-Rely on Commercial Insurance
Getting insurance for your business is a valuable step in mitigating unexpected losses. At the same time, that doesn’t mean that you should count on your policy to make up for lax security practices.
According to Kline, this is a common type of thinking that can lead to unnecessary headaches. “Some dealers are more laissez-faire than others because they feel like their insurance policy will pay in the case of fraud,” he says.
Kline has seen how this mentality can go wrong. “If the dealer doesn’t know what’s actually in the insurance policy, he can get himself into trouble,” he says. “Oftentimes, you’ll have to do a police report showing where you were defrauded. And sometimes there is no fraud involved– that’s not necessarily a claim that an insurance company is going to pay on.”
6. Upgrade Your Data Security
When you think of auto fraud, you might picture a fraudster driving off your lot with an illegally obtained vehicle. But in today’s digital age, criminals are just as interested in driving off with something else: Your customer data.
For modern executives, cybersecurity has become a critical priority. The stakes are higher than ever, as dealerships have become prime targets for cybercriminals seeking valuable personal information.
Tom Kline, who has witnessed these risks firsthand, puts it bluntly. “Dealerships are a treasure trove of personal information or PII,” he explains. “So protecting the assets under your DMS and your CRM certainly should be high on the list of concerns for dealers.”
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