FTC settles charges with used-car dealerships over recall disclosures

Three of the nation’s 20 largest used-car dealership groups agreed to settle charges that they failed to adequately disclose that some vehicles they sold had safety recalls and were not repaired, the Federal Trade Commission said today.

CarMax Inc., Asbury Automotive Group and West-Herr Automotive Group each agreed to settle charges laid out in complaints by the FTC, which cite examples of the groups advertising thorough inspections of used cars that had unrepaired defects that were not properly disclosed.

The FTC also said today that it gave final approval to consent orders reached in January with General Motors, Lithia Motors Inc. and Jim Koons Automotive Cos. for similar allegations.

Including those agreements, the FTC over the past 11 months has entered consent orders with five of the 19 largest used-car dealership groups in the U.S., as well as GM, stemming from charges they misled consumers about used vehicles under recall.

The consent orders, announced today, approved by the FTC in a 3-0 vote and subject to final approval following a 30-day public comment period, would require CarMax, Asbury and West-Herr to mail customers dating back to July 1, 2013, that their vehicle could be under a recall, the FTC said.

The groups would also be banned from “misrepresenting whether there is or is not an open recall for safety issues for any used motor vehicle, whether they repair such vehicles, and any other material fact about the safety of the used vehicles they advertise for sale,” the commission said in a news release.

'Important protections'

“Although the commission’s enforcement actions against individual companies cannot substitute for legislative solutions, they provide important protections for consumers to help ensure that they can make informed and safer purchasing decisions in the used car marketplace,” the FTC said in a statement.

The CarMax complaint cites, among other examples, a TV commercial that espouses the company’s used-car inspections but only mentions that some vehicles are under an open safety recall in small type for three seconds. The FTC said some of those vehicles were under recall for problems stemming from the GM ignition-switch crisis and the massive Takata airbag recall.

CarMax, the largest used-car retailer in the U.S., said in a statement that it would modify “some language” about recalls in future advertising and won’t pay fines.

“We will continue to make enhancements to our comprehensive recall disclosure program,” CarMax COO Cliff Wood said.

The FTC’s complaints against Asbury and West-Herr are similar to those against CarMax, citing claims that the companies touted used vehicles for sale that underwent inspections without properly disclosing that some were under recalls for potentially dangerous defects.

West-Herr response

“The inquiry arose from the use of the word ‘rigorous’ on a webpage of the auto group’s website during a 15-month period in 2014-15 and the requested changes were adopted almost two years ago,” West-Herr COO Jed Hunter said in an emailed statement. “During its review of the advertising, the FTC did not identify any used vehicles sold with serious defects.”

A request for comment from Asbury was not immediately returned.

According to the Automotive News Data Center, Asbury was the seventh-largest used retailer in the U.S. in 2015 based on total unit sales, while West-Herr was ranked 19th.

GM, Lithia, Koons deals

The consent orders follow the three agreements it reached with GM, Lithia and Jim Koons earlier this year. Those agreements, in which the companies do not admit wrongdoing and do not contain fines, stem from charges by the FTC that the companies misled customers by failing to disclose that some used cars were under recalls.

The final approval of those three consent orders came under fire today from the group Advocates for Highway and Auto Safety, which claims the FTC is in effect continuing to allow dealerships to advertise unrepaired vehicles under recall as safe.

“Today’s decision by the [FTC] was a repudiation of their statutory duty to protect consumers,” said Cathy Chase, the group’s vice president of government affairs, in a statement. “By finalizing consent orders with [GM] and the Lithia and Koons dealership chains … consumers are duped and safety is jeopardized. The FTC also issued similar proposed consent orders to CarMax, Asbury Automotive Group and West-Herr Automotive Group.”

In statements to Automotive News earlier this year, GM and Lithia said they implemented changes to their used-car programs following the orders, while Koons said it provides Carfax vehicle history reports for each used vehicle it lists for sale online.

Lithia ranks No. 6 on the Automotive News list of the largest used-car dealership groups, while Jim Koons ranks No. 12.