Fighting Deceptive Pricing
The U.S. Federal Trade Commission seeks to involve car dealerships in the fight against misleading buyers about the real cost of cars. On paper, it sounds logical: honest dealers report unscrupulous competitors, violators are punished, and consumers finally stop falling into the trap of impossibly low prices that skyrocket as soon as the customer is in the dealership. However, the problem is that this system will only work if there are enough truly “honest” dealers.
Call to Action and Existing Practice
During a webinar with the National Automobile Dealers Association on April 17, FTC representative Christopher Muffarridge urged dealers to report competing dealerships that violate federal advertising rules. The agency’s chairman, Andrew Ferguson, noted that consumers remain frustrated by the discrepancy between advertised prices and those offered to them at the dealership.
“Consumer frustration persists with the prices advertised and the prices actually offered at the dealership,” said agency chairman Andrew Ferguson.
According to Automotive News, the agency has already sent warning letters to 97 dealer groups regarding potential pricing violations and now seems to be seeking to “swear in” the rest of the industry to loyalty. There is no doubt that deceptive pricing is a widespread phenomenon. Hidden documentation fees, mandatory add-ons, fine print disclaimers, and bait-and-switch offers have been part of dealer practice for many years.
Problems with the Proposed Approach
The FTC states that dealers must now advertise the true full price, including all fees, and not hide them until the buyer is already deeply engaged in the purchasing process. But if such practices are as widespread as regulators claim, then the request for dealers to police each other has an obvious flaw: many of them may have no interest in doing so.
It is not hard to imagine that some dealerships might quietly come to a tacit agreement. You don’t report us, we don’t report you. Everyone continues to advertise unrealistically low prices, everyone continues to attract customers, and no one risks bringing regulatory pressure on the local market.
Risk of Abuse and Need for Tough Measures
There is also the opposite scenario. A dealership could report a competitor, watch as the FTC forces them into compliance or out of business, and then itself return to using the same tricks once the competition weakens. After all, if one “bad apple” disappears, another dealership can quickly take its place.
If the FTC is serious about changing dealer behavior, relying on competitors to “rat” each other out may prove insufficient. It is more likely to require aggressive enforcement, random audits, and substantial fines that make deceptive pricing more expensive than simplicity and honesty.
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The FTC’s initiative points to a systemic problem in an industry where consumer trust has been undermined by long-standing practices. It is still unclear whether an approach relying on industry self-policing can yield significant results without a parallel increase in direct oversight and transparency at the state level. Success will also depend on the willingness of buyers themselves to scrutinize deal terms and demand clarity, which could create additional pressure on dealers to comply with the rules.