The Federal Trade Commission abandoned a controversial proposal yesterday that would have required auto dealers to inspect used cars before sale to prevent deceptive sales practices, bowing to the auto dealers' political pressure and some commissioners' doubts about the plan's practicality.
Instead, the commission tentatively agreed on a different approach that would direct dealers to inform consumers whether used cars were covered by full or limited warranties or being sold "as is," with no assurance of quality by the dealer.
The used-car rating rule -- the latest hot potato the commission has had to juggle -- would not take effect for another nine months or more, if it survives a final review by the commission and Congress. Wendell H. Miller, a Binghamton, N.Y., dealer and president of the National Automobile Dealers Association said his group still opposes the FTC's action despite the changes made yesterday.
Commission members differed on whether yesterday's policy reversal was a concession to the dealers' clout or to common sense.
Before the vote, former chairman Michael Pertschuk noted that the inspection proposal might be vetoed by Congress -- 51 senators are on record opposing it. "In this regulatory climate, what effective rule does not run that risk?" Pertschuk asked.
But Commissioner Robert Pitofsky said it would be "inaccurate and unfair" to portray the commission as caving in to political pressure, however. He said he and Acting Chairman David Clanton were convinced the proposed inspection system wouldn't work.
The proposal, drafted a year ago, would have required used-car dealers to inspect 14 key automative components such as brakes, transmissions and electrical systems on each used car offered for sale. A "buyers guide" sticker designed by the FTC would have been attached to car windows, and dealers would have had to indicate the condition of the 14 systems by rating them as "okay," "not okay" or "We don't know."
The buyers guide would have stated: "If anything we've marked 'okay' is not okay on delivery, we have to fix it or give you back some money. If the problem is bad enough, you can make us take the car back." It informed consumers they would have to pay the costs of repairing other items.
Pitofsky said "we all recognize that unscrupulous sellers now make false claims," for example, by telling customers that faulty brakes on a used car were in good shape and then denying having said so when the angry buyer returns for repairs. "An "okay" rating system wouldn't prevent the same dishonest dealers from insisting that the brakes were in good shape when the car left the lot, he said.
Commissioner Patricia Bailey, agreeing with the FTC staff that consumer fraud in used-car sales is a major problem, said consumers would be helped more by a sticker that directs dealers to indicate what parts of a used car are covered by full or partial warranties. Under her plan, a dealer also could sell a used car "as is," making no promises about its condition and taking no responsibility for any repairs required after sale.
Her proposal was given general approval by the commission, but the staff was asked to try to resolve a remaining issue -- whether dealers would have to disclose "known defects" in their used cars on the buyers-guide sticker. The staff is to report back soon what kinds of defects would be covered by the rule.
James Sneed, director of the FTC's Bureau of Consumer Protection, said that the FTC could bring a civil suit against dealers where there was a clear pattern of deceiving consumers by deliberately concealing major defects. A few such suits would be a significant deterrent, the FTC staff argues.
Miller said the dealers will try to get the "known defects" provision knocked out before the rule is finally approved and, if that fails, will push for a congressional veto of the entire proposal. A "defects" rule would prompt more and more car dealers to refuse to handle older, problem used cars, Miller said.