Dealers don’t like FTC rules to make buying cars more transparent
In June, the Federal Trade Commission proposed a set of rules banning shady sales tactics at dealerships that hide the true cost of a car from a potential buyer. Targets range from false advertising – such as when a website lists a price that, in reality, comes with a host of discounts that the customer may not be entitled to – as well as last-minute surprise charges for packages which some dealers claim is not -negotiable. Don’t you know, the National Independent Automobile Dealers Association is not a fan.
The group, which includes 16,000 used-car dealerships, claimed what companies often do whenever the threat of increased consumer protection is made by lawmakers – that they would make products more expensive. Of Automotive News:
The trade group estimated compliance would require at least $1.4 billion over the next 10 years, “pushing up prices for consumers and making the car-buying process longer and more difficult.” He said many of the issues the FTC is seeking to address fall under current regulations.
“Independent auto dealers are small business owners, and the FTC’s proposed rule has the potential to negatively impact our members’ ability to operate their businesses,” said NIADA CEO Robert Voltmann. in a press release.
“We look forward to working with the commissioners and their staff to ensure that the voices of NIADA members are heard.”
The argument is that all this disclosure and increased paperwork to tell people things they should know before they spend hundreds of dollars a month for the next four years (or more) would add time to the car buying process, a process that we all know is fast today. And time is money.
One FTC assumption — the one cited by NIADA — estimates that dealers would pay $1.36 billion between 2022 and 2032 to comply. The other forecast costs $1.57 billion over the same period. The largest component of these estimates involved dealerships spending $850.5 million or $994.4 million to disseminate various information to customers. Either calculation assumes that a sales professional paid $21.84 per hour spends 2 minutes preparing and delivering each disclosure.
While dealerships could absorb more than $1 billion in additional costs for a decade, the FTC estimated the company would recognize more than $30 billion in profit. It projected gains of $31.08 billion over the decade under its first cost-benefit scenario and $36.34 billion under the second projection.
The added time at the reseller you would ultimately buy from is the time you would theoretically save as a buyer, with less misinformation to weed out:
“The Commission assumes that because of the provisions of the proposed rule prohibiting misrepresentation and requiring price transparency, every consumer who ultimately buys a vehicle will spend three hours less shopping online, corresponding with dealers , visiting dealerships and negotiating with dealership employees per motor vehicle transaction,” the FTC wrote.
While some dealers seem to be shaking about it and groups like NIADA are trying to instill fear in the public that being honest and upfront will come at a price, not everyone in the industry is opposed to the company’s proposals. FTC. In fact, a earlier Automotive News story quotes an industry compliance expert, whose opinion on the matter essentially goes back to the age-old principle that the only dealers particularly harmed by these rules are those with something to hide:
According to Shannon Robertson, executive director of the Association of Finance and Insurance Professionals, an industry compliance and certification organization, the proposed regulations go beyond existing federal law and offer more specificity than the law that prohibits unfair and deceptive practices by dealers.
Robertson said good dealerships adopt practices that protect them in all scenarios and said his organization’s adherents would not be confused by the new rules for F&I presentations.
“For an AFIP-certified reseller, none of these changes are impactful or surprising if the reseller does things as we teach,” he said.
Meanwhile, a Vermont dealership agrees the rules around advertising and unnecessary products will be fine…
Konrad Koncewicz, chief commercial officer of BurlingtonCars.com Auto Group in Vermont, said he supports the transparent advertising aspect of the proposal. “Rules like that make a lot of sense,” he said.
Koncewicz said his state has stricter disclosure requirements and advertising rules — but neighboring states do not.
“There are places that will advertise a crazy price, maybe on a car [that] doesn’t even exist,” Koncewicz said.
…although they have reservations about potential restrictions around GAP insurance:
Koncewicz said he favors the idea of eliminating products that have no benefit. “We don’t participate in things like that,” he said.
But he called the FTC’s GAP language “extremely vague.” A number developed in consultation with industry might be “more achievable”, he said.
GAP insurance — which covers the shortfall between your car’s value and the loan balance in the event your car is destroyed in an accident — happens to be hugely favored by those who own it, according to Automotive News. However, it’s certainly not necessary in all financing scenarios, especially if you’re putting enough money up front or financing a vehicle that tends to hold its value. Still, some unscrupulous dealers will push it anyway.
In a nutshell, it pretty much goes to show why the FTC’s attention to these practices is needed. Here you have a product that some people want and benefit from, sold to those who don’t need it as an upsell. If greedy dealers feel pressured to raise prices to cover this loss of ill-gotten revenue, at least adjustments could be loaded as they go. surchargeswhere they might be more visible before you even walk through the door.