Doing it "Gangnam Style": Hyundai drops $10B for posh Seoul real estate for new HQ location.

September 19, 2014

By: Denis-Andrei Mesinschi, Esq.

 

First it was the Hyundai XG350 that made people scoff at Hyundai's gaul at delving into the low-end luxury market.   To pundits, auto journalists, and the public alike the maker of the Pony was nothing more -- could be nothing more -- than a low-end producer of cheap import cars.    How dare they think they could move up-market?   That was in 2001.

 

Then it was the Genisis.  Hyundai's competent and, dare I say, "beautiful" step higher up just seven (7) years later.   The two cars couldn't be any more different:  the XG350, while lightyears ahead of the Pony, was on par with a lowly Buick in terms of luxury and quality ... the Genisis surprised everyone with interiors far better than those coming out of Detroit or Japan and so close to the Germans.

 

Hyundai has never been a brand lacking ambition or hubris.  Its also not cash-poor nor afraid of being a big flashy.   Which is why its of little surprise that Hyundai would perhaps go shopping with its new-found success -- and boy did it go shopping!

 

Autoblog.com and Businessinsider.com report that Hyundai recently dropped 10.55 TRILLION WON ($10.14 Billion USD) for real estate in Seoul's uber-posh Gangnam district beating out Samsung Electric which was also bidding on the property.  The property, purchased from Korea Electric Power is a plot of approximately 19.6 acres and, given Hyundai's development plans, amounts to just a land purchase and is, according to Businessinsider.com the highest price paid for a single piece of property in Korea.

 

Hyundai purportedly plans to build a new headquarters complex, hotel, and even a themed amusement park.  So the shopping spree isn't quite over as the total cost of the project could easily double what it paid for the land itself.

 

Investors reacted sharply and Autoblog.com reports that the stock-value drop in both Hyundai and sister company Kia Motors amounted to about $8Billion US on the news.  News outlets have also been, fairly universally, down on the move most outlets making special note of the fact that the property's 'assessed' value was merely a fraction of the ultimate purchase price.  This focus, however, is misplaced as appraisal value means almost nothing in a real estate transaction where there are other interested parties. Indeed, we could only make any real judgements on the wisdom of the price (in terms of whether it was a "good", or "bad", deal for Hyundai) if we knew what Samsung Electric's bid was.  

 

Even if Hyundai grossly overpaid for the property factoring in Samsung's competitive bids, all the panic-selling of Hyundai and Kia stock is foolish.  Both Hyundai and Kia are known for being run with a greater sense of spirit rather than cool, calculated, business logic.  In fact, this approach - the tendency to shoot first and aim later - has been a great factor in their success (and has also been a reason why the two companies are universally known to be some of the most difficult OEMs to work for, and with).    

 

So what is the purchase really about?   Having spent some time working within the Hyundai/Kia Corporate Culture, I suggest this has nothing to do with business in the direct-sense.  It has more to do with the self-image of Hyundai and its global network.  If you think of this purchase less as a strictly business decision, and start thinking of it as Hyundai buying itself a really nice Armani suit when it's only ever been able to shop at Moore's or TheMen'sWarehouse then you're closer to understanding the impetus.   When you're sporting a really nice suit, you feel better about yourself, even if -- to the outside world - its just a suit.   Viewed in this perspective -- in the light of the purchase and the planned project being more about boosting Hyundai/Kia's self-esteem then it makes more sense.   

 

What wall street types routinely forget is that the car business is only tangentially about 'business' -- there is, and has always been, an industry driven by passion and ego.  The high-points in the history of the automobile have always been punctuated by individuals with massive egos or unwavering passion (and only occasionally did those high points also have some sort of strong business case for them).  Every once in a while every great automotive house decides to tie up its accountants and lock them in a broom closet and do something really crazy to either show off to the world or stroke its own ego. Rarely do the projects themselves make any financial sense -- but the afterglow of these projects can follow for years and benefit the companies as a whole.  Some recent examples?   

