Expect more scrutiny by the Federal Trade Commission of auto dealerships' advertising after nine stores agreed to settle charges of deceptive ad practices.
"We have many other investigations in the pipeline," said Jessica Rich, director of the FTC's Bureau of Consumer Protection. "This is a priority for the FTC and you will see many other cases in the auto-related area."
Many dealers are "honorable," Rich said, but "we believe there are many more dealers out there who are involved in these deceptive practices."
Norm Reeves Honda Superstore, last year's top-selling U.S. Honda store, allegedly violated the FTC Act by advertising that consumers could pay zero money upfront to lease a vehicle, when in fact the advertised amounts excluded "substantial fees and other amounts," the FTC said.
Norm Reeves Honda said it cooperated with the FTC's investigation. It said the ad at issue used a standard disclosure template that "resulted in an unclear lease offer." The dealership said the ad was an "oversight" and it has changed its advertising review policies.
At Infiniti of Clarendon Hills in Clarendon Hills, Ill., Peter Korallus, executive manager, said, "We committed an oversight when we used the term 'no money down' in our ads, when the FTC does not consider collecting licensing, taxes and other fees to be no money down."
Rich said third-party vendors that help create these kinds of deceptive ads also could be subject to liability depending on their involvement in creating the content.
A 10th dealership, Courtesy Auto Group in Attleboro, Mass., did not settle. "We feel we've done nothing wrong," said Steve Silva, general manager.
Silva said the dealership "got flagged" on a video on its Web site that was made by a third-party vendor, which put a generic disclaimer at the bottom. "In the video it says, 'at participating dealers.' Now we wouldn't put that in our own video," Silva said. "That's why we don't feel that we did anything wrong."
But Bill Fox, chairman of the National Automobile Dealers Association's Regulatory Affairs Committee, wrote in an e-mail to NADA's 64-member board of directors and 108 state association heads: "Dealers should not rely on advertising agencies or similar third parties to ensure compliance."
Fowlerville Ford in Fowlerville, Mich., which said it settled to avoid the "prohibitive" cost of appealing the FTC charges, said that it ran a sales promotion about three years ago that included an opportunity for customers to win a prize if a ticket matched a certain number.
The odds of winning were stated in the program, the dealership said, but "The FTC concluded that the disclosure was not specific enough in its opinion even though no regulations had been published defining what kind of disclosure was needed."
The FTC's version: An unspecified dealership sent out 30,000 mailers to consumers, saying they had won prizes they could collect at the dealership. Fowlerville Ford was the only dealership cited for advertising prizes. But, said the FTC's Rich, "not a single consumer, not one," won any prize.
Under the settlements, the nine dealerships will be barred from deceptive advertising practices for 20 years. Violating that agreement could bring a fine of as much as $16,000 per day that the deceptive ad runs.
Sean Gagnier and James B. Treece contributed to this report.
- Norm Reeves Honda Superstore in Cerritos, Calif.
- Honda of Hollywood in Los Angeles
- Nissan of South Atlanta in Morrow, Ga.
- Infiniti of Clarendon Hills in Clarendon Hills, Ill.
- Paramount Kia in Hickory, N.C.
- Fowlerville Ford in Fowlerville, Mich.
- Southwest Kia, which owns New World Auto Imports in Dallas, New World Auto Imports of Rockwall in Rockwall, Texas; and Hampton Two Auto Corp. of Mesquite, Texas
- Casino Auto Sales, a used-car dealership in La Puente, Calif.
- Rainbow Auto Sales, a used-car dealership in South Gate, Calif.
Source: Federal Trade Commission