05/01/2024
Driving Compliance: The FTC CARS Rule, and the Road to Honesty and Transparency
Nick Askew, Space Auto – Chief Executive Officer
Introduction: Why Compliance Matters in Modern Car Dealerships
In today’s hyper-competitive automotive market, car dealerships are not just selling cars; they’re selling trust and transparency. With the Federal Trade Commission (FTC) setting new benchmarks through the Combating Auto Retail Scams Rule (CARS Rule), the focus on honest marketing, clear pricing, and value-driven sales of finance and insurance (F&I) products has never been more critical. But how can car dealerships navigate these choppy regulatory waters without capsizing their sales strategies?
Ensuring Honest Online Vehicle Marketing
The Problem: Overpromising and Under-Delivering
Many dealerships struggle with the balance between attractive marketing and honest representation. Misleading ads can lead to heavy penalties and a tarnished reputation.
The Solution: Adhere to the CARS Rule
- Rule: Accurately represent the cost and terms of purchasing or leasing in all advertisements, here are a few of the major key components of the new pricing update.
- Examples:
- List the full selling price excluding discounts not available to all consumers.
- Avoid advertising “guaranteed financing” if conditions apply that are not clearly stated.
- State whether the terms are, or transaction is, for financing or a lease.
The Result: Increased Customer Loyalty
By marketing honestly, dealerships can expect a reduction in consumer complaints and an increase in repeat business.
Digital Retail and Marketing Compliance
The Problem: Hidden Fees and Unclear Terms
The digital transformation of car sales often leads to complex online interactions, where hidden fees and unclear financial terms can confuse buyers.
The Solution: Transparent Digital Interfaces
- Rule: Disclose all terms and conditions clearly and obtain informed consent for all charges.
- Examples:
- Provide a detailed breakdown of monthly payments, including any optional add-on costs.
- Ensure digital contracts are easy to read and include all legal disclosures.
- Whether any consumer has been or will be preapproved or guaranteed for any product, service, or term.
Under regulations such as the FTC’s CARS Rule, there are strict guidelines about how such claims can be made in advertising to prevent deceptive practices:
- Truthful Representation: Dealerships must accurately represent whether a consumer is preapproved or guaranteed for any product or service. Misleading customers into believing they are preapproved for financing or special terms when this is not the case can be considered a deceptive practice under FTC guidelines.
- Disclosure Requirements: If certain conditions or qualifications must be met for the preapproval or guarantee, these must be clearly disclosed in the advertisement. For example, if a preapproval is based on a credit check that has yet to be performed, this condition should be explicitly stated.
- Avoiding Generalizations: Advertising should avoid making general claims that suggest all consumers who apply will be preapproved or guaranteed financing or other products without clear qualifications of what is required.
The Result: Enhanced Online Experience
Transparency in digital retail is not just about adhering to compliance standards—it’s about revolutionizing the customer experience. When a car dealership commits to transparency, particularly in its online interactions, it fundamentally changes how consumers engage with the brand. This transparency serves as a beacon in a saturated market, guiding consumers to a dealership they can trust.
The True Value of F&I Products
The Problem: Questionable Add-Ons
Many dealerships push F&I products that may not always benefit the consumer, leading to distrust and potential regulatory scrutiny. For example, any additional service contracts that don’t extend past the responsibilities of the manufacturers factory warranty, pre-paid maintenance plans that include oil changes sold on EV’s, and subscription services that aren’t 100% compatible with the vehicle being sold.
The Solution: Validate and Verify
- Rule: Only offer add-ons that provide a tangible benefit to the consumer.
- Examples:
- Clearly explain how an extended warranty extends what is covered beyond the manufacturer’s warranty.
- Offer GAP insurance that covers real potential losses, not overlapping with other policies.
- Avoid mandatory or complimentary coverage such as “Lifetime Powertrain Warranties” that are high risk to the brand, and create low customer satisfaction.
- Create a valued product portfolio with reputable service contract partners such as EasyCare, National Auto Care, or GWC Warranty.
The Result: A Reputation for Integrity
When car dealerships prioritize transparency in selling Finance and Insurance (F&I) products, they don’t just comply with regulatory demands; they forge a path to a stellar reputation built on integrity. This straightforward approach in offering F&I products can dramatically influence the dealership’s standing in the market and customer perception.
Navigating Addendums and Dealer Charges
The Problem: Price Discrepancies and Surprise Fees
Dealers often face backlash for last-minute fees or addendums not previously discussed with the customer. This may include adding “market adjustments”, or additional fees for nitrogen filled tires, and other non-beneficial items to the addendum after showcasing pricing online. Especially, only sharing them once in the dealership, or in the finance office.
The Solution: Full Disclosure
- Rule: Explicitly state all potential fees and the reasons for them at the beginning of the sales process.
- Examples:
- Detail any dealer preparation fees and the services they cover up front.
- Disclose any market adjustments above MSRP due to vehicle demand clearly and early.
- Avoid the “Junk Fees Rule”, by avoiding adding fees for reconditioning and additional fees not disclosed in the marketed price.
The Result: Smooth Sales Process
This approach minimizes post-sale disputes and enhances the buyer’s purchasing experience, leading to higher customer satisfaction rates.
Remember: The number 1 cause of a poor customer experience, is unmet expectations… it’s simple, if they had the expectation of paying a certain price, then they are surprised with additional fees without valuable products attached, you’ve already broken the rule and contributed to a potential poor customer experience.
Selling Cars with Uncompromised Transparency
The Problem: The Bait-and-Switch
Deceptive practices like advertising a car at a certain price only to change the terms at the last minute still plague the industry. Advertised specials online may only pertain to a single unit, with specific terms that may not be applicable to all.
The Solution: Commit to Honest Sales Tactics
- Rule: Ensure that all advertised offers are available and honored as presented.
- Examples:
- If a price is contingent on specific qualifications like a trade-in, state this clearly in the ad.
- Avoid changing financial terms or vehicle availability upon customer arrival without prior notification.
- Showcase exactly what is advertised to your customer, without additional conditions that are not part of the advertisement or legal disclaimer. (which should be clearly visible on all marketing materials, websites, and in-store merchandising).
The Result: Trust and Compliance
A dealership respected for its straightforward business practices will attract more customers and face fewer legal complications. In addition, customers LOVE doing business with dealerships that feel genuine, honest, and transparent.
Moreover, about 75% of consumers are more likely to do business again with a company that offers excellent customer service, even after a mistake has been made (HubSpot Blog). This statistic underscores the importance of not just honesty but also the quality of customer interactions.
Conclusion: Embracing Compliance as a Competitive Advantage
In the era of informed consumers, compliance is not just a legal requirement but a strategic advantage. Dealerships that prioritize transparency and honesty not only safeguard themselves against regulatory penalties but also build lasting relationships with their customers. This commitment to integrity is what today’s car buyers expect and deserve. By embracing these principles, dealerships can ensure a future where both sales and customer satisfaction accelerate.
Remember, in the world of car sales, transparency isn’t just good ethics—it’s good business.
If you’re interested in learning more, please check out the official update from the FTC:
FTC issues final CARS Rule setting new requirements on vehicle sales