• VW Group's phenomenal Veyron the development and production costs of which are still not fully clear and for which VW Group reportedly still loses money for each unit sold;

• Toyota's LF-A -- a ridiculously over-priced and over-engineered vehicle at a completely unjustifiably price and for which the brand's decade-long gestation period vastly outweighed anything recouped in selling the very few models;

• Mercedes-Mclaren's SLR which, when one factors in both development cost and the cost of the divorce from Mclaren lost Daimler millions;

• All the various Formula 1, Lemans, Indy and Cart teams sponsored by manufacturers likewise make little to no sense in a strict dollars-and-cents standpoint.

In these examples there is the root of my one major criticism on the facts that are out there -- while there are plenty of  other examples in autodom of chest-thumping ego-stroking most of the most memorable (and which provided long-term benefits to the brand) were related to a vehicle -- a halo car or a racing series. 

 

Hyundai's move is just about portraying an image of corporate greatness not of automotive excellence -- and that's where I feel it missed an opportunity.    If Hyundai wanted to get the attention of Gangnam's residents, rather than building an amusement park and office, how about building a car that makes those people want to buy it instead of the Lamborghini their neighbor just bought?

Are Porsche's Designers really the "Laziest People on the Planet"?

By: Denis-Andrei Mesinschi

January 21, 2013

This month at the Detroit Autoshow Porsche unveiled its latest 911 variant:  the "new" Porsche Targa.   As is expected with any new Porsche unveiling the hordes of Porschophiles went into instant hysterics and those with the means to do so quickly placed their orders as their "old" 911 which arrived last week was rendered passé.   The charge has been leveled, by many that Porsche is rather unimaginative when it comes to design.  The most, shall we say "eloquent", demonstration of this school of thought comes from BBC Top Gear Presenter Jeremy Clarkson who has often made the statement that "Porsche Designers are the Laziest People on the Planet".   

Lets examine that briefly, and the new car while we're at it. Let's start with the car.

The new 911 "Targa" is a variant of the new "991" chassis which, by all accounts, is a brilliant ride. As with each 911 variant before it, the 991 chassis is "the best" that Porsche's engineers could eek out of the firm's, now 50-year old, rear-engine/rear-drive layout.  Following the base "Carrerra", "Carrera 4", "Turbo" and "S" variants (in both hard-top and cabriolet versions) and the GT3 street-legal race card, the Targa now brings two more sub-varients into the mix giving Porsche lovers a staggering sixteen (16) variations of 911 available to them.  Couple with that a dizzying (and wallet-emptying) array of color choices, trim options, infotainment variations and one can easily spend the rest of their natural lives finding just that 'perfect' 911 for them.

Mechanically, and dynamically, the car is bound to be similar to the other Carrera 4 variants (since Targas will only be available in North America as all-wheel-drive) which is to say, brilliant for mere mortals (though curmudgeonly lovers of all that is 'old' Porsche will undoubtedly whine about the lack of feel and involvement compared to classic Porsches.  The trouble is not with the mechanical vehicle itself -- Porsche engineers are, after all, the the poster-children for Obsessive-Compulsive-Disorder. Only they could have turned what has been the single worst, from a safety and drivability standpoint, automotive layout since the Stanley Motor Co. thought it would be a good idea to sit the driver atop a combustible steam locomotive, into a car that not only drives well, but drives REALLY while minimizing the traditional Porsche drawback of imminent hedge-destruction and occasional death.  No one else has been able to manage sort out a rear-engined platform with any real, long-term, success (other than Volkswagen's iconic Beetle from whose oily-bits Porsche came):  GM couldn't do it with the Corvair (though I still believe that had GM stuck with it it could have worked) and only a few others have even tried. Today, only the Smart ForTwo and Tata Nano use the layout. 

