Will car buying change for good?

Hey, everyone. I asked my X/Twitter audience their favorite website for car shopping, and the results were really interesting. I’m curious to hear the newsletter crew’s POV on the best online car shopping platform. Hit reply and tell me which is your favorite + why. I’ll share the results in a future newsletter.

—CDG

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Today’s Biggest News

The FTC’s New Rules: Will the Sh*t Hit the Fan?

Last month, the Federal Trade Commission announced the Combating Auto Retail Scams Rule, aka the CARS Rule. The goal? To stop bad actor auto dealers from using any hidden fees or so-called “bait-and-switch” pricing tactics.

The CARS Rule, which goes into effect July 30, 2024, could fundamentally change the way a lot of dealers do business—it’s setting forth new consumer-minded guardrails on advertising, marketing, and selling vehicles to drivers. But it’s gained some significant criticism from powerful groups in the industry. So…let’s unpack what it means for dealers and shoppers—and where we go from here.

What is the CARS Rule? The set of regulations span about 12 pages…with about 360 pages of comments. Translation: Things are complicated. But the main focus is to take on 1) bait-and-switch tactics and 2) what the FTC considers “junk fees.”

The FTC plans to eradicate those two things with following general rules and guidelines:

1. Prohibiting misrepresentations about material information that would affect a consumer’s buying or leasing choices (like pricing, financing, or add-ons).

2. Requiring dealers to clearly disclose the offering price (aka the actual price anyone can pay to get the car, excluding only required government charges). This means giving buyers the effective drive-off-the-lot price upfront.

3. Making it illegal for dealers to charge consumers for add-ons that don’t provide a clear benefit—we’re talking duplicative warranties, software subscriptions for cars that can’t support them, or service contracts for oil changes on electric vehicles, for example.

4. Requiring dealers to get consumers’ “express, informed consent” before charging them for anything. Dealers will have to be clear in stating that additional items (like extended warranties) aren’t mandatory.

The CARS Rule also takes special care to prohibit dealers from trying to “trick” 1) the elderly and 2) members of the military, two groups bad actor dealers have often targeted (Did you know: By the age of 24, around 20% of young servicemembers have at least $20,000 in auto debt).

Worth noting: These are the contours of the CARS Rule. If you want to get more into the nitty gritty details, read this.

So why drop the CARS Rule now? The practices the FTC is targeting aren’t new by any means, but they became more widespread during the pandemic when we were deep in a “seller’s market.”

But as dealer groups have pointed out since the FTC announced the CARS Rule…these new regulations might not just rein in dealers engaging in shady sales practices. They might also hamstring the entire industry.

The pushback:

• The National Automobile Dealers Association (NADA) and Texas Automobile Dealers Association are going to court in an attempt to block the new rules that they say are “arbitrary, capricious, [and] an abuse of discretion.”

• FYI: Before the FTC passed the CARS Rule, NADA said the then-proposed regulations would “upend the sales process for tens of millions of consumers annually and thousands of small businesses.”

So where do we go from here? There are a couple of perspectives I think are worth considering.

On one hand: Predatory and misleading fees and tactics cost US shoppers $3.4 billion a year and add 72 million hours to their time spent shopping for vehicles, according to the FTC.

The CARS Rule is designed to protect consumers from those losses…but also to protect honest dealers who lose business to competitors willing to deceive or mislead buyers.

• This is extremely important: Dealers who operate with high integrity and good standards will likely benefit from this type of rule.

• “You can still make money while being completely transparent and keep the customer comfortable the whole way through. It's dealerships with lack of skill in the finance box and on the floor that will be hurt by these rules,” as one commenter posted on Reddit.

After all, it’s expensive to skirt the rules—last month, the Consumer Financial Protection Bureau ordered Toyota’s credit division to pay $60 million in fines and consumer refunds over “deceptive behavior.”

But on the other hand: Some have suggested the CARS Rule lacks clarity. NADA President and CEO Mike Stanton called the rule “heavy-handed bureaucratic overreach and redundancy at its worst, that will needlessly lengthen the car sales process by forcing new layers of disclosures and complexity into the transaction.”

Plus, the CARS Rule could impact classified marketplaces significantly. They’ll likely have to…

• React to the ways pricing communication changes to stay compliant with the new rules.

• Help dealers disclose the offering price, MSRP, discounts or markups, etc., in addition to abiding by manufacturers’ rules.

For example: The rules prohibit misrepresentation of “the availability of any rebates or discounts by factoring into the advertised price those that are not widely available to all consumers” and “the availability of vehicles at an advertised price.”

That creates a question for classified marketplaces: How can they stay compliant? Rebates and incentives (and their applicability rules) are complicated. Vehicle availability can change in a heartbeat, and there's virtually no way to have the real-time inventory information.

So will sh*t actually change for dealers or car shoppers?

At face value, it seems like things will change (for better or worse) but as we all know, the devil’s in the details... And the details surrounding execution are still unclear.

I’ll be sure to keep you posted on how this plays out leading up to July, when the new rules are expected to go into effect.

This Week’s Episodes of the CDG Podcast

It’s a controversial corner of the auto industry: buy here pay here dealerships. But there’s more to these businesses than meets the eye…there usually is when a business is staring down 40% loan default rates. That’s why my conversation with Tiger Oakley, President at Oak Motors, is so interesting. We covered everything from his crazier customer horror stories to the risk calculus that keeps his business going. Trust me, you’ll learn a ton from this episode.

Listen to the episode here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts. And thank you to AutoFi and CDK Global for making this episode possible.

Together with Cars Commerce

You know your store’s reputation is essential to the health of your business—but do you know how to diagnose it? ⭐️🩺

With so many reviews to read through, it's not easy to identify which specific aspects of your experience are resonating well (and not so well) with your customers.

Dealers: Check out your Cars Commerce Experience Report. 📊👀

This free report measures and tracks customer sentiment for each aspect of your experience—from lead follow-up to financing—and helps you benchmark those perceptions against your local market and OEM averages. 

Improve your experience. Build your reputation. Promote what makes you different. It all starts with using data to diagnose where you are today.

Get your Experience Report.

In Other News

Used vehicle prices are on track to normalize in 2024. Cox Automotive said it expects wholesale prices on its Manheim Used Vehicle Value Index (which tracks prices of used vehicles sold at its U.S. wholesale auctions) to finish this year up only 0.5% higher than in December 2023. FYI, used car prices fell 7% in 2023 and nearly 15% in 2022…but used vehicle prices are still higher than they were before the pandemic.

Here’s what I’m watching at CES, one of the biggest consumer electronics events of the year and a growing source of auto tech news: Vietnamese startup VinFast debuted its concept for a mid-size electric pickup called the VF Wild. Honda unveiled the latest EVs from its futuristic Honda Zero Series, set to hit the roads in 2026. BMW is putting Amazon Alexa voice assistants in some models this year. Magna launches e-drive and anti-drunk-driving tech.

The Backlot

• These are the top-selling cars of 2023.

• With its China sales dropping in 2023, GM now calls the US its biggest market yet again.

• This is interesting: EV customers appear to leave more one-star reviews following buying experiences.

• Sorry, Japan. China is now the world’s top auto exporter.

• Tesla has lowered driving range estimates across its lineup in accordance with a new US regulation.

Thanks for reading. Have a good one and we’ll see you back here next Thursday.

—Car Dealership Guy

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