Dealers Predict Hefty Costs with New FTC Rules

A recent study by the Center for Automotive Research found that the Federal Trade Commission's proposed new rules on auto dealerships would cost dealers more money and customers more time than expected.

According to a May analysis based on polling of over 60 dealerships, the FTC's proposal would require the average consumer to spend an additional two hours on a vehicle transaction.

The research examined a 2022 FTC proposal that would expand disclosure and consent requirements for insurance products and physical accessories "not provided to the consumer or installed on the vehicle by the motor vehicle manufacturer." No further action has been taken on the FTC plan since the public comment period ended last year.

The National Automobile Dealers Association asked the independent nonprofit research organization, which has connections to the auto industry, to conduct a survey and helped identify potential survey participants among its members.

NADA strongly opposes the FCT’s proposed rules, having asked for their withdrawal and calling the agency's plan "severely flawed both as a matter of law and public policy."

The FTC predicted the proposed rules would reduce the time consumers spent on researching, shopping and visiting dealerships by three hours. But Center for Automotive Research interviews with five compliance professionals estimated consumers would spend at least an extra hour in the sales and F&I stages of a vehicle deal.

In addition, the research found the automotive retail sector would bear additional compliance expenses ranging from $18.69 billion to $22.34 billion over a decade, which is over 10 times the FTC's projected expense for compliance. The center reported a single dealership location would spend a median of $46,950 in upfront costs and $50,958 in recurring expenses each year to comply with the new rules.

Under the FTC's proposal, customers can't buy physical accessories or F&I products—both of which the FTC designates as "add-ons"—without first declining in writing the option to buy or finance the vehicle by itself. Both consumers and a dealership manager must sign the document.

The proposal also mandates that dealerships get "express, informed consent" from customers and provide them with cost information about "add-ons" before charging or financing the products.

Dealers say the new mandates would slow the paperwork process and complicate the transaction process for consumers.

When researchers combined the compliance cost figures with the value of two more hours of customer time (priced at $22.20 per hour by the FTC) per transaction, the net cost of the regulations over 10 years came to $38.06 billion to $45.87 billion. That's significantly higher than the $29.72 billion to $34.77 billion in net benefit predicted by the FTC.

Dealer respondents reported that they would likely pass any additional costs on to customers, according to the center.

Originally posted on Auto Dealer Today