Settlements Allow Auto Dealers To Continue Selling Unrepaired Recalled Vehicles As “Safe”

If you bought a used car from a dealership that proudly claims to put each vehicle through “125-point” or “172-point” inspections, you might assume that your vehicle is safe to drive and that it isn’t under recall for a potentially deadly defect. However, a number of big names in used cars — including CarMax and General Motors — have recently entered into settlements with federal regulators that could allow used car dealers to continue marketing their vehicles as safe even while they may have unrepaired defects.

Most recalled consumer products — like cellphones with exploding batteries or blenders with defective blades — are illegal to resell until the product has been repaired or replaced.

However, most recalled vehicles are allowed to continue operating on the road while a fix is pending. These cars and trucks may also be sold without that repair being done beforehand.

The question is: Can you legally advertise a car as “safe” if it’s under recall?

Last January, the Federal Trade Commission alleged that GM and two other car dealers had violated the FTC Act’s prohibition against deceptive and unfair business practices by heavily touting their pre-sale inspection processes, but without being transparent about vehicles that were under recall.

GM’s marketing talked up its “172-Point Vehicle Inspection and Reconditioning Process… 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.”

Additionally, GM promised that “everything from the drivetrain to the windshield wipers is in good working order,” or the techs would “recondition it to our exacting standards.”

However, the FTC found that several vehicles sold by GM were still subject to open recalls, which appears to run counter to the promises made in the Certified Pre-Owned vehicle marketing.

In the FTC’s proposed settlement with GM, the car company agreed to abide by two options:

• Either cease marketing a used vehicle as “safe” if it was still under recall; or…
• Continue marketing vehicles as “safe,” but with clear and conspicuous disclosures that these cars and trucks may be subject to unrepaired recalls for safety issues — along with an explanation for customers on how to determine if a particular vehicle has been recalled.

This settlement was greeted with some concern by safety advocates and some lawmakers, who questioned whether these conditions would have any real effect on how recalled cars are advertised and sold.

“[T]he FTC’s proposed settlements would allow dealers to continue committing the same wrongdoing,” read a letter sent earlier this year by a coalition of U.S. Senators in response to the proposed GM deal. “Car dealers would still be able to represent that a pre-owned vehicle is ‘safe,’ has been ‘repaired for safety issues,’ and has passed a ‘rigorous safety inspection’ or to label a pre-owned car as being certified even when it is being sold with an unrepaired safety recall.”

While these legislators and other advocates called for the FTC to revise the settlement to give dealerships less latitude with regard to marketing recalled cars, the Commission doubled-down on its position this morning: First, it finalized the GM settlement without the advocates’ sought-after changes, then it announced a proposed settlement with CarMax, arguably the nation’s most well-known used car dealer.

For years, CarMax has bragged in its marketing that “Every car we sell is carefully inspected and reconditioned to the best condition possible.” The company regularly touts its 125-point inspection that includes checking the engine, transmission, brakes, suspension, steering, lighting, heating/air-conditioning, body and interior.

One point not on the CarMax list was whether a vehicle was under recall. Again, CarMax is allowed to sell vehicles that have been recalled.

In 2014, a coalition of safety advocates — including our colleagues at Consumers Union — petitioned the FTC to investigate CarMax’s marketing.

“It is inherently deceptive for an auto dealer to represent that its vehicles have passed a rigorous inspection, while failing to take even the most basic step of checking the vehicle’s safety recall status,” explained the petition.

In a statement to Consumerist for our article on that petition, CarMax pointed out that while it is equipped and allowed to perform its various inspections, the company is not authorized by manufacturers to make recall repairs. CarMax did not explain why it chose to not have these vehicles fixed at authorized dealerships, where the repairs would be done at no cost.

The FTC subsequently investigated CarMax, and — just as in the GM case — alleged that the car dealer was violating the FTC Act.

And like the GM settlement, CarMax has the option of ending the practice of marketing recalled vehicles as “safe” or continuing to market them this way, but with additional disclosures to the customer.

Today’s announcements were met with disappointment by safety advocates and the lawmakers who had pushed for changes to the GM settlement.

“The FTC has a critical role to play in cracking down on deceptive advertising in the auto marketplace, including when a company makes misleading claims about a car’s safety,” explains William Wallace, policy analyst for Consumers Union, who adds that the now-finalized GM settlement may set a “dangerous precedent” for the industry.

“All used car dealers – especially those who advertise their vehicles as ‘certified’ – should be prohibited from selling cars with unperformed safety recalls,” contends Wallace. “And they shouldn’t be let off the hook simply by disclosing the defect.”

Senators Richard Blumenthal (CT) and Ed Markey (MA) — two of the signers of the earlier letter — spoke harshly of the settlement, calling the decision “unsound,” “flawed,” and “anti-consumer.”

“Under no circumstances should potentially deadly vehicles be advertised as safe,” said Blumenthal. “The disclosure requirements do more to deceive than fully inform, and worse, could protect unscrupulous dealers.”

Added Markey, “Instead of ensuring safe cars for consumers, the FTC is ensuring safe harbor for used car dealers who provide false and deceptive assurances,” Markey said.

Cathy Chase, Vice President of Governmental Affairs at Advocates for Highway Safety called the finalized GM settlement “a repudiation of their statutory duty to protect consumers.”

She envisions the following scenario playing out: “Families will walk into dealerships to buy cars, be informed that the vehicles have been given a safety stamp of approval, be required to sign a pile of papers with a message tucked in that the car may be subject to unrepaired recalls for safety issues, and will drive off the lot at their own peril and a danger of everyone on the roads.”

We’ve reached out to FTC to see if the Commission has a response to these concerns, but have not yet received a response.

by Chris Morran via Consumerist