The Federal Trade Commission put auto dealers on notice in March, describing a range of pricing tactics it considers deceptive. The agency’s expectation, said Christopher Mufarrige, director of the FTC’s consumer protection bureau, is that advertised car prices include all mandatory fees other than sales taxes and registration fees.
“I have been encouraged by the reaction. That said, you’ve always got your bad apples out there,” Mufarrige said. He added that the agency is preparing to enforce its warnings after allowing an industry “adjustment period” in which it plans to publish answers to common compliance questions.
The car-buying service CoPilot tracked 500 used-car sales it assisted from December through April. It found that 59% of those sales included discretionary fees that were not advertised in the online price. “The price you see online most of the time is not actually the price you’re expected to pay to take that car home,” said Michaela Baker, CoPilot’s co-founder and head of product management. She said the tactics are common in new-car sales as well, including after the FTC’s warning.
CarEdge, another car-buying aide, analyzed price quotes from more than 10,000 new- and used-car dealers. It found meaningful differences between the advertised price and the actual itemized quotes for nearly 40% of dealers. Most dealers do not provide itemized prices in writing, said Zach Shefska, CarEdge’s chief executive. “There is still endemic price misinformation on the internet,” he said.
Specific cases illustrate the gap. A CoPilot customer in late April inquired about a lightly used Dodge Charger advertised by Quakertown Mitsubishi in Quakertown, Pennsylvania, for $35,490. Over 21 emails, the shopper learned the actual price was $40,025, plus a $490 documentation fee. The dealer offered a $2,000 discount if the buyer financed through the dealership. A sales manager at Quakertown Mitsubishi explained that the online price was based on “eligible discounts” that not everyone qualifies for, and when the shopper pushed for the advertised price, the dealer wouldn’t budge. Neither the sales manager nor the dealership responded to requests for comment.
In another case last month, a CoPilot user obtained a price quote for a certified preowned Subaru Outback advertised for $41,064 by Landers McLarty Subaru of Huntsville, Alabama. The breakdown included a $899 documentation fee, a $550 certification fee, and an additional $3,250 for a “CPO Wrap” that expands warranty coverage. The dealership didn’t respond to requests for comment.
The most common unadvertised charge is the documentation, or “doc,” fee, which dealers assess for completing sale paperwork. Many states have imposed a cap on the fee. Dealers may also charge for antitheft devices, paint protection coatings, vehicle identification number etching, and accessories such as door-edge guards and floor mats. For used cars, some dealers levy “reconditioning” fees, even though preparing the vehicle for sale is a normal part of the business, Baker said.
“You find the car that you really wanted to buy, the online price is attractive, you show up to the dealership, and all of a sudden it’s $4,000 or $5,000 more because it was preloaded with whatever the dealer decided to put on,” said Joe Belmonte, general manager of Infiniti of Clarendon Hills, near Chicago. “They tell the customer, it’s not optional, you have to buy it; it’s already on the car.” Belmonte said his own store mandates a documentation fee and an electronic filing fee but that add-ons such as dent protection are optional.
The FTC’s mandate that advertised prices include all fees has been tricky to implement because many car shoppers start on marketplace sites such as Cars.com, CarGurus, and Autotrader, searching for the lowest prices. Dealers that include fees are at a disadvantage to those that hope to reel in customers and tack on costs later, Belmonte said. The sites said they are taking steps to avoid promoting listings with falsely advertised prices. Kelley Blue Book and Autotrader temporarily removed badges declaring certain cars “Good Price” or “Great Price.”
On TrueCar, most dealers have chosen to bake more costs into their advertised prices instead of eliminating fees and add-ons, said Scott Painter, TrueCar’s chief executive. “Prices are a little higher, but everybody’s prices are a little higher,” Painter said. “Dealers are dealers. They’re still going to make their money; it’s just a matter of how they get there.”
The FTC’s warnings were backed by enforcement action. In April, the agency announced a settlement with Lindsay Automotive Group, a Maryland dealer of Chevrolet, Ford, and Chrysler vehicles. The dealer agreed to pay up to $75 million in restitution to consumers and a $3.1 million penalty for advertising false prices and stuffing transactions with unwanted add-ons. Lindsay Automotive Group didn’t respond to a request for comment.
“It did freak out a lot of dealers,” Painter said. “These fines are not insignificant.”
A spokeswoman for the National Automobile Dealers Association said anecdotal reports from various dealers indicate that compliance with the FTC rules is increasing, but that car-price advertising can depend on several factors. “The FTC’s stated expectation across multiple industries—that consumers see an advertised price that includes all costs associated with a product—is a reasonable one,” the spokeswoman said. She added that the NADA is working with the FTC to educate dealers, manufacturers, and other groups about the rules.
Adam Crowell, chief legal and strategy officer at KPA, a compliance firm for automotive dealers, said the major disruption from the FTC’s guidance is the expectation that advertised prices include all mandatory fees other than taxes and registration.