The Expert Podcast

A few weeks ago, we talked about how the Federal Trade Commission (FTC) is promulgating new rules called Rule 5 or Section 5 about auto dealer marketing and auto dealer sales processes. Well, it's a really good article in the Auto Remarketing magazine where, in addition to passing rules, the Federal Trade Commission is also changing car dealership activities and operating procedures by doing what's called consent decrees.

What that does is the Federal Trade Commission will go into a dealership environment and they'll research and investigate their operating policies and the way they do business, the way they advertise. If they see something which is questionable, they'll file either a complaint or some type of regulatory action against that dealership. The dealership can decide to fight it or to negotiate with the FTC, but in the end, instead of going to trial or having some large fine placed against them, they will sign what's called a consent decree. That means they agree not to use any of these tactics and to abide by these rules.

Sometimes it's a way to clarify the vague rules of the FTC or the vague rules that apply to car dealerships and make it a very specific agreement. For example, if the rules say you can't do anything misleading, what does that mean? That's very vague. The FTC could say to the dealership, you have to agree not to put a specific price in an advertisement unless you have a VIN number of that vehicle offered for sale. So, by having a consent decree with very specific requirements, the automotive dealership now has to abide by it.

If they use that as a standard model and apply it to multiple dealerships, it creates a precedent. So, if you have, let's say, five dealers in the marketplace that are abiding by this consent decree and the other dealers aren't, the FTC can go into those other dealers and say, "What you're doing is anti-competitive because these other dealers have to abide by this rule. Since you are not abiding by this rule, what you're doing is anti-competitive, so now you have to abide by it too."

It's an additional way to get more widespread compliance by planting the seed and expanding out the adherence to rules using consent decrees for car dealerships in their advertising, pricing, business model, whether or not you're doing add-ons in the finance department, offering extended warranties or things like gap insurance, or even nitrogen tires, and so on. Consent decrees are a leverage item used by the FTC to get compliance from dealers to make sure they're operating properly within the environment of proper advertising, marketing, and sales tactics.