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FTC rules may empower monopolies

Alex Snyder

President Skroob
Staff member
May 1, 2006
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This December, we may be looking at long-running repercussions cascading through showrooms, websites, finance offices, and data companies. The FTC has made it fairly clear it fully intends to push new rules that relate to:

  • how a vehicle price/payment is disclosed in the showroom
  • how a vehicle price/payment is advertised
  • the abolishment of certain F&I products
  • how aftermarket products are disclosed
  • how consumer data is protected

The combination of these new rules will create some winners and losers. The ultimate losers will be car dealers and, very possibly, consumers. The irony is that consumers are who the FTC believes they are protecting, but these new rules may force scrutiny on how we all show pricing; the customer may not be able to get to what a car costs without jumping through a lot more hoops.

The third group who will pay for these new rules are the vendors who cater to car dealers. I am part of that group, so I am heavily interested in identifying the risks to my business.

FRIKINtech generates highly actionable leads for car dealers by giving the consumer quick access to the lowest transactional payment/price with all taxes, fees, and equity included built off a deal structure approved by sales managers. Regarding how a price/payment is disclosed, we are in good shape! We are in even better shape because we can supply all this data to dealership ad agencies for them to be compliant with these new rules. Where I have major concern is in "how consumer data is protected," but I will come back to that.

What do we have to do to comply:
  1. Educate my executive team and me. @tomkline has been helping us with that.
  2. Explain to our investors and board that our 18-month product roadmap will be disrupted.
  3. Work with our attorneys to understand the new rulings best and help them understand how our product currently works. Then we will have to continue showing the attorneys the changes we have made. At hundreds of dollars per hour, that could add up quickly.
  4. Make development changes to the product that complies with the advice our attorneys gave us.
  5. Make integration changes with other data suppliers as they go through the above steps.
  6. Educate our support staff, so they can explain how our products work for dealers in staying compliant with these rules.
  7. Educate our BDC staff on how to speak to dealership customers.
  8. Educate our agency partners on what data fields they need to pay closer attention to in the feeds we send them.
  9. Work with every CRM company based on their (assumed) new ways of receiving lead data. Of the 15+ we work with today, that could be a sprint's-worth of work per system. Sprints are 2-week increments for each engineering team.
  10. Change our insurance policies, so we have all these bases covered in case something goes wrong.
  11. Present to our investors and board how this all shook out in money spent to that point, lost potential revenues, new ongoing expenses, what pricing changes we may have to make to our products, all the legal shifts, and an overall plan on how we have to make up for the costs in this disruption.
  12. Other things that are going to come up I cannot foresee.

Making winners by empowering MONOPOLISTIC opportunity on customer data:

"How consumer data is protected" is the first opportunity for any company accepting leads that dealers work with. Today, the standard is in a code called ADF/XML that is sent via email. Because it is sent via email, encryption is impossible without some sort of additional security layers. Most leads are not sent with any encryption. Basic lead form data items like Customer First Name, Customer Last Name, Phone, and Email address are visible within the email.

If lead-accepting dealership-process software (CRMs, for example) move to something like an open HTTPS secure channel with some sort of encryption capability as their standard, most of us can work with that easily. My engineering team could shift us over in a sprint, but we may have to do it 15+ times, as I referenced in #9 above.

If these software companies decide to make this part of some "certification process," things will worsen.

Certifications = money from the vendor that translates into increased costs for the dealer. I understand the need to pay for an integration when development is necessary. I can even buy paying a monthly fee for ongoing pipe usage, but sometimes these fees come with a significant markup. Some companies have created quite the revenue stream on these. I fear new ways of accepting leads could spurn a new area of revenue and raise costs on many technologies. The dealer would have increased costs in most software they pay for, and they would, in turn, have to lay those costs on the consumer. This is another irony in how the FTC is trying to protect consumers.

