There is no law prohibiting the sale of used cars and trucks that are subject to open safety-related recalls.
But advertising that those vehicles have undergone rigorous inspections can draw unwanted attention from the Federal Trade Commission.
Just ask General Motors, Jim Koons Automotive Cos. and Lithia Motors Inc.
All three companies came under fire in separate FTC complaints, released Thursday, that they deceived customers when they failed to disclose in advertising that some of the used cars they were selling were subject to safety-related recalls.
The FTC and the companies said today that settlements have been reached regarding the allegations. The settlements do not involve any fines or penalties.
None of the companies admitted any wrongdoing. Lithia and Koons Automotive both said they agreed to settle with the FTC to avoid the costs and disruption of litigation. GM and Lithia also said they have put in place changes in response to the FTC’s investigation.
‘Sends a signal’
Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said she hopes the actions against the three companies “sends a signal to the marketplace as a whole about the need to disclose unrepaired safety recalls, especially when you’re making bold claims about inspections that you’re undertaking or the safety your used cars may have.”
Rich made those comments during a media conference call Thursday.
She said it is “nonpublic” when the FTC launches its investigations, but public reports lead the agency to believe there may be “millions” of similar instances of vehicles subject to open recalls that are being advertised as rigorously inspected.
She added: “While we cannot comment on other investigations that are underway because they are nonpublic, you may very well see other actions in this area.”
CPO, warranties
The allegations against GM involved advertising of vehicles in its certified used vehicle program. Claims surrounding Koons’ “certified Koons Outlet” vehicles and Lithia’s dealer-backed “60-Day/3,000 Mile” warranty also came under fire by the FTC.
Rich alleged that GM and the two large dealership groups, separately, “made broad claims about rigorous inspections that involve safety without disclosing the potential existence of unrepaired safety recalls.”
In a statement sent to Automotive News, GM said: “We made changes to our certified pre-owned marketing program last year to address the FTC’s concerns and we are pleased with the proposed resolution of the matter.”
Jim Koons and Lithia Motors, in separate but similar statements sent to Automotive News, noted that the FTC did not claim their statements about their inspections were false, but that the companies failed to provide sufficient information about vehicles that might have been subject to an open recall.
‘Changes’
“The settlement sets out certain changes we must adopt, and we have already made those changes,” Lithia said in an email reply to an Automotive News query.
“Lithia has long had a policy of rigorously inspecting our used vehicles before offering them to the public, and we make recall repairs when possible. We are not aware of a single customer complaint about our advertising or disclosures of manufacturer recalls.”
Koons Automotive said the company provides a Carfax vehicle-history report for every used vehicle its offers for sale on its website, as well as with every used vehicle that it sells. “It has been our policy for many years to rigorously inspect our used vehicles and make repairs when possible.”
Settlement terms
Under the settlements, which will remain in effect for 20 years, the companies:
The latter requirement applies for GM to certified pre-owned vehicles purchased between July 1, 2013, and the final order date; for Lithia, to Lithia Warranty used vehicles purchased during the same time period; and for Koons, to certified used vehicles purchased between July 1, 2013, and June 15, 2015.
Each violation of the settlement terms can result in a fine of up to $16,000.
NADA comment
Commenting on the news, Jared Allen, a spokesman for the National Automobile Dealers Association, said, “NADA is disappointed that the FTC chose to follow the ‘sue and settle’ approach to informing the market of its compliance expectations related to the advertising of certified pre-owned vehicles and manufacturer recalls, both of which have been around for decades. That said, dealers certainly believe that consumers need to be properly informed about the vehicles they purchase.”
Lithia ranks No. 8 on Automotive News’ list of the top 150 dealership groups based in the U.S., with retail sales of 91,192 new vehicles in 2014. Jim Koons Automotive is No. 15, with retail sales of 35,142 new vehicles in 2014.
