The U.S. Federal Trade Commission (FTC) announced a groundbreaking rule on Tuesday that aims to reshape the vehicle purchasing landscape by curbing deceptive practices among auto dealers. The rule, which comes into effect following its finalization in 2022, seeks to protect consumers from misleading promises and eliminate unjust fees.
Upfront pricing mandate and ban on add-on services
The FTC’s new rule brings forth two pivotal changes that could have far-reaching effects on how millions of Americans buy vehicles annually. Firstly, auto dealers will now be required to provide upfront pricing in their advertising and sales discussions, ensuring transparency and preventing unexpected costs for consumers.
Secondly, the rule explicitly prohibits the sale of add-on products or services that offer no tangible benefits to consumers. This includes the elimination of unjust fees, such as service contracts for oil changes for electric vehicles, preventing dealers from luring buyers with promises they cannot fulfill.
FTC’s concerns and consumer advocacy
The FTC expressed concerns about certain dealers allegedly targeting young individuals, particularly those in the military. The agency stated that by the age of 24, around 20% of young servicemembers have at least $20,000 in auto debt. The rule, as stated by the agency, aims to prevent dealers from providing false information about crucial cost and financing details, particularly to servicemembers.
Consumer Reports welcomed the FTC’s proposal, highlighting that it would act as a deterrent against “shady tactics” employed by car dealers that inflate the overall cost of new vehicles.
Consumer protection and increased transparency
Sam Levine, Director of the FTC’s Bureau of Consumer Protection, emphasized that consumers often initiate the car-shopping process by comparing prices. However, upon reaching the dealership, discrepancies between the advertised price and the actual cost of purchasing the vehicle become apparent. The new rule seeks to bridge this gap and streamline the buying process for consumers.
Industry response and criticisms
The National Automobile Dealers Association (NADA) strongly criticized the rule, labeling it as “heavy-handed bureaucratic overreach” that could unnecessarily prolong the car sales process. NADA President and CEO Mike Stanton expressed discontent with what he termed as additional layers of complexity and disclosures.
Carvana’s Chief Brand Officer, Ryan Keeton, voiced support for increased transparency across the industry, affirming Carvana’s commitment to helping consumers make informed decisions. However, other major auto dealers, including AutoNation, Penske, Lithia Motors, CarMax, Group 1 Automotive, and Sonic Automotive, offered no immediate comments on the rule.
Specific provisions of the rule
The rule specifically addresses misrepresentations regarding the price, cost, and total cost of the vehicle. Dealers must obtain consent for any additional charges they impose on a vehicle’s price. Importantly, the rule prohibits dealers from charging for add-ons that offer no practical benefit to the buyer, such as selling nitrogen-filled tires with no substantial difference from normal air.
Industry concerns and warnings
The Alliance for Automotive Innovation, representing major automakers like General Motors, Toyota Motor, and Volkswagen, raised concerns about the FTC’s plan. The industry group warned against “excessive regulation and micromanagement of the sales experience,” indicating apprehensions about potential impacts on the sales process.
The FTC’s new rule marks a significant step towards ensuring greater fairness and transparency in the auto sales industry, aiming to empower consumers and protect them from deceptive practices. The industry’s response remains varied, with consumer advocates praising the move while some industry stakeholders express reservations about the potential consequences of increased regulation.