With the FTC hot on dealers’ heals, the FTC is looking for advertising that could appear deceptive.
March 15, 2024
By Barrie Charapp Beaty
Charapp & Weiss, LLP
bbeaty@cwattorneys.com
Consumers view “certified” pre-owned vehicles as the gold standard and something more than just a run of the mill used car. Whether it’s a manufacturer CPO program or your own certification, dealers must properly disclose the CPO status of a vehicle.
With the FTC hot on dealers’ heals, the FTC is looking for advertising that could appear deceptive. Dealers that have their own “Certified” program need to identify that the CPO vehicle for sale is either the dealer’s certification or a manufacturer’s CPO vehicle. Otherwise, consumers will think the certification is one from the manufacturer. Lack of accurate disclosure opens dealers up to allegations of deceptive practices. The FTC views lack of disclosure as unfair and deceptive and so do plaintiffs’ attorneys. Plaintiffs’ attorneys have developed lawsuits based upon the theory that a used car certification is a representation of quality that, if not true, justifies not only a recovery for compensatory damages but punitive damages for the fraudulent misrepresentation inherent in the certification claim.
- What does the CPO mean?
For dealer’s that have their own CPO program, it must be clear what the term “certified” means. If it's under their own program, Dealers cannot just advertise “Certified Pre-Owned” without providing who has certified the vehicle and under what program. Consumers automatically think a “Certified” vehicle means it is meeting a manufacturer certified program rather than a dealer’s own certified program. What are the dealer’s developed standards that make this vehicle certified? Do those standards provide significant benefits to the customer by ensuring that the vehicle is in good mechanical condition, is free from serious body damage or flood damage, and meets some objective standards of quality?
For dealer’s that are certifying the vehicle under a manufacturer program, you must ensure that the manufacturer’s CPO requirements are met prior to selling the vehicle to the consumer. Dealers should be following the rules set forth in the manufacturer’s Program Manual and should adhere to all program requirements. For example, for some manufacturer CPO vehicles, the vehicle must be submitted to the manufacturer and it be approved for sale by the manufacturer as a CPO vehicle prior to selling it to customers.
- The vehicle has to be inspected. So what are the standards for that inspection?
A dealer should be sure that each certified used car in the dealership’s inventory meets the established inspections standards either by its own program or the manufacturer’s. If you have your own program, the program should identify the inspection process and standards for each item to be inspected. Such standards guide the technicians and assure customers that the vehicle is in the best condition possible. For your program, what are technicians certifying and what qualifications do they have? For manufacturer programs, you should be following the program with a manufacturer certified technician doing the Point Inspections and Condition Reports. All inspection reports should be kept by the dealership and a copy provided to the customer. For one manufacturer, their manual requires the inspection report to be kept for a minimum of 7 years. Also, some manufacturers require copies of the warranty service records to be provided to the customer buying a CPO vehicle. Dealers often fail to provide a printout of the warranty service records to a customer buying a manufacturer CPO vehicle with the purchase documents.
Management should spot check the internal records of the used car department to ensure that vehicles certified have, in fact, been inspected, and to the standards required by your program or that of the manufacturer’s. Records of used car mechanics or service department technicians should be spot checked to be sure sufficient time has been spent to do the certification. There is a lot of room for error when a trade in, for example, travels from the new car department to the used car department to the service department back to the used car department. A dealership’s certification program will quickly lose its meaning, and be costly for the dealership, if the standards are not carefully and continuously applied.
- Problems need to be repaired for the vehicle to be certified.
Customers presume that certified used cars are free of mechanical problems. Vehicles with open recalls cannot be certified. All problems with a vehicle must be repaired prior to certification and sale of the vehicle, which is required by manufacturer programs and should be in your own dealer certification program. Like the inspection report, the repair work done on a certified vehicle should be kept ensuring completion and accuracy in following the program. Again, the same manufacturer requiring the inspection report for a minimum of 7 years requires the same for any repairs for the vehicle.
- What is the warranty?
Any consumer expects the dealer to stand behind its certified used cars. A certified car must have a meaningful warranty. For vehicles certified under manufacturer programs, the manufacturer provides the warranty. For dealer CPO programs, your separate warranty must be written and provided to the customer on a separate document. The Buyers Guide does not suffice as the warranty document. What does the customer get with purchasing a CPO vehicle that you certified?
- Cars that have sustained serious body damage or flood damage should not be certified. We are not talking here about minor dents and dings or a fender that’s been crumpled. We’re talking about a serious accident. We’re talking about real flood damage. Customers assume that cars that have been certified have not incurred these types of problems. Most manufacturer programs require a CARFAX as part of the certification process, and so should a dealer’s program. Put the vehicle on a rack to see if there is any evidence of this kind of damage in the undercarriage. If the vehicle sustained this kind of damage, do not certify it. Manufacturer programs outlaw these types of vehicles from being certified and so should your program.
- Is it still a certified vehicle? In many dealerships, used cars are driven as demonstrators. Therefore, the vehicle may pass a certification in January, but in July, after being driven 4,000 miles for travel soccer and baseball games, the popular SUV may have problems that were not apparent when the certification inspection took place. After the passage of time or accumulation of miles, vehicles should be recertified. The certification should be in close proximity to the sale.
- How are you advertising CPO Vehicles? As we stated in the introduction of this article, disclosure of who is actually certifying these vehicles is mandatory. Consumers automatically think “certified” means that it falls under a manufacturer certified program. The advertisement should provide what certified means and by who. There should be disclosure that its your program versus a manufacturer program. Lack of disclosure is ripe for a claim of misrepresentation and deception by both the FTC and plaintiffs’ attorneys.