LOS ANGELES -- Dealers tired of competing with unscrupulous retailers pitching too-good-to-be-true bargains are cheering the Federal Trade Commission's recent crackdown on deceptive dealer ads.
But compliance experts warn that all dealers should take a hard look at their own marketing efforts and their vendors' actions because the FTC remains on the prowl. Agency investigators can bring enforcement actions quickly, even without a formal complaint from consumers.
"The FTC has people trolling the Internet, looking at newspapers, going into social media sites," Randy Henrick, associate general counsel for Dealertrack Inc., said in a February Webinar with dealers about the FTC's crackdown. "They're affirmatively looking for stuff that they think is bad so they can regulate by enforcement."
Among the practices in the FTC's cross hairs: ads that misrepresent vehicle prices, monthly payments and lease drive-off costs; improperly advertised lease details and financing terms; and bogus sweepstakes designed to get customers into the showroom.
Paul Metrey, chief regulatory counsel for the National Automobile Dealers Association, issued a statement urging dealers to be cautious when hiring advertising vendors and to make sure an attorney reviews ads before publication.
Rob Cohen, president of Auto Advisory Services, an advertising compliance consultancy in Tustin, Calif., says the volume of weekly compliance requests from his clients has doubled since the FTC began its crackdown in January under the banner Operation Steer Clear.
While used-car dealers more frequently veer into questionable advertising territory, Cohen says, new-car dealers aren't always Boy Scouts.
"Even in the new-vehicle world, there's an occasional bad player that tries to gain a competitive advantage," Cohen said. "That puts pressure on other dealers who say, 'Well, look. They're doing it and they're killing us. Why can't we do it?' My standard response is you never know when lightning is going to strike."
The FTC's nationwide enforcement sweep targeted 10 dealerships in six states over alleged deceptive advertising practices. Nine of those dealerships agreed to 20-year settlements barring them from deceptive advertising. The settlements allow the FTC to monitor all the dealerships' ads for deceptive or misleading messages and impose penalties of $16,000 for each violation.
Two more dealerships reached settlement agreements with the FTC in early February.
But dealers say not everyone has gotten the message. "Even in my little area here, the compliance is so underenforced," says David Basha, a Gainesville, Ga., dealer with Kia, Nissan and Mitsubishi franchises. "There's so little oversight in what dealers can say and print, and now, put on the Internet."
Literally true, but misleading
Cohen says the general rule of thumb for dealer ads is "Don't lie, and don't be tricky." He says the overall impression created by an ad must be matched when consumers come into the showroom, regardless of what's disclosed in the fine print.
"Something can literally be true, but still be misleading," he said.
For instance, one used-car dealership caught up in the FTC sweep, Casino Auto Sales in La Puente, Calif., advertised several pickups and SUVs with low prices in a newspaper ad. Buried in the tiny print at the bottom of the ad was a key bit of information: The prices were after a $5,000 down payment.
"That's just a blatantly misleading way to advertise," Cohen says, "because it makes it look like the prices are dramatically lower than what anybody else would expect for those vehicles."
George Maldonado, finance manager at the dealership, said the store stopped the practice immediately after being contacted by the FTC about the ads last September.
Maldonado said that because other dealers ran similar ads, Casino Auto Sales staffers assumed they could, too. "We thought that as long as it has a disclosure, we could advertise the way that we were advertising, which many, many other auto dealers do," Maldonado said. "More dealers, way more, do their advertisements like that."
As part of its agreement with the FTC, Casino Auto Sales neither admitted nor denied any wrongdoing.
One tactic that piques regulators is a practice known "stacking," in which dealers promote big potential savings on new cars by combining multiple factory rebate offers -- such as for recent college graduates, military service members or conquest customers -- into a single discount, without making clear that few customers would qualify for all of them.
"If the stars align and you actually have somebody that recently graduated from college, is in the military, has a specific type of vehicle to trade in that qualifies for a loyalty or conquest, then you might be able to qualify for all of those rebates and get that bottom line price that's advertised," Cohen said. "The reality is that the chances of that happening are incredibly slim."
• Deceptive pricing: Advertising prices that reflect huge down payments or "stacking" of multiple discounts for which most buyers wouldn't qualify
• Deceptive teaser payments: Low payments in effect for only a few months of a finance term, without proper disclosure that the payments balloon to a larger amount
• Hidden rates: Charging cash and credit buyers different amounts for the same vehicle, without disclosing the extra finance charge
• False no-money-upfront lease claims
• Undisclosed lease terms
• Bogus prize promotions and sweepstakes
• Improper disclosure of credit or lease terms
'Small white text'
Another red flag is a variation on the standard cable TV service come-on, in which a low introductory rate balloons after a few months. A Kia dealership in North Carolina was cited by the FTC for a video posted on YouTube touting a 2013 Kia Sportage crossover for no money down and $99 per month.
The catch: The monthly payment jumps to $531 starting in the fourth month of the deal's 72-month term.
The higher payment was disclosed in "small white text that blends in against a silver and black background -- the tire and hubcap of the Kia Sportage," the FTC said in its complaint against the dealership, Paramount Kia of Hickory. The dealership neither admitted nor denied wrongdoing in its settlement with the FTC. Officials of Paramount's ownership group didn't return calls seeking comment.
Fine print must be clear, conspicuous and in close proximity to the ad's main text, and such disclaimers should explain the main message of an ad, but shouldn't contradict it, Henrick and Cohen say. It also must be written in clear language, not "dealer speak."
While the definition of "conspicuous" is a gray area under FTC rules, tiny type that most consumers can't clearly see generally fails to measure up, and some states have specific requirements. In New York, for instance, disclaimers must be in 10-point type, Henrick says.
"Four-point type that I can't read -- and my vision is 20/30 -- is not conspicuous," he says.
Basha, the multifranchise dealer in Georgia, says that even though his group avoids price advertising in general, he was alerted two years ago by the governor's office that his group's Web sites were out of compliance because vehicle prices posted online failed to include documentation fees.
"We corrected the shortcomings we had, and we've got it under control, but a lot of dealers are advertising crazily all over the place, and 90 percent of it is garbage," Basha said.
Darryl Holter, president of the eight-franchise Downtown LA Auto Group, takes a multilayered approach to ensure his ads remain compliant. He says his group consults the advertising rules in the California New Car Dealer Association dealer management guide, has an in-house lawyer to help with compliance, contracts Cohen's Auto Advisory Services to review ads and uses an outside law firm on compliance issues.
Holter says that while the rules can sometimes be complicated and vague, dealers have much to lose by skirting them.
"There's no point in us deceiving our customers," Holter says. "We're only able to be successful because people come back to us."