From a "design" standpoint the current 991 Porsche 911 does maintain the original 911's (and 912's) profile with surprising accuracy.  Proportions have changed, growing over the years to accommodate more safety and convenience equipment, bigger engines and the increasing girth of Germanic and American frames, but they all still 'look' the same as seen in the image (below) depicting the original through to the 996/911, the last car to bear the "Targa" nameplate.  As you can see the likeness is very close, in fact, it would appear to be very intentionally so ... particularly if you now look through to the new Targa.  

Previous 911 Targas
(Photo Courtesy Porsche N.America)

So what's that make of Clarkson's claim about Porsche's designers being the "Laziest People on the Planet"?  I disagree.  I think they're some of the most industrious, if not the most blindingly bored and frustrated people on the planet.

Clarkson's looking to a symptom but not the cause of the illness:  the Porscheophile.    The individual who considers themselves a 'true' Porscheophile is the sort of person who who would have bemoaned the curing of smallpox because they were finally getting used to not having the black plague around; the sort of person who would have thought Inquisition ended too soon merely because it was a change from what they've grown accustomed to; the sort of person who simply does NOT want to see their 911 change at all.  It is these sorts of folks that Porsche has chained itself too and to whom it looks to for approval for all 911 models.   Porsche has more than once tried to free itself of the hold that its most loyal followers have upon it, with fairly disastrous results:   the 914; the 924; 944; 928; the 996's "jellybean" headlight have all fallen prey to the persistent, thundering, demand that Porsche is the 911 and the 911 is Porsche and that, at all times, the 911 (and therefore Porsche) remain sacrosanct.    The Porscheophile has become Porsche's jailor in a prison it built itself.

911 and 991
(Photo Courtesy of Porsche N.America)

With Porsche going off the proverbial reservation: two SUVs, four-doors, the Boxster THEN the Cayman, Porsche had to appease the Porscheophiles out there.   For example, when Porsche introduced the Cayanne SUV Porscheophiles were ready to head for the hills even though that vehicle saved the company.  To appease them the 996 went a minor facelift the same year and was replaced by the more traditional-looking 997 two short years later.  When the controversial Pamanera 4-door sedan came out, Porscheophiles were appeased with the 991, again, two years later.  Porsche has been touting their new baby-SUV/crossover, the Macan, so out comes the new Targa to keep Porscheophiles distracted until the new 911 can be introduced in, likely, two years time.

911 and 991
(Photo Courtesy of Porsche N.America)

So what's that mean for Porsche's designers, are they really "the laziest people on the planet"?  
No.  Actually, quite the opposite.  It must be a tremendous amount of work to keep to such a tight design profile yet make sure the vehicle is still relevant, modern, and usable -- which every 911 is.  Otherwise they're be Morgan.

Still, even with knowing that you're pulling off a minor miracle each time a new 911 comes out -- that still 'looks' like a 911 but drives like a very modern car, it must still be deeply frustrating to be a designer at Porsche.  I suspect the only way they're able to keep good designers (and engineers for that matter) from leaving for the greener-design pastures of the likes of Lamborghini, Ferrari or, recently, BMW is by including in their employment agreements that, if they agree appease the Porscheophiles with the 911, they will, from time to time, get the chance to go wild one something more interesting like, say, the 918 or the Carrera GT before it.

Porsche 918
(Photo Courtesy of CBS Interactive)

So what's that make of the new Targa itself?
If I'm being uncharitable, an outright marketing ploy.  I've never liked the original Targa Porsches. I always thought they were a hideous concept and execution on an otherwise beautiful silhouette, but I understood the engineering compromise:  keep some roof structure to make the car more ridged and lighter than the convertible and keep more dynamics.  But its not needed in the 991 - the chassis was designed as a convertible so the roof is truly redundant when it comes to handling and dynamics.  In fact, you'd be hard pressed to find a single automotive journalist (who isn't lying through his or her teeth) who can feel a difference.  So there's no actual reason for it.  The coupe looks sexier;  the convertible more fun and the Targa is just an ugly duckling to keep a certain small demographic of Porsche's fan-base from jumping ship.   With that said, the 991 Targa is a far prettier car than the original 911 Targas and the rear-backlight/glass is, bizarrely, starting to grow on me, but I still can't abide it.  I don't see the point of it or the overly complex clamshell to hide the roof-section.   

