Part 1: The End Of ‘MSRP-Only’ Advertising
Under the Hood: A CARS Rule Series
Chris Cleveland, Co-Founder & CEO of ComplyAuto
As a compliance officer with a decade-long tenure at a large auto group in Southern California, I have weathered my fair share of compliance storms, but the landscape has just become significantly more complex with the Federal Trade Commission (FTC) introducing the Combating Auto Retail Scams Rule (Rule) that goes into effect on July 30, 2024. In our first installment of a series of articles covering the Rule, we will talk about one of the most impactful parts of the new regulations and how it will likely end the practice of ‘MSRP only’ advertising at your dealership.
One of the most important parts of the Rule is that every vehicle from now on must carry an “offering price” without exception. But what does that mean? The Rule defines the “offering price” as the “full cash price for which a dealer will sell or finance the vehicle to any consumer.” The only exclusions allowed from this price are required taxes and government fees (i.e. license, title, registration, state tire/battery fees, etc.), which the Rule defines as “Government Charges.” Any other charges or fees that fall outside of this strict definition, such as document processing fees, electronic filing charges, and “mandatory” add-ons, must be included in the offering price that is presented to the consumer. Now you’re probably wondering, “What is a ‘mandatory’ add-on?” A “mandatory” add-on is one that the dealer requires to be purchased with the vehicle. Some examples include, but are not limited to, accessories on customized vehicles, pre-installed window tint, or catalytic converter etching. Don’t worry — we’ll cover “optional” versus “mandatory” add-ons in more detail in a future article in this series. In short, the FTC intended to level the playing field with this “offering price” requirement by ruling out any room for ambiguity in vehicle pricing.
Approach to MRSP Advertising
While the “offering price” rule applies to both new and used vehicles, for many dealers, this will likely have the biggest impact on advertising new vehicles. In the past, dealerships often displayed the Manufacturer Suggested Retail Price (MSRP) on new vehicles with a disclaimer noting that the MSRP doesn’t constitute an advertised or offering price. After the Rule goes into effect, those days are over. The FTC believes that these disclaimers allowed dealerships to veil the actual prices of the vehicles by showing an artificially deflated advertised price online or in print. The Rule has effectively put a stop to “MSRP only” advertising by requiring that every new vehicle that is advertised contain a specific “offering price”.
This also means that dealerships can no longer sell a vehicle above the listed MSRP unless the specific “offering price” is listed. The FTC highlighted customer frustration with dealership practices, like advertising a Ford Raptor at a $70,000 MSRP, only to find the dealer’s actual asking price is something closer to $90,000 after all fees and a dealer markup. This discrepancy, which is particularly common with high-demand vehicles, has been a frequent customer complaint to the FTC and was a key consideration in formulating the new rules in these regulations to address these systemic issues.
Can dealers still list the MSRP on a specific vehicle advertisement?
The answer is “Yes”. Dealers can still list the MSRP on new vehicles, but they must also include the vehicle’s “offering price”. In other words, while the Rule does not prohibit showing the MSRP, it cannot be used in lieu of the offering price (this is why we said the end of “MSRP only” pricing and not “MSRP”). Again, the offering price is a distinct dollar figure that must encompass all mandatory add-ons and non-governmental fees, like dealer processing fees, electronic filing charges, and pre-loaded accessories, such as window tint.
What about OEM Requirements?
We are aware that many manufacturers require that dealers list the MSRP of the vehicle, and, as noted above, this practice can continue. However, dealers will now be required to show an additional offering price. Going forward, dealers might choose to calculate the offering price by adding mandatory add-ons and dealer fees to the MSRP and disclose that the price was calculated as such.
Although this may be a hard pill to swallow for some, the FTC believes that it is a significant step towards consumer-centric practices that may lead to an environment where trust becomes the bedrock of customer-dealer interactions. The FTC hopes that a precise, honest, and upfront pricing mechanism that will help foster a wholesome and long-standing relationship between dealers and their customers. Regardless of how you feel about this change, we are all going to have to do it and the change is going to be significant. Sales and advertising teams across the country will need to be educated on these new processes to make sure that they are ready when the Rule comes into effect. Dealers should also begin working with their website providers to adjust to these changes.
“Offering Price” in Finance Specials
Regarding finance specials, this represents a significant shift for many dealerships, which have traditionally not specified exact prices on finance specials due to varying MSRPs and prices of vehicles across their inventory. This new requirement for precise pricing signals a significant departure from these customary practices. Now, when advertising finance specials on particular makes and models, dealers will need to begin adding an “offering price” that includes all dealer fees and mandatory add-ons. From a practical standpoint, this means that dealers with either have to (1) limit the advertising of finance specials to specific vehicles with the same MSRP and offering price, or (2) broadly advertise the special and provide an example vehicle that truthfully represents those vehicles that have this special with a disclaimer that the price may vary depending on the particular vehicle selected.
Please be aware that lease specials are not subject to this requirement, and thus there is no obligation to list an offering price for them.
The good news: the FTC has indicated that not all the dealer fees and mandatory add-ons need to be individually itemized. Rather, they just need to be included in the total offering price.
Here are the key takeaways for dealership pricing and advertising practices for new vehicles under the CARS Rule:
- The MSRP can still be listed, but it cannot be the sole price displayed.
- Every new vehicle must include a specific “offering price,” encompassing all dealer fees and mandatory add-ons.
- Only legally required government charges may be omitted from the offering price.
- Vehicle finance specials for groups of vehicles must also clearly state the offering price.
- Lease specials do not need to include an offering price.
About this Series
Authored by various industry compliance experts at ComplyAuto, this series of articles will cover specific aspects of the Rule and will be released every month up to the Rule’s effective date of July 30, 2024. Each article will also be followed up by a short webinar that will provide further insight into the discussed topics and a live Q&A session for you to ask practical questions. If you would like to be notified of each article as they are released or of the ComplyAuto-hosted webinars, please send a note to [email protected] with “Subscribe to Newsletter” in the subject line of the email.