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GM, Jim Koons and Lithia Settle FTC’s Complaints Regarding CPO Claims

January 28, 2016

WASHINGTON, D.C. — The Federal Trade Commission (FTC) announced today that General Motors, Jim Koons Management and Lithia Motors Inc. have agreed to settle the regulator’s allegations that each touted rigorous inspections for certified pre-owned vehicles, but failed to disclose that some of the vehicles they were selling were subject to unrepaired safety recalls.

According to the FTC, Jim Koons Management, which has 15 dealerships in the Mid-Atlantic region, and Oregon-based Lithia Motors Inc., which operates more than 100 stores in the West and Midwest, are two of the largest retailers of used cars in the nation.

“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 regarding 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 alleged 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 and 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, which also does business as Jim Koons Automotive Cos., 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 the dealer group made about its “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.”

The FTC’s complaint alleges that some of the cars Lithia advertised were also 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, the 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.

The FTC’s actions are part of its ongoing crackdown on deceptive advertising, officials said. Since 2012, the FTC has brought 40 actions in auto-related transactions.

The commission vote to issue the administrative complaints and to accept the consent agreements was 4-0. The FTC will soon publish a description of the consent agreement packages in the Federal Register, the regulator said. The agreements will be subject to public comment for 30 days, beginning today and continuing through Feb. 29, 2016, after which the commission will decide whether to make the proposed consent orders final.

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