The letters sent by the Federal Trade Commission to 97 auto dealership groups appear to be just a warning, at least for now, but dealers who received them aren't treating it that way.
Driving the news: Following the FTC’s rollout of letters on March 13, one dealer, who agreed to speak with CDG News on the condition of anonymity, said their group was surprised they got one because they don’t engage in unfair pricing. The group owns multiple stores in multiple states.
What they’re saying: "...This letter was meant to scare," the source told CDG News. "I'm sure there's some out there that needed the letter. But for us, it's surprising."
This group, the source added, has layers of compliance and spends more than $1 million dollars a year on compliance staffing.
But mistakes can happen, the dealer shared.
"...They could still point at one person who worked for us for six weeks [who] gave the wrong email reply, which is documented, and you're forever in the CRM," they said.
Some context: The dealer said the group’s letter contained general wording and that it (the FTC) had reason to believe those stores were offering inaccurate pricing, creating an unlevel playing field.
Because of that, their group took immediate action.
“We’re being proactive with it,” the dealer said. “We're taking it seriously. We're adjusting everything we're doing to try to be competitive and accomplish what they're looking for.”
Not typical: A spokesperson for the National Independent Automobile Dealers Association (NIADA) said the warning letters were unusual, though this was the second he’d seen in four months.
The prior one involved 10 companies that got warning letters regarding customer reviews, though it was not auto-specific, the spokesperson said.
"The previous administration seemed like they were going more to action than giving these warning letters," the spokesperson told CDG News.
"...As we've mentioned in just about all of our communications with our dealers: state activity has picked up from the AGs (attorneys general). But this also shows that the federal government is definitely not letting down [its] guard."
Bad actors: The spokesperson said they have heard from their membership about some bad actors in the industry, but overall, most aim to comply. NIADA offers educational resources on compliance for dealers, including discussing it during webinars this April and at a convention in June.
How we got here: The FTC did not identify any of the dealership groups by name or say how they were selected.
But Tom Kline, a former dealer turned compliance consultant, said the path onto the list likely began with customers.
"Most regulatory problems start with customer complaints," Kline told CDG News. "If the dealership or the dealership group does not have a methodology or a practice or a policy to engage with customers who complain on the internet, or [complain] directly to the regulatory bodies... then it's likely that the FTC has a list of customer complaints, and that's how dealerships got on this list."
That exposure, he says, runs deeper than a dealership's own website.
"It's not only their dealership websites that the regulators are looking at. It's also the aggregator sites—the cars.com and CarGurus and all of those."
Adding to Kline’s point: Michael Wood, general manager of Land Rover of Chantilly, brought up the nuance that exists with the FTC’s concerns and existing state laws.
Wood, in a written statement to CDG News, said that most of the practices the FTC highlighted are straightforwardly wrong, though he drew a line on dealer processing fees.
"Dealer processing fees are regulated by state law, and in many states, including Virginia, those laws require the fee to be clearly disclosed and applied uniformly to every transaction," Wood said. "They do not require the fee to be included in the advertised vehicle price, and for decades the industry has operated under that framework."
He was direct about the practical reality, though, adding: "The FTC supersedes state law. Dealers need to remember this point."
Worth noting: The anonymous dealer who spoke with us wondered if the FTC may be finding another lane to operate in after the CARS Act didn’t pass.
"The CARS Act failed, and this is just reinforcing the CARS Act, saying ‘It failed, but we're still moving forward,’" the dealer said.
Warning or not: Kline acknowledged that a dealer can unknowingly have inaccurate pricing. For example, a bigger dealership group whose marketing team has a disconnect with sales may have an issue.
That’s why Kline recommends acting fast for dealers who find themselves with a letter, and suggests the following:
Audit pricing on websites and aggregator sites
Mystery shop the group’s own listings
Review unresolved customer complaints and document everything
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Because, as he sees it: "If regulators see that you are trying to comply with all the laws and rules and regulations, they are much more lenient than if you are cavalier about it."
He underlined the importance of documenting everything.
“If you can't present the documentation, then it's just as if you didn't do anything."
Costly mistake: Fines for the violations could cost thousands of dollars.
The FTC letters say the pricing issues violate Section 5 of its code, which carries a fine of $55,088 per violation, according to a press release from the agency, though it wasn’t immediately clear whether the specific issues listed in the letters would trigger that amount.
Monetary fines weren’t discussed in the letter that the dealer we spoke with received.
But our source added that the situation invokes old stereotypes about dealers that just aren’t accurate, especially these days.
“Car dealerships have evolved over years and years,” the dealer said. “...Most of us have really put a lot of effort into offering the best buying experience possible, making sure our pricing on the website is something that the customer can get and will get…”
Bottom line: Wood (with Land Rover of Chantilly) pointed out that, overall, dealers should want a level playing field and to comply with the basics outlined in the warning letters.
"Customers deserve complete transparency about what they will pay when buying a vehicle,” Wood said. “But regulators should also respect the state laws that already govern our industry, rather than redefining compliance through shifting interpretations.
“The goal should be the same on both sides."
The FTC has not yet responded to emails and calls from CDG News requesting comment for the story.
Our team also submitted a request for a list of the 97 dealerships using the FTC’s online Freedom of Information Act (FOIA) request form, but encountered error codes several times throughout the day.
CDG News has not yet received a response to an email sent asking about the FOIA request.
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