No, for my money, it's the Carrera 4s coupe or maybe just a VW Beetle?

VW BeetleR Concept
(Photo Courtesy of VW-Audi N.America)

FTC Crackdown on Car Dealers could have root with OEMs.

By: Denis-Andrei Mesinschi, Esq.

January 17, 2014.

In a fast-moving act by the Federal Trade Commission (FTC) that can justly be called a "crack-down", ten (10) automobile dealers of varying size and sophistication were charged with violations of various consumer protection laws. The charges by the FTC stemmed from differing allegations of deceptive or misrepresentative advertising or conduct related to the Dealerships' sales promotions.  On January 9th the the FTC, following what appears to have been a lengthy investigation, publicized the charges. In its recent article on the topic, the Automotive News quoted Jessica Rich, Director of the FTC's Bureau of Consumer Protection, who warned that "many others" will follow.

To Be Expected?
For those in the auto industry, particularly those familiar with Franchise Dealership operations, it may come as no surprise that this happened - it was bound to happen eventually. Between the pressure on Franchise Dealerships to hit monthly sales targets; to the constant "belt-tightening" at Dealerships that often cuts out proper legal oversight and review, to merely the fast-pace of business in the industry itself.  All three factors create an environment where bad conduct and mistakes are likely to happen.

The cynical amongst us will also suggest that this is accepted practice in the Automotive Industry -- that the stereotype of the slimy "buy buy buy" car (especially the 'used car') dealer has a well deserved root. Unfortunately that reputation really isn't as well deserved as one might think these days. Most modern, sophisticated, dealerships know their client-base and know that its the long-term benefits of returning customers or (the ideal) the returning customer that recommends you, are attainable only through more upfront and collaborative sales tactics:  Less "three card monty" and more "Monty Hall".  Sure, there are still the slippery dealers out there with gimmicky ads that yell at you from the TV screen at 2am urging you to "run, don't walk" over to their facility... but they're, thankfully, a dying breed.

In this case, it was the timing and swiftness of the FTC action, however, that caught many observers off guard and, with the promise of many more to come, its time for Dealers and OEMs alike to take stock of their practices and make sure they're complying with the various consumer protection laws out there.

Who's Fault is It Anyway?
For the lay person its all to easy to shrug this off as a group of uncrubulous crooks and tweed-wearing-used-car-dealers just trying to rip people off.  That may well be the case. However, there are a number of actors who could easily have been to blame - at least in part - for these particular ads but, also, for the overall state of the industry's marketing strategies.

1. The Dealer Principal and General Managers.

At the end of the day responsibility for what any dealership does lies with the Dealer Principal and the General Sales Manager.  The Dealer Principal, the owner of the dealership (and often the group of dealerships) is responsible for hiring their stores' General Managers and setting expectations for how the business should be run and the manner in which customers should be treated -- and by extension how they should be marketed to.   The Dealer Principal is also the one that SHOULD be requiring that the dealership's lawyers review important legal items such as advertising mouse-print.

The General Managers are generally the folks who are responsible for running any particular store's operations.  Typically the advertising goes through them and the types of ads run is determined by the General Manager.  The General Manager should be the one to make sure that all advertising that is run has been verified by the dealership's legal counsel before sending it out publication.

Both these players are ultimately responsible when advertisements are misleading customers and, for the most part, the FTC seems to agree.  All of the charges here were leveled directly against the Dealerships themselves -- despite the fact that all, but two, of the dealers involved were Franchise Dealers selling new, rather than used, cars. 

