FTC CARS Rule addressing vehicle advertising and other car-buying issues

[holeydonut]

Whether you’re in favor of consumer protection or against consumer laws, it’s worth getting up to speed on what is happening here since it’s likely going to affect the Hackrs.

Quick background as I understand it: coming out of the pandemic, the FTC started to field a number of consumer complaints around dealer practices. Most often the issue was around advertising and pricing, but there were also issues during the sales process with undisclosed/misrepresented fees and other profit-taking practices.

Over the last 2 years, the FTC has been honing what is now referred to as the “CARS Rule” (Combating Auto Retail Scams Rule). As a generality, NADA and folks on the sales side are against the rules that could be imposed by CARS. While consumer rights groups and buyers tend to be in favor of possible CARS benefits.

As many on LH have likely encountered, sometimes rebates are baked into an advertised sales price and negotiating front-end dealer contribution can get really messy. Or surprise fees, aftermarkets, and other things creep into a capitalized lease cost. Generally, the bottom line is “buyer beware” since no amount of legislation or rules could save every buyer from a bad contract. But is it a good or bad thing for rules to be codified?

The CARS Rule was set to go into effect on July 30, 2024 . However, on January 5, 2024, the National Automobile Dealers Association and the Texas Automobile Dealers Association (“Petitioners”) filed a Petition for Review (“PFR”) in the United States Court of Appeals for the Fifth Circuit. Based on that PFR, on January 18, 2024 the FTC indefinitely stayed implementation of these rules until that PFR is resolved.

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Some background links about the CARS Rule:

FTC CARS Rule: Combating Auto Retail Scams – A Dealers Guide

https://www.clgca.com/2024/ftc-new-cars-rule-transform-car-buying-for-california-consumers/

https://www.reuters.com/business/autos-transportation/us-lawmakers-urge-ftc-finalize-new-car-buyer-protections-2023-06-21/

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Commentary from NADA citing compliance with CARS will drive up dealer costs, which will drive up average consumer pricing.

Cosponsor the "FTC REDO Act" (H.R. 7101/S. 3014)

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Open letter from advocates of the CARS rule that believe contemporary rules need to be implemented to help make the average car purchase and pricing more transparent.

104 Organizations Support the FTC CARS Rule · Consumer Federation of America

[holeydonut]

Also, here’s a list of politicians for or against CARS. List may be incomplete or outdated. Makes it easier to possibly pick who could get your vote if you care strongly about CARS one way or another.

Senators in Favor:
Ed Markey (D-Massachusetts)
Ron Wyden (D-Oregon)
Cory Booker (D-New Jersey)
Brian Schatz (D-Hawaii)
Elizabeth Warren (D-Massachusetts)
Richard Blumenthal (D-Connecticut)
Pramila Jayapal (D-Washington)

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Senators Against:
Shelley Moore Capito (R-West Virginia)
Cynthia Lummis (R-Wyoming)
John Thune (R-South Dakota)
Todd Young (R-Indiana)
Mike Lee (R-Utah)
Dan Sullivan (R-Alaska)

[paranoidgarliclover]

I’m too lazy to the read the CAR report. Did their analysis for inc’d consumer costs seem compelling? I’m just wondering how unbiased they might (not) be, if NADA commissioned the study…

I personally am in favor of increased consumer protections, in general, and I think the NADA’s objection to “express informed consent” is basically BS. The proposed rule itself does provide some structure about what express informed consent is, and I basically think the spirit of the law is precisely to prevent the dealership from saying, “Well, the customer signed the contract, so they had to know what it said!”

[holeydonut]

I think NADA’s investigation of the CARS impact has merit to the extent you consider the impact to dealership operating costs. Then make the implicit assumption that higher variable operating costs will be spread across all of their unit sales (dealer pack) and will be passed to customers in the form of higher pricing.

If CARS is codified, an on-going standard business practice will likely require legal services to review sales/marketing collateral and professional services to carefully monitor pricing that propagates through the various auto websites. For example, very few dealerships access sites like CarGurus and CarEdge. Rather, those sites scrape the HomeNet, CarGigi, and Dealer.com data that dealerships may be updating.

One of the issues that will persist even if CARS is enacted is whether or not an advertised price reflects “commonly available rebates”. Today, military and first responder rebates are oftentimes shown in an advertised price because the rebate is available, so the dealer shows the low transaction price and feels it’s ok. If you’re a dealership worrying about CARS, you may have to ensure all public “advertising” complies with CARS and doesn’t include those rebates. That’s extra overhead for the dealer.

That means the honest dealers (hehe I know some of you will believe there are no honest dealers) that weren’t screwing over people with BS fees, deception, and mis-representations will feel like they are incurring more costs, which could mean higher dealer pack/overhead to cover with each sale.

And of course the shady dealers will lose out on some previous gravy-train-terri-bad-credit-ruining sales which means their average margin per vehicle drops. To offset this, they’ll increase average transaction price. The main reason Hackrs get their sweet-azz low payments is because some other buyer has their “worst lease ever” listed on SAL or FB Marketplace. CARS may reduce the number of worst-leases-ever.

[holeydonut]

Whoops sorry meant to put these tables from the “CAR” report commissioned by NADA. Below are the CAR study data tables. They estimate per dealer $39,862 of recurring annualized costs to comply with CARS. Plus $31,450 of up-front costs to initially conform with CARS. Spread across the 46,525 dealers in the USA, this is $14 to $17Bn of costs that need to be amortized across all the unit sales in the ten year period.

There will be about 500mm retail auto sale transactions through a traditional dealer model during those 10 years, so you’re looking at about $40 per car transacted with an end customer (ignoring DTC/wholesale/auctions/swaps, and undiscounted). NADA wants to save everyone from the $40 by allowing a few to get absolutely wrecked to the tune of thousands.

Later on, the CAR study believes that customers will encounter a slower sales process due to the extra effort to make sure communications are clear and transparent. Personally, I disagree with that entire portion of the CAR study.

[EC99]

@holeydonut

And of course the shady dealers will lose out on some previous gravy-train-terri-bad-credit-ruining sales which means their average margin per vehicle drops. To offset this, they’ll increase average transaction price. The main reason Hackrs get their sweet-azz low payments is because some other buyer has their “worst lease ever” listed on SAL or FB Marketplace. CARS may reduce the number of worst-leases-ever.

I enjoy driving my $80k car for ~$650 a month before tax. But to the extent that is only possible because of average Americans getting screwed I would be ok giving up the LH deals if the average American could go on Toyota(dot)com or even Amazon and get an instant fair price on a new Toyota Camry. Keep in mind the average American getting screwed on new cars is only possible because regulations require most new (Tesla excluded) to be sold by franchise dealers. Which brings us to the new proposed regulations.

The law would require the most basic level of consumer “protection.”. I strongly suspect most of the big automotive new car chains already comply with these proposed regulations (except maybe some Nissan dealers around the DC area who take deceptive pricing to the next level). Compliance cost for some small used car dealers might be more significant. Most of the law is just reiterating basic contract law/not commiting fraud.

I’m fine with opposing it because it’s added regulation. But it seems hypocritical to me to oppose this regulatory scheme while supporting other regulations that only serve to protect car dealers and similarly add to the cost of new vehicles.

[holeydonut]

Just dropping this in here…

LH-er had a quote from a dealer on a sales price, money factor, and residual. But we couldn’t get the math to work. Contacted the dealer and he admitted he had buried fees that were not previously disclosed or discussed.

These were confirmed to be incremental to the lease acquisition and government fees.

It’s interesting to me that the NADA is ok with this behavior and fights legislation to codify penalties for this type of stuff.