Tuesday, 20 December 2016

FTC Proposes Settlement with Used-Car Dealers over Disclosure of Open Recalls

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The Federal Trade Commission said it has settled complaints that alleged some of the largest used-car dealers in the United States were selling vehicles with open safety recalls, even while advertising that all of the cars and trucks had gone through rigorous inspections.

Under the agreement, CarMax, West-Herr Automotive Group of New York, and Asbury Automotive Group of Georgia are “prohibited from claiming that their used vehicles are safe, have been repaired for safety issues, or have been subject to an inspection for safety-related issues, unless they are free of open recalls,” the FTC said Friday.

The dealers are also required to “conspicuously disclose” if vehicles are subject to safety recalls that have not been addressed and to tell consumers how to know whether a car or truck is subject to such a recall. The settlement follows three separate FTC complaints, one against each dealer group, alleging that the companies were violating the Federal Trade Commission Act by advertising that vehicles had undergone thorough inspections without revealing the cars still had open safety recalls.

As an example, an FTC complaint points to a CarMax television spot that feigned sympathy for a used vehicle that had just been subjected to the dealership’s 125-point inspection.

“To the car that just survived hours of reconditioning, sorry, we know that was a bit invasive. But if we didn’t hoist you up in the air and poke around a little, we wouldn’t be CarMax. We expect a lot from our cars, and we need to make sure that you’ll make the grade,” the FTC complaint quotes from the company’s 30-second commercial. “Oh, just relax. It’s going to be a long time before anybody peeks at your undercarriage again.”

The trouble was, for just three seconds of that commercial, “a tiny, blurry white font at the bottom of the screen” stated that “some CarMax vehicles are subject to open safety recalls,” the FTC complaint says.

The FTC complaints against West-Herr Automotive Group and Asbury Automotive Group, also known as Crown Automotive Group and Coggin Automotive Group, are similar: dealers marketing cars and trucks for sale that are certified as having been rigorously inspected while failing to adequately disclose open safety recalls.

The open safety recalls ranged widely and included major issues such as ignition switches in General Motors vehicles and airbag inflators supplied by Takata.

A spokeswoman for CarMax said that if a car or truck is subject to a recall, the dealer has customers sign a form acknowledging that fact before they are presented with sales documents.

“This has been our policy for quite some time,” CarMax spokeswoman Catherine Gryp said. In an emailed statement, CarMax chief operating officer Cliff Wood said the company “has led the industry in recall transparency. As soon as centralized recall information was made available by NHTSA, we believe we were the first to incorporate it into our advertising and sales process.”

Nevertheless, the company said that, as part of its settlement with the FTC, which does not include any fines unless the settlement is breached later, it “will be modifying some language about recalls in its advertising.” The consent agreement is subject to a period of public comment through January 17, 2017, after which the FTC will decide whether to finalize the agreement. Earlier, a similar settlement with General Motors and two other used-car sales channels was criticized by consumer advocates, who backed an alternative NHTSA recommendation that all used cars subject to recalls should be repaired before dealers could sell them again. NHTSA oversees the safety recalls but has no direct regulatory authority regarding the sales of used cars with open recalls.

The FTC complaint against CarMax cited a period of violation lasting “until at least November 2014.” Complaints against West-Herr were until at least June 2015, and the one against Asbury cited periods ending both in November 2014 and June 2015.

Asbury Automotive Group’s chief compliance officer, Kelly J. Baker, told Car and Driver that the dealership group has had a program in place for “several years” under which they “expressly disclose open recalls to each consumer prior to completing the vehicle purchase.” Baker also pointed out that every advertisement for an Asbury used vehicle “prominently” displays a link to a free current CarFax report, which shows the repair and recall history of the vehicle listed for sale.

West-Herr’s chief operating officer, Jed Hunter, said the FTC complaint stems from a dispute over “use of the word ‘rigorous’ on a webpage of the auto group’s website during a 15-month period in 2014–2015, and the requested changes were adopted almost two years ago. During its review of the advertising, the FTC did not identify any used vehicles sold with serious defects. The FTC has required similar advertising changes from a sampling of large auto groups across the country.”

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