The CARS Rule, the Future of Automotive Retail, and Why Honesty Still Drives Success

A Post-Ruling Landscape

Today, a U.S. appeals court struck down the Biden-era Federal Trade Commission (FTC) regulations known as the “Combating Auto Retail Scams Rule” (CARS Rule). These rules, finalized in January 2024 but put on hold due to legal challenges, aimed to increase price transparency, curb deceptive “bait-and-switch” tactics, and protect consumers from being charged for finance and insurance (F&I) products that did not truly benefit them.

While the 5th Circuit Court of Appeals decision invalidated the rule on procedural grounds, the debate over fair automotive retail practices—and how to best protect both consumers and an industry that thrives on innovation—remains very much alive. The FTC has historically taken action against misleading practices, and calls for greater transparency in auto retail are unlikely to disappear. Moving forward, manufacturers, dealers, lenders, and consumers must still confront fundamental questions about trust, disclosure, and the role of F&I in a fair, profitable transaction.

Why the CARS Rule Mattered

When first proposed in 2022 and later finalized in 2024, the CARS Rule set out to:

1. Ban Deceptive Advertising and Pricing
   • Require up-front pricing in advertising and sales discussions, ensuring consumers see the true “out-the-door” cost.
   • Prohibit “bait-and-switch” tactics, such as advertising a single low-priced vehicle that is unavailable upon customer arrival.
2. Regulate F&I Product Sales
   • Mandate disclosures that clarify the difference between optional add-ons and core financing terms.
   • Ban F&I products providing no tangible benefit, such as service contracts for electric vehicles that include oil changes, or duplicative warranties.
3. Strengthen Consumer Consent
   • Require explicit, informed consent before charging for any optional item or service.
   • Provide detailed breakdowns of monthly payments and emphasize that add-ons are voluntary.

Supporters believed these steps would modernize auto retail by holding dealers accountable for transparent practices and fostering consumer trust. They argued the CARS Rule was the next logical evolution of consumer protection in an industry where vehicle purchases are often consumers’ second-largest expense (after housing).

The Court’s Decision: Procedural, Not Substantive

The 5th Circuit’s 2-1 ruling hinged on the FTC’s rulemaking process rather than the rule’s merits. According to the majority opinion, the Commission failed to provide proper advance notice of its regulatory plans, a procedural shortfall that rendered the new rules invalid.

Despite striking down the rule, the court did not categorically reject the premise of increasing consumer protections. It left open the possibility that the FTC—or even Congress—could revisit the rulemaking process, as dissenting Judge Stephen Higginson underscored. Higginson noted that deceptive practices harm consumers at scale and suggested that “price transparency and rules against deception” are necessary reforms.

Trust, Transparency, and Profit: Striking the Right Balance

As auto retailers adapt to this tumultuous regulatory environment, one principle remains evergreen: honesty is the best policy. However, the industry is also justified in seeking fair pathways to profitability, especially when it comes to F&I products and services. Below are some key considerations:

1. Value-Focused F&I Offerings
   • Consumer Benefits First: Products such as Guaranteed Asset Protection (GAP), extended warranties that meaningfully extend coverage beyond the manufacturer’s warranty, and reputable service contracts can provide genuine protection for customers while maintaining dealer profit.
   • Clear Explanation: Dealers should clearly illustrate how an F&I product can save consumers money, reduce risk, or otherwise enhance ownership. This transparency fosters trust and long-term loyalty.
     
2. Transparent Pricing—Online and In-Store
   • Consistent Pricing Everywhere: If a vehicle is advertised at a certain price online, that price should match what customers see on the showroom floor. Surprise fees can erode trust and lead to potential legal or regulatory challenges down the line.
   • Consumer Consent: Even in a post-CARS Rule world, obtaining explicit agreement for every add-on or service remains a best practice—and can help avoid complaints and future enforcement scrutiny.
     
3. Leveraging Technology for Compliance
   • Digital Retailing Tools: Interactive finance calculators, digital contracting platforms, and automated compliance checklists can simplify the car-buying process for consumers. They also serve as audit trails that protect dealers from misunderstandings or false allegations.
   • Customer Engagement and Education: Online resources, FAQs, and side-by-side comparisons of optional services can demystify automotive financing. Dealers who invest in clear digital experiences often see higher customer satisfaction and conversion rates.
     
4. Building a Reputation for Integrity
   • Community Building: Successful dealerships have robust referral networks and repeat business—cornerstones of a thriving operation. Honest practices lead to more positive customer reviews and word-of-mouth recommendations.
   • Staff Training: By training sales and finance teams to prioritize the consumer’s best interest, dealers can enhance professionalism and foster an environment where employees and customers alike feel respected.

The Future of Automotive Retail

1. Likely New Rulemaking: The FTC could restart the rulemaking process to address procedural missteps cited by the 5th Circuit. If it does, expect more public comments, roundtables, and eventual reintroduction of consumer-focused rules—potentially more refined and with broader industry buy-in.
2. State-Level Legislation: Even absent federal rulemaking, many states may adopt their own regulations to fill the perceived void in consumer protections. Dealers operating across multiple states must stay vigilant about varying requirements.
3. Ongoing Enforcement: Despite the CARS Rule setback, the FTC and state attorneys general can still pursue deceptive practices under existing laws. Auto retailers can anticipate continued enforcement actions if they engage in misleading advertising, hidden fees, or other practices deemed unfair or deceptive.
4. Innovations in Pricing Models: Subscription-based services, over-the-air updates, and data-driven financing options are shaping the modern car-buying experience. Dealers who integrate these offerings ethically and transparently stand to gain a competitive edge.

A Win-Win Through Honesty and Innovation

While the recent court ruling halted the CARS Rule, it has not undone the overarching consumer demand for transparency, nor has it negated the need for dealers to protect their profit centers responsibly. The path forward lies in proving that profitable automotive retail and consumer protection are not mutually exclusive. By prioritizing clear disclosures, fair pricing, and well-explained F&I products that truly benefit consumers, dealerships can continue to thrive in an increasingly scrutinized marketplace.

In the words of many industry leaders, “Honesty isn’t just good ethics—it’s good business.” Whether or not a revised CARS Rule emerges, dealers who embrace transparent practices will likely see improved customer satisfaction, robust repeat and referral business, and stronger protection from legal and regulatory pitfalls. Ultimately, that approach drives long-term success in an ever-evolving automotive landscape—and fosters a healthier industry for dealers and consumers alike.

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