The U.S. Federal Trade Commission (FTC) has implemented new rules aimed at reforming the car-buying process and curbing deceptive practices within the auto industry. The regulations, first announced in 2022 and finalized on Tuesday, focus on promoting transparency and protecting consumers from unfair practices employed by auto dealers.

One significant aspect of the rule is the requirement for up-front pricing in dealers’ advertising and sales discussions. This provision aims to ensure that the prices presented to consumers are accurate and reflective of the actual cost they will incur when purchasing a vehicle. The rule also prohibits the sale of add-on products or services that offer no tangible benefit to consumers, addressing concerns about so-called “junk fees.”

Among the deceptive practices targeted by the FTC are instances where auto dealers lure buyers with promises they fail to fulfill. This includes misleading advertising and charging fees for add-ons that may not provide any real value to the consumer. The rule specifically addresses concerns raised about dealers allegedly targeting young servicemembers, with the FTC highlighting the issue of young military personnel accumulating significant auto debt.

The FTC expressed its intention to prevent dealers from providing false information about important cost and financing details, emphasizing the need to protect consumers from dishonest practices. The rule is designed to bring about a fundamental shift in the way Americans buy vehicles, with the aim of streamlining the purchasing process and eliminating practices that contribute to unnecessary costs.

Consumer Reports welcomed the FTC’s proposal, stating that it would help eliminate “shady tactics” that have the potential to increase the overall cost of new vehicles. However, not everyone is in favor of the new regulations. The National Automobile Dealers Association (NADA) criticized the rule, characterizing it as “heavy-handed bureaucratic overreach” that could complicate and lengthen the car sales process.

Despite pushback from industry representatives like NADA, some entities within the automotive sector, such as Carvana, expressed support for the FTC’s efforts to enhance transparency. Carvana’s Chief Brand Officer emphasized the importance of introducing more transparency to empower consumers to make informed decisions.

While the rule does not explicitly name specific companies, it has implications for major auto dealers, including AutoNation, Penske, Lithia Motors, CarMax, Group 1 Automotive, and Sonic Automotive. These companies, among others, have not provided immediate comments on the new regulations.

In addition to requiring up-front pricing, the rule specifically prohibits misrepresentations about price, cost, and the total cost of the vehicle. Dealers will also be obligated to obtain consent for any additional charges added to a vehicle’s price, preventing them from charging for add-ons that offer no practical benefit to the buyer.

Despite concerns raised by industry associations like the Alliance for Automotive Innovation, representing major automakers like General Motors, Toyota, and Volkswagen, the FTC remains committed to its goal of protecting consumers and creating a more transparent and equitable car-buying experience.

Source: Reuters