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Lindsey Auguste and Dennis Galbraith

Lindsey Auguste and Dennis Galbraith Investigative Reporters

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The Feds Are After Car Dealers

As Dennis gets ready for his panel presentation at the Consumer Bankers Association next week, an announcement was made regarding the crackdown on ads promising to pay off the consumer's trade. The Federal Trade Commission (FTC) named some prominent dealerships in its complaint. While most consumers recognize that the amount they are upside down on their trade is going to be applied to the price of the vehicle they buy, we are entering an era of regulation and enforcement aiming to protect even the most unknowledgeable of consumers. What is clearly not going to fly are ads promising to pay off the loan balance of the customer's trade-in, even if they owe more than the value of the trade-in.

We talked to FTC officials Thursday, and confirmed that the five stores selected are being made an example of in hopes that the many other stores using the same advertising tactics will immediately abandon the practice. Clearly, the warning shot has been fired and any ambiguity about whether this practice will be tolerated has been removed.

The new Consumer Financial Protection Bureau (CFPB) regulates banks. the FTC still regulates auto dealers. But it should be no surprise that staying with the existing regulator agency is not going to be the same as freely conducting business as usual. There is no way the Consumer Protection Bureau of the FTC is going to let itself be seen as weak in its defense of consumers. We are told through outside sources that the two agencies are cooperating with each other, the FTC sharing dealer loan data with the CFPB and the CFPB sharing banking data relative to auto loans with the FTC. In the worst of all possible scenarios, the two agencies may compete for media attention to show which is doing the most for consumers. That's the cynical view.

Pragmatically, change is coming and some dealerships are going to be made examples of. At a minimum, dealerships are going to want to stay far enough within the spirit of advertising regulations to avoid becoming a juicy target. To our knowledge, there is nothing wrong with the practice of overpaying on the customer's trade to pay it off and correspondingly overcharging on the vehicle purchased. But if that is what you are offering, then that is what you will need to advertise. Most customer's buying vehicles this way understand what they are getting into. It's the service they want and in some cases need. Theoretically, the only store traffic you will lose are the ones who would have come in with the wrong impression, that you were going to pay off their trade out of the goodness of your heart. That is the horn the FTC is blowing, and dealers need to hear it.

One strategy for dealers is to publicly go to the extreme on transparency to consumers. Southwest Airlines doesn't just charge lower baggage fees, they don't charge for them at all and advertise that doing so is foul practice. TD Ameritrade has made its policy of $9.99 flat rate fees with no maintenance charges its calling card. Progressive Insurance stands by its willingness to share the rates of competitors alongside its own. These companies have identified the things consumers hate and made their opposition to those practices a competitive advantage. Is it possible to be in the business of offering creative financing solutions and advertise your policies in a way that makes transparency a competitive advantage? For some stores, it's time to give it some serious thought. For all stores, the Government's message about the renewed crackdown on deceptive advertising is loud and clear.

Eric Miltsch
Dennis - your one recommendation for transparency has got to be the only solution for dealers to consider. This is another big move that will surely help the perception of the industry while improving the consumer experience as well. Excellent post!
Dennis Galbraith
Thanks Eric. Of course, our first objective is to help dealers understand that a wave of change has begun. Secondly, stimulate thought on how to maximize profit in the midst of that wave. Transparency is what consumers want, what regulators want, and can be a competitive advantage for leading dealers.
Bart Wilson
Excellent article. I would recommend that you watch Tracy Myers' response he posted on Facebook. You can view it here: http://www.youtube.com/watch?v=MzMUNfUMBhQ
Dennis Galbraith
Thanks for that link Bart! Tracy is a good owner who has been wonderful to the industry, his community, and DrivingSales. No dealer wants to go through what he has gone through this week. There is no question that any one of hundreds of dealers could have had the same fate. The FTC made it clear to us that these dealers were being made examples of, not because they were worst offenders, but luck of the draw. When you see one of our best being made an example of, you know the hammer is coming down.
Tracy Myers
Thank you for the excellent article. To punt it bluntly, this week sucked! Whew! Glad I got that off my chest. The FTC shared the same info with me that they did you, Dennis. I was the "luck" of the draw. Wow! Not sure what kind of luck they were speaking of but that's another story for another day. Please know that I wasn't upset that the FTC issued their press release. I had known it was coming since last Fall. What I didn't like was that it was entirely one sided and extremely sensationalized. Right or wrong, agree with it or not, I simply wanted to share MY side of the story. It had certainly not been told by the FTC. Since I've got such a real, transparent and immediate relationship with my social media friends/family/customers/community, I decided to post my story via video. It was a real, unscripted 11+ minute response. Poor production value, very unscripted but extremely real and transparent. The response has been more than I could have ever hoped for. I've received more than 1,000 emails, texts, phone calls and social media messages with more than 99% of them being positive and some being from people I don't even know. And that video led to this blog post: http://www.persuasiveconcepts.com/social-media/when-pr-nightmares-strike-social-media-can-save-your-business/ And this one: http://www.cardealerswhocare.com/ I am thankful for not only my friends at DrivingSales but for the dealer community as a whole for all the support they have shown me and my family during this debacle. It will not be forgotten.

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