When the FTC's CARS rule goes live, legacy automakers should modernize their sales practices
This July, the FTC will finally ban car dealers’ bait & switch sales tactics and junk fees. Legacy automakers should modernize sales in 3 more ways.
What is the FTC’s Combating Auto Retail Scams rule?
After decades of consumer complaints, the CARS rule was approved by the FTC last month. Starting July 30th, it will require car dealers to sell a car at the advertised or marketed price. It will also require dealers to inform consumers about the total payment when communicating monthly payments, and explicitly note that all add-ons are optional.
What’s the expected impact of the CARS rule?
It should be a huge win for consumers – saving them an estimated $3.4B per year. How? The rule will effectively create a ‘race to the bottom’ as advertised prices must be real offers. Secondly, car buyers will no longer be forced to spend hours at a dealership, negotiating how much extra money will be extracted from them.
Car dealerships, on the other hand, will be forced to adapt. Sales jobs will be displaced as more transactions move online. Most physical dealerships will likely evolve into showrooms and/or service centers. (Does the Los Angeles market really need 55 different Honda dealerships?)
How should automakers build on this change, and modernize their sales processes?
1.) Omnichannel (MSRP) pricing:
Transparency is the key. Automakers should provide one accurate price for the same-optioned car, valid at any physical dealership, online retailer (including Amazon), or direct sales channel. Any transportation or local government fees should be explained up front. Ultimately, it should be the customer’s choice of how and where they’d like to buy.
2.) Dynamic pricing:
The manufacturer should be able to adjust MSRP according to market demand/conditions. Consumers understand that higher demand products cost more. And consumers are less likely to resent those higher prices if they know a deserving manufacturer is making the profits, rather than a dealership/gatekeeper. Conversely, the ability to lower MSRP might also help automakers boost sales or respond to changes in government incentive programs. (Tesla changed Model Y pricing over a dozen times in 2023.)
3.) Standardized paperwork:
A customer should be able to create just one account, that seamlessly communicates with banks and autofills the required documents. All of the forms and documents should be as consistent as legally possible and accepted at every dealership. Any variations due to local government regulations and fees should be explained upfront.
In combination with the CARS rule, these changes will ensure that car shoppers never need to “shop around” and negotiate with each point of sale. The resulting enthusiasm will be a big win for automaker brands.
automotivemarketing, innovation, dynamicpricing, omnichannel, FTC, NADA, cardealers