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GM deceived buyers of used cars subject to recalls, FTC says

Auto dealers aren’t required by law to fix safety defects before selling a car. (AP Photo/Lisa Poole)
Auto dealers aren’t required by law to fix safety defects before selling a car. (AP Photo/Lisa Poole)

(Bloomberg) -- General Motors Co. and two car dealers settled U.S. claims that they touted rigorous inspection of used cars, yet were selling vehicles that had been subject to safety recalls and hadn’t been repaired.

GM marketed used cars at local dealerships that had open recalls for defects related to ignition switches, power steering, braking and airbag deployment without disclosing the problems, the Federal Trade Commission said in a statement Thursday.

“Companies touting the comprehensiveness of their vehicle inspections need to be straight with consumers about safety-related recalls, which can raise major safety concerns,” said Jessica Rich, the head of the FTC’s consumer protection unit. Rich said on a phone call with reporters that the agency would continue to monitor car dealers’ ads. “We do hope these actions send a message to the market as a whole.”

Besides GM, the FTC also settled claims against Jim Koons Management, which has 15 dealerships in the mid-Atlantic region, and Lithia Motors, which has more than 100 stores in the West and Midwest.

“We made changes to our certified pre-owned marketing program last year to address the FTC’s concerns and we are pleased with the proposed resolution of the matter,” said GM spokesman Jim Cain.

Misrepresenting facts about safety of used cars

Under the settlement, which remains in effect for 20 years, Detroit-based GM and the dealers are prohibited from misrepresenting material facts about the safety of used cars they advertise. They must also inform customers that their vehicles may have an open recall. Each violation can result in a fine of up to $16,000.

Auto dealers aren’t required by law to fix safety defects before selling a car. Legislation to make that mandatory was backed by the Obama administration but opposed by the dealers’ trade association and not included in the recently passed measure setting U.S. transportation policy for the next five years.

Jim Koons Management said in a statement that it’s not aware of a single customer complaint about its advertising.

"We strongly believe we have fully complied with the letter and spirit of the law," the company said. "It has been our policy for many years to rigorously inspect our used vehicles and make recall repairs when possible."

A representative of Lithia Motors didn’t respond to a request for comment. Shares of Lithia Motors, based in Medford, Oregon, fell 3.9% to $73.79.

Should Congress require used-car dealers to repair vehicles under a safety recall?

The National Highway Traffic Safety Administration has called on all auto dealers to voluntarily refrain from selling used cars with unrepaired safety defects.

“The Department of Transportation has asked Congress to require used-car dealers to repair vehicles under a safety recall before delivering those vehicles to customers, which would mirror the requirement to remedy new cars before sale,” Mark Rosekind, administrator of the National Highway Traffic Safety Administration, said Jan. 21 at the Washington Auto Show. “The department continues to believe this is the right approach.”

Dealers have argued that a complete ban on the sale of used cars with open safety recalls would be damaging to consumers because it would reduce the value of their trade-ins. They’ve also said only a small fraction of safety recalls order consumers to stop driving, and that consumers are capable of assessing the risk from a particular safety defect.

--With assistance from David Welch.

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Copyright 2016 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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