If Certifications were to become the norm, we'd look at immediate backlogs. The FTC rules go into effect this December, and I have yet to hear from any CRM companies about what we need to change to fit how they will deal with it. The certification process isn't just development work; it begins by trying to connect the appropriate BizDev folks who then talk through what each company wants at a high level; then an NDA is signed (which can take days), another meeting with more people to talk through complexities (herding cats), followed by the presentation of pricing, then an agreement is drafted by an attorney, and once signed a development schedule is agreed to. The certification process begins with both development teams working together to make sure the data is passing between both systems as smoothly as possible, then, a final team looks over things for technical approval while the BizDev crews are exchanging marketing logos and press release approvals. By this point, the setup fee has usually been paid or a downpayment because of the size of that fee. That means billing is in place to continue on the monthly fees, but quite often, there are monthly disputes on the number of dealers, etc.

Making winners by empowering MONOPOLISTIC opportunity on payment/price data:

My company could benefit in a big way here. We may only need to make a few small UI tweaks to comply with the new rules. We could even remove a few lines of code in place to not be so exact on the payment. Some dealers want to show payment ranges, for example. Very quickly, we could capitalize on this. Payment calculation APIs like Market Scan and OfferLogix are in prime positions to help too.

The companies that can make quick pivots and grow adoption could be seen as a threat to organizations that may institute a "lead certification." In time, this could lead to complications on those certifications.

The companies with the most money and data hold the keys to how well our industry works within these new FTC guidelines. As the FTC obviously is not wanting to work better with NADA, I am hoping NADA can turn its focus to helping the industry play nice together. More threats are around the corner.
 
NADA was kind enough to fire over their official response to the FTC. It is a really short read... 140 pages.


NADA said:
The Commission's notice of proposed rulemaking (NPRM) is ill-conceived, ill-supported, ill-coordinated, untested, and unlawful. It also is unnecessary as each harm it seeks to address is already regulated under existing law. If finalized as proposed, the NPRM will inject massive costs into the auto retailing process, greatly extend transaction times, greatly confuse consumers, and impede efficiencies aided by technological innovations that have significantly improved - and continue to improve - the consumer experience. The NPRM is severely flawed both as a matter of law and public policy. It must be withdrawn.

In other words, FTC, go pound sand :321:
 
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NADA was kind enough to fire over their official response to the FTC. It is a really short read... 140 pages.




In other words, FTC, go pound sand :321:
I tried to read through some of this. What I got was a whole lot of "we already have rules in place to handle this". It is really hard reading and full of Acronyms.

Personally, I believe the issue with that deceptive advertising tactics fall squarely on the States compliance people. We dealt with this in Nebraska. The Licensing Board refused to step in due to "jurisdiction" conflicts. The Board said that they could not enforce Nebraska regulations on 3rd party sites that encompassed a much larger market than just Nebraska. My rebuttal was...bullshit if you can't, if the dealer holds a Nebraska license then they are required to follow Nebraska laws. If the dealer doesn't like it, then move your business to Iowa, Missouri, Kansas, or wherever the hell you want.

In addition, most of the rules and regulations were written 30 years ago and are in desperate need of updating.

I believe we need to do something, but this proposal seems excessive to say the least. This could be simplified to the point that all dealers could comply with ease. As it stands, this is unrealistic.
 
This December, we may be looking at long-running repercussions cascading through showrooms, websites, finance offices, and data companies. The FTC has made it fairly clear it fully intends to push new rules that relate to:

  • how a vehicle price/payment is disclosed in the showroom
  • how a vehicle price/payment is advertised
  • the abolishment of certain F&I products
  • how aftermarket products are disclosed
  • how consumer data is protected

The combination of these new rules will create some winners and losers. The ultimate losers will be car dealers and, very possibly, consumers. The irony is that consumers are who the FTC believes they are protecting, but these new rules may force scrutiny on how we all show pricing; the customer may not be able to get to what a car costs without jumping through a lot more hoops.

The third group who will pay for these new rules are the vendors who cater to car dealers. I am part of that group, so I am heavily interested in identifying the risks to my business.

FRIKINtech generates highly actionable leads for car dealers by giving the consumer quick access to the lowest transactional payment/price with all taxes, fees, and equity included built off a deal structure approved by sales managers. Regarding how a price/payment is disclosed, we are in good shape! We are in even better shape because we can supply all this data to dealership ad agencies for them to be compliant with these new rules. Where I have major concern is in "how consumer data is protected," but I will come back to that.

