Markets Wired

Note: A conference call for media with Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, was held:

Date: Jan. 28, 2016
Time: 1 p.m. ET

Rich and FTC staff took questions from the media about the case.

General Motors Company, Jim Koons Management and Lithia Motors Inc. have agreed to settle separate Federal Trade Commission administrative complaint allegations that each touted how rigorously they inspect their cars, yet failed to disclose that some of the used cars they were selling were subject to unrepaired safety recalls. Jim Koons Management, which has 15 dealerships in the Mid-Atlantic region, and Oregon-based Lithia Motors Inc., which has more than 100 stores in the West and Midwest, are two of the nation’s largest used car dealers.

“Safety is one of the biggest considerations for consumers shopping for a car,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “So companies touting the comprehensiveness of their vehicle inspections need to be straight with consumers about safety-related recalls, which can raise major safety concerns.”

The FTC’s complaint against General Motors cites the company’s representations for “Certified Pre-Owned Vehicles,” such as:

Our 172-Point Vehicle Inspection and Reconditioning Process is conducted only by highly trained technicians and adheres to strict, factory-set standards to ensure that every vehicle’s engine, chassis, and body are in excellent condition. The technicians ensure that everything from the drivetrain to the windshield wipers is in good working order, or they recondition it to our exacting standards.”

The FTC alleges that GM advertised numerous Certified Pre-Owned vehicles at its local dealerships using these claims without disclosing that certain used cars offered for sale were subject to previously announced open (unrepaired) recalls for safety issues.

According to the FTC’s complaint, those cars subject to recalls had defects that can cause serious injury, including a key ignition switch defect that can affect engine power, power steering, braking and airbag deployment, problems in the body control module connection system that can affect braking, and chassis electronic module defects that can cause engine stalls.

The FTC’s complaint against Jim Koons Management Company, which also does business as Jim Koons Automotive Companies, notes the company’s purported “guarantee” that:

“Every certified Koons Outlet vehicle must pass a rigorous and extensive quality inspection before it can be sold. Our certified mechanics check all major mechanical and electrical systems and every power accessory as part of our rigid quality controls.”

The complaint alleges that some cars were subject to unrepaired recalls, including those involving the key ignition switch, alternator-related defects that could cause unexpected vehicle shutdown or an electrical fire, and a rear suspension defect that could result in a fuel leak or fire.

The FTC’s complaint against Lithia Motors cites claims for its dealer-backed “60- Day/3000 Mile” warranty, including:

“ . . . vehicles are put through an exhaustive 160-checkpoint Quality Assurance Inspection. . . . We inspect everything from the tires and the brakes to suspension, drive train, engine components and even the undercarriage.”

Nonetheless, the complaint alleges, some of the cars Lithia advertised were subject to unrepaired recalls involving defects in the key ignition switch and other safety issues.

Under the proposed consent orders, which would remain in effect for 20 years, the companies are prohibited from claiming that their used vehicles are safe or have been subject to a rigorous inspection unless they are free of unrepaired safety recalls, or unless the companies clearly disclose the existence of the recalls in close proximity to the inspection claims. The proposed orders also would prohibit the companies from misrepresenting material facts about the safety of used cars they advertise.

These proposed orders will also require the companies to inform recent customers, by mail, that their vehicles may have an open recall. For GM this requirement applies to Certified Pre-Owned used vehicles purchased between July 1, 2013 and the final order date; for Lithia, this requirement applies to Lithia Warranty used vehicles purchased during the same time period. For Koons, it applies to certified used vehicles purchased between July 1, 2013 and June 15, 2015.

Today’s actions underscore the FTC’s continuing efforts to protect consumers from deceptive advertising in the auto marketplace. Since 2012, the FTC has brought 40 actions protecting consumers in auto-related transactions. Consumers should read the FTC’s Buying A Used Car and the Used Car Buyer’s Guide, which offers car buying tips and suggests visiting the National Highway Traffic Safety Administration’s SaferCar.gov to determine if the vehicle they are considering buying, or own, has an unrepaired safety recall.

The Commission vote to issue the administrative complaints and to accept the consent agreements was 4-0. The FTC will publish a description of the consent agreement packages in the Federal Register shortly. The agreements will be subject to public comment for 30 days, beginning today and continuing through February 29, 2016, after which the Commission will decide whether to make the proposed consent orders final. Interested parties can submit comments electronically by following the instructions in the notices for GM, Jim Koons Management and Lithia Motors.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357). Like the FTC on Facebook, follow us on Twitter, read our blogs and subscribe to press releases for the latest FTC news and resources.