FTC Again Targets Dealer Advertising and Pricing

On March 13th, the Federal Trade Commission (“FTC”) sent a warning letter to 97 different auto groups, stating that advertised prices must represent the total price, including all mandatory fees, that consumers will be required to pay for a vehicle purchase. The FTC’s Director of the Bureau of Consumer Protection said “The Trump-Vance FTC is committed to preventing auto dealers from misleading consumers with low advertised prices and then adding on mandatory fees at the end of the purchasing process. The FTC will remain focused on monitoring auto dealerships to ensure that the market functions efficiently and competitors are transparently competing on price.”

Some Take-aways
After reading the FTC’s press release as well as the sample warning letter it published, the first thing that occurred to me is that the death of federal regulation has been greatly exaggerated. For the better part of a year, consumer advocates have been blasting the Trump Administration for its agenda of federal deregulation. The aggressiveness of the FTC’s tone in this letter took me by surprise. With this action, and the letter’s reference to its past actions against Lindsay Chevrolet, Leader Auto Group, and Asbury Auto Group, the FTC has made it clear that it is and will continue to be deeply invested in this issue.

I believe this action also makes it very clear that the theme set forth in Vehicle Shopping Rule is not dead. The Rule itself may have been stricken by the courts and not gone into effect due to procedural grounds, but clearly the foundational belief in the “offering price” and price transparency remains alive and well. All along, the FTC has taken the position that the Vehicle Shopping Rule was a codification of existing law and not new law, and this action, and the warning letter’s reliance on the FTC Act, bears this out.

My phone started ringing as soon as this announcement was made. The most frequently asked question was whether this action only applied to new car dealers, since some of the content seems directed at new car dealers and the announcement referenced “dealer groups”. In my mind, there is no separation between new and used car stores. The FTC Act applies to both. The proposed Vehicle Shopping Rule applied to both, so there’s no reason to expect any sort of leniency on the used car side of things.

What Constitutes Illegal Pricing?
The FTC sample letter specifically referenced the following activities:

• advertising a price that does not reflect all required fees
• advertising a price that reflects rebates or discounts not available to all consumers
• advertising a price that fails to take into account the amount of an additional required down payment
• conditioning the advertised price on consumers using dealer financing
• requiring consumers to buy additional items not reflected in the advertised price, and
• advertising unavailable or nonexistent vehicles

I know there are lots of variables when it comes to advertising, and I’ve certainly heard from many dealers looking to distinguish their advertising from the practices specifically referenced in the letters, but the bottom line is that a dealer’s pricing had better be transparent and reflect the actual cost. I believe at the end of the day the FTC will view all advertising through the prism of “transparency” and the facts of any specific sale when compared to the dealer’s advertising will be the determining factor in that regard.

What’s a Well-Intentioned Dealer to Do?
If I had to sum it up in a nutshell, I’d say be proactive and don’t wait for bad news to find you. Don’t assume your advertising or marketing provider is going to do all of the work for you. Remember, it’s very easy for state and federal regulators to review dealer advertising. They don’t even have to leave the office, and even one complaint can lead to scrutiny.

Seek out qualified experts and put your advertising to the test. Be sure to audit existing advertising to confirm that the advertised price reflects all mandatory fees and charges, excluding required government fees. Review pricing promotions to make sure that any eligibility conditions or restrictions are clearly and conspicuously disclosed. Review addon products to make sure no mandatory products are being excluded from the price. Challenge yourselves by looking at the documentation for a few recently originated deals and compare the final pricing to the pricing set forth in any ads or on your website.

Finally, update relevant policies as needed. This would certainly include advertising, marketing and pricing policies, but it may also include policies about promotional sales as well as F&I and ancillary product policies. Last, but certainly not least, be sure to educate and train your staff on this latest development and make sure they are aware of the potentially devastating penalties for non-compliance.