What do we have to do to comply:
  1. Educate my executive team and me. @tomkline has been helping us with that.
  2. Explain to our investors and board that our 18-month product roadmap will be disrupted.
  3. Work with our attorneys to understand the new rulings best and help them understand how our product currently works. Then we will have to continue showing the attorneys the changes we have made. At hundreds of dollars per hour, that could add up quickly.
  4. Make development changes to the product that complies with the advice our attorneys gave us.
  5. Make integration changes with other data suppliers as they go through the above steps.
  6. Educate our support staff, so they can explain how our products work for dealers in staying compliant with these rules.
  7. Educate our BDC staff on how to speak to dealership customers.
  8. Educate our agency partners on what data fields they need to pay closer attention to in the feeds we send them.
  9. Work with every CRM company based on their (assumed) new ways of receiving lead data. Of the 15+ we work with today, that could be a sprint's-worth of work per system. Sprints are 2-week increments for each engineering team.
  10. Change our insurance policies, so we have all these bases covered in case something goes wrong.
  11. Present to our investors and board how this all shook out in money spent to that point, lost potential revenues, new ongoing expenses, what pricing changes we may have to make to our products, all the legal shifts, and an overall plan on how we have to make up for the costs in this disruption.
  12. Other things that are going to come up I cannot foresee.

Making winners by empowering MONOPOLISTIC opportunity on customer data:

"How consumer data is protected" is the first opportunity for any company accepting leads that dealers work with. Today, the standard is in a code called ADF/XML that is sent via email. Because it is sent via email, encryption is impossible without some sort of additional security layers. Most leads are not sent with any encryption. Basic lead form data items like Customer First Name, Customer Last Name, Phone, and Email address are visible within the email.

If lead-accepting dealership-process software (CRMs, for example) move to something like an open HTTPS secure channel with some sort of encryption capability as their standard, most of us can work with that easily. My engineering team could shift us over in a sprint, but we may have to do it 15+ times, as I referenced in #9 above.

If these software companies decide to make this part of some "certification process," things will worsen.

Certifications = money from the vendor that translates into increased costs for the dealer. I understand the need to pay for an integration when development is necessary. I can even buy paying a monthly fee for ongoing pipe usage, but sometimes these fees come with a significant markup. Some companies have created quite the revenue stream on these. I fear new ways of accepting leads could spurn a new area of revenue and raise costs on many technologies. The dealer would have increased costs in most software they pay for, and they would, in turn, have to lay those costs on the consumer. This is another irony in how the FTC is trying to protect consumers.

If Certifications were to become the norm, we'd look at immediate backlogs. The FTC rules go into effect this December, and I have yet to hear from any CRM companies about what we need to change to fit how they will deal with it. The certification process isn't just development work; it begins by trying to connect the appropriate BizDev folks who then talk through what each company wants at a high level; then an NDA is signed (which can take days), another meeting with more people to talk through complexities (herding cats), followed by the presentation of pricing, then an agreement is drafted by an attorney, and once signed a development schedule is agreed to. The certification process begins with both development teams working together to make sure the data is passing between both systems as smoothly as possible, then, a final team looks over things for technical approval while the BizDev crews are exchanging marketing logos and press release approvals. By this point, the setup fee has usually been paid or a downpayment because of the size of that fee. That means billing is in place to continue on the monthly fees, but quite often, there are monthly disputes on the number of dealers, etc.

Making winners by empowering MONOPOLISTIC opportunity on payment/price data:

My company could benefit in a big way here. We may only need to make a few small UI tweaks to comply with the new rules. We could even remove a few lines of code in place to not be so exact on the payment. Some dealers want to show payment ranges, for example. Very quickly, we could capitalize on this. Payment calculation APIs like Market Scan and OfferLogix are in prime positions to help too.

The companies that can make quick pivots and grow adoption could be seen as a threat to organizations that may institute a "lead certification." In time, this could lead to complications on those certifications.

The companies with the most money and data hold the keys to how well our industry works within these new FTC guidelines. As the FTC obviously is not wanting to work better with NADA, I am hoping NADA can turn its focus to helping the industry play nice together. More threats are around the corner.
It’s my opinion the FTC isn’t going to listen to NADA, RVDA, or NIADA. Remember, the vote to pass these proposed regulations was 4 to 1. The vote to extend the deadline was 5 to 0 against giving additional time for comments. We will see what happens here but likely these organizations’ comments will not move the FTC to action.