In the dispute over how dealerships can advertise and sell used vehicles which have open recalls, particularly certified used vehicles, the Federal Trade Commission gave its final approval to and closed consent agreements with General Motors and two large dealership groups.
Consumer advocates denounced the agreements, saying the terms do too little to protect car buyers. But the terms are likely to become precedent for future settlements. Indeed, the FTC has agreed to settle charges with three additional large dealership groups over the issue.
CarMax Inc., Asbury Automotive Group Inc. and West-Herr Automotive Group Inc. each agreed to settle charges laid out in the latest complaints by the FTC, which cited examples of the groups advertising thorough inspections of used vehicles, even as those vehicles had unrepaired defects that were not properly disclosed. Terms of that settlement now enter a public-comment period, just as the settlement with GM, Lithia Motors Inc. and Jim Koons Automotive Cos. did earlier.
GM, Lithia and Jim Koons did not admit wrongdoing and their settlements do not contain fines. The FTC had charged that they misled customers by failing to disclose that some used cars were under recalls. In effect, the FTC said that by advertising that their certified used vehicles had undergone multi-point inspections, the three were implying that those vehicles were safe, despite any open recalls.
The approved order, which remains in effect for 20 years, prohibits GM, Lithia and Jim Koons from claiming that their used vehicles are safe or have been subject to a rigorous inspection unless either A) the vehicles are free of unrepaired safety recalls, or B) the companies clearly disclose the existence of a recall in close proximity to the inspection claims, the FTC said. It's the latter option that has consumer advocates up in arms.
Cathy Chase, vice president of governmental affairs at Advocates for Highway & Auto Safety, said in a statement, "Families will walk into dealerships to buy cars, be informed that the vehicles have been given a safety stamp of approval, be required to sign a pile of papers with a message tucked in that the car may be subject to unrepaired recalls for safety issues, and will drive off the lot at their own peril."
Others unhappy with the terms of the settlement include Consumers for Auto Reliability and Safety, and U.S. Sens. Richard Blumenthal, D-Conn., and Edward Markey, D-Mass.
On the other hand, a GM spokesman said the automaker is "pleased that the matter is resolved."
"Our policy before the inquiry [was] and continues to be that open recalls should be addressed prior to delivery," the spokesman added. "That said, we have taken steps since the ignition-switch recall to improve our systems to help ensure that all the certified pre-owned guidelines are followed."
A message on GM's certified pre-owned website says the automaker requires dealerships to complete all safety recalls before a certified pre-owned vehicle is listed or sold.
"However, because even the best processes can break down, we encourage you to check the recall status of any vehicle at recalls.gm. com," the website reads. Consumers can also look up a vehicle identification number on the National Highway Traffic Safety Administration's website to see if a vehicle has not been repaired as part of a safety recall in the last 15 years.
The consent orders with CarMax, Asbury and West-Herr, announced on Dec. 16, were approved by the FTC in a 3-0 vote and now face a 30-day public comment period. They would require the three companies to mail notices to customers dating back to July 1, 2013, that their vehicle could be under a recall, the FTC said.
CarMax, Asbury and West-Herr 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 FTC said.
A spokesman for the National Automobile Dealers Association said it is still reviewing the orders for CarMax, Asbury and West-Herr.
He noted that the drafts include slightly different wordings regarding notification to consumers.
The Asbury and CarMax draft consent orders offer an additional form of compliance: a written notification "that clearly and conspicuously conveys that the vehicle is subject to an open recall that is unrepaired, and the safety risks associated with the recall." The West-Herr order does not include that.
Kelly Baker, Asbury's chief compliance officer, said in an emailed statement that "many years ago" the group "implemented a program designed to notify consumers of the history of each used vehicle that we offer for sale.
"As part of this program, all vehicle advertisements prominently display direct links to a current Carfax report, which provides information about a vehicle's history, including recalls, at no cost to consumers. Additionally, we expressly disclose open recalls to each consumer prior to completing the vehicle purchase."