The Expert Podcast

You're starting to see more availability in the new car market, with some vehicles on new car dealers' lots, maybe some offerings that are not marked up over MSRP. But according to our friends over at Jalopnik, the new car deals might not be as good as they seem. Many deals advertised under MSRP are too good to be true. What do they mean by that? And more importantly, at the same time, there's more inventory. At the end of 2022, new laws made some of the pricing tactics by dealerships illegal.

The Federal Trade Commission (FTC) has put some new rules out, or interpretations of existing rules, that maybe make it illegal for the dealership not to give you a good deal. Think about that—it might be required under federal law for a new car dealership to give you a good deal on a car. You need to know how to ask for it and what to expect, but there might be a new law that a car dealership is required to give you a good deal on a car. So let’s dive into it. We're going to look at the Federal Register and the FTC policy, but let's first take a look at what Jalopnik is talking about with the pricing.

They give an example of a car that they saw happen to be a Volkswagen for sale, where the price seemed pretty good. It had the price, the payment, all the details, and then it had the small print. They went through it all, and it said the pricing is after a trade-in incentive of $1,000, which means that if the customer doesn’t have a trade-in, they don’t get that discount. By trading in a vehicle, Volkswagen would give you an additional $1,000. Dealer-arranged financing also comes into play—you have to finance it with the dealer. So, if you finance it yourself, through a credit union, or pay cash, you don’t get that. You have to do it through VW credit at a non-subsidized APR, which means you have to pay a higher interest rate to get that deal. So there are two things about this deal that don’t apply to everybody.

Here's another deal they looked at that had in the fine print, including a $1,000 customer discount for conventional financing from the dealership through a lender of their choice. It also included dealer-installed items: $8.99 for paint protection, window tint for $7.99, vehicle theft protection for $2.99, dent and ding protection for $2.99, and three years of paid maintenance for $8.95. So, you’re talking about $3,000-$4,000 worth of add-ons to get this deal. If the customer doesn’t take the dealer’s loan with a higher rate and take all those things, that means you have to pay another $4,000 for the car.

What you're finding is they’re showing you a price on their ad which gets your attention, but then you find these smaller details that add on. Now, you might say, “Well, I wouldn’t fall for that. I would find that out.” Well, you’re probably right. You, as a consumer, may find out about these extra charges and not buy the car. But according to the FTC, just offering that misleading price might be illegal. Even if you find out the price is not what it’s supposed to be and you walk away, that causes harm to you because you spent time and diverted yourself from a competitor. They consider that to be anti-competitive activity under Section Five of the FTC Commission Act. Unfair methods of competition include doing something to get your attention away from another competitor by making it seem like you’re a better deal, or a better offering, even if later on you say, “Well, we just made that up, and it’s really not that price.” The diversion of your attention from the competitor was an unfair practice, and they’re going to start cracking down on it.

This entire 16-page document talks about what conduct is an unfair method of competition, and it’s now been adjudicated. This is relatively new, from November 2022. Unfair conduct isn’t just whether or not you lie about a competitor or do something underhanded. If you divert the initial attention of a consumer from a competitor to you, even if you own up to it later, that’s unfair. How does this apply to dealerships? Well, in the Federal Register, they talk about the motor vehicle dealers’ trade regulation rule. What they’re talking about is very specifically prohibiting dealers from making certain misrepresentations in the course of selling, leasing, financing, or arranging financing, requiring accurate pricing disclosures, and, more importantly, prohibiting the sale of any add-on product or service that confers no benefit to the consumer. They also require dealers to keep records of advertising and consumer transactions, so a dealer can’t do an ad and then delete it and say it never existed.

They get into how your time is valuable as a consumer. Buying or leasing a vehicle is not only expensive in price, but the transaction is time-consuming and arduous. This is a common complaint about dealers: it's a hard process. You don’t want to go through the hassle of dealing with a car dealership. Part of that hassle is wearing you down as a consumer. The FTC is addressing this. They say that consumers who purchase a vehicle may spend five hours or more at a dealership doing this. This doesn’t include the time spent visiting dealerships when they do not make a purchase. Think about that—you may go to multiple dealerships and not make a purchase. Maybe it's not just comparing prices or models. It might be that you went to a dealership thinking one thing, and then you wasted your time because, when you got there, the vehicle wasn’t available or the deal wasn’t the way it was supposed to be.

Section One talks about deception and unfairness in the motor vehicle marketplace. Just because they get away with something and you sign for it doesn’t mean it’s fair, and the FTC is addressing that. Here's where they talk about diverting you: misleading advertisements can cause significant consumer harm. It’s not just if you pay too much. Even if you walk away from that deal, you end up selecting that dealership instead of others and spending time visiting it and transacting with it under false pretenses. Even just visiting the dealership can steer you away from an honest dealership that says, "Here’s an honest price I’m willing to sell it for."

They talk about unlawful practices for add-ons and deceptive pricing. The protracted paperwork process can make it difficult for consumers to spot add-ons, especially when the advertised price didn’t have it. If the consumer finances the vehicle and then they do a separate finance process, you have to sign 20 or 30 documents, and they can hide stuff in there. What happens a lot of times is, when you get to the end of the process, many hours later, you’re so tired, worn down, you don’t want to be there anymore. You just want to get it done and over with, and they take advantage of that. They add on something that wasn’t agreed to in the original negotiation or the original price. You just say, “Fine, I’ll just deal with it. I just want to get out of here.” Your time is valuable, and you may not be able to take another day off from work. You may not be able to find another car, and it’s not even that they get you to buy a car; it’s even to get you to visit it. A prohibited misrepresentation is likely to affect the consumer’s choice of whether to visit a dealership or not.

So it’s not enough that the misrepresentation made you buy something or forced you to spend money. Even if a misrepresentation makes you visit a dealership, that is something that is prohibited. Getting back to this Jalopnik article, if they offer you this supposedly great price and then all of a sudden the fine print says, "Well, it’s really not true because you have to finance with us and buy all these things," that’s a misrepresentation. This could be construed as illegal under FTC rule five, and part of the harm is that it diverts business from reputable dealerships that provide truthful advertising and makes you go to the dealership that’s less than honorable.

Consumers who select and travel to dealerships based on an advertised offer, only to learn late in the process that the offer does not apply, have often spent many hours trying to purchase a car. Even if they notice and successfully resist later added fees or leave, learning the discounts do not apply, the misleading advertisements caused them to waste hours driving to and visiting the dealership. For many consumers, walking away is not a realistic option. For example, restarting that process at another dealership might mean taking a day off from work or not being able to afford a second car or alternative transportation.

The bottom line is that the dealership is not allowed to make stuff up. For example, it may be that because of this rule, if you walk into a dealership or converse with them over email and ask, "Is this the lowest price I can get on this car?" they can’t lie to you. They can’t say, “Yeah, this is the best deal,” if they could have sold it for less. They can’t say that. So if you get it documented in writing, "This is the lowest price," and then you find out later they could have sold it for less, that might be liability. They address this if you find out after you enter the contract and spent thousands more. That could be a violation of misrepresentation, and it's very general. The rule would prohibit misrepresentations concerning the cost of financing, purchasing, or leasing a vehicle, end of story.

They get into details around the total cost, added features, other charges, documentation fees, transportation fees, delivery fees—any of that. What they're suggesting is that the FTC is clamping down on any kind of shady car dealership practices. It’s not just the lie, but the tricks involved with how those lies are presented.