The two private dealers,  Casino Auto Sales and Rainbow Auto Sales, are the ones that may be easiest to understand. Small used-card dealerships often do not have the budget to afford either a full-time in-house counsel (as many large dealer groups have) or to have an experienced automotive lawyer on retainer.  As such most used-car dealers do the best they can with what they know.  The advertisements which got Casino Auto Sales and Rainbow Auto Sales could be seen as either (1) unscrupulous sales tactics trying to "pull one over" on the consumer; or (2) simply mistakes caused by simply not knowing any better and not having the wherewithal (financially or experientially) to have their advertising reviewed by lawyers first.  

With the bigger franchise dealers, however, there could be fault to lay at the foot of the Manufacturers (OEMs):

2. The Manufacturers (for Franchised Dealerships).

Of the Dealers charged in this round of FTC enforcement actions, eight (10) Dealer groups of the ten (10) were franchised dealers. These were business that have signed very complex legal documents with franchise owners (the manufacturers/OEMs) to sell new vehicles under the brand-name of the OEM.  The franchise agreements also set out the advertising standards and protocols to be followed.  It would be too easy to brush off these particular incidents as a few rouge dealers going off the proverbial "reservation".  However, there may be something more here that suggests a broader problem at some of North America's biggest brands.  Typically advertising campaigns and ad-copy are prepared by Head Office staff at the OEM's marketing departments -- they provide template mouse prints and, often, even the adcopy itself.  This may well have been where Norm Reeves Honda got the "template" it blamed.  Dealers often don't think twice about putting to publication adcopy provided by the OEM which is a mistake.

While some OEMs have very well-organized legal protocols in place with large in-house legal departments staffed with lawyers that not only know the law but -- far more importantly -- know the automotive business and where all ad copy is reviewed.  That was the case during my tenure as Legal Counsel for Dealer Development but it was a protocol that myself and the General Counsel had to implement as it didn't exist beforehand.  The same holds true for some of the large OEMs now -- some of the biggest players in the industry have small or understaffed in-house legal departments that are often so overworked with Dealer-Relations; Product Liability; Warranty; Trademark; Environmental; Compliance and a myriad of other legal issues that they simply don't get around to reviewing adcopy (which changes several times in a given month).  Instead management typically bypasses the legal department altogether and leaves the adcopy and the all important disclosures to the marketing department which, speaking from experience, tends to fall to the lowest person on the totem pole to review.  This unfortunately also means that its the least experienced person that's actually looking at what is ultimately very important legal language.   It is unfortunately not until a mistake is made that the Legal Department is notified and, at that point, the damage is done and the company is in a defensive posture.  

The brands caught up in this round of FTC enforcement were very well known, and otherwise, sophisticated brands with big marketing machines behind them:

1. Hyundai/Kia Motors America - (4)
2. Honda - (2)
3. Ford - (2)
4. Nissan/Infiniti - (2)
5. Mitsubishi - (1) 

What will be interesting is to see who the next round of dealers (and OEMs they represent) will be caught up in the FTCs enforcement actions. If the same brands continue to come up, then the likelihood is that fault, at least some of it, rests with the OEMs and some uncomfortable discussions may have to start to be had in OEM boardrooms across the country.

4. The Marketing Agencies.

On occasion a dealership will farm out all of its marketing to specialist marketing companies.  In fact, even OEMs to this all the time.  Its these marketing agencies that come up with clever and kitschy advertisements for TV with everything from hamsters driving cars to sleek coupes driven by improbably handsome people zipping through an equally improbably empty New York City.  However these companies also often design and write the disclosure statements.

Larger, sophisticated (and expensive) advertising agencies have in-house counsel that reviews (or should review) the mouse print and typically they do a fair enough job of it.  The smaller, local, companies, however rarely have any sort of in-house legal support and its unlikely they're willing to pay any part of their, often small, production budget to have a lawyer review the mouse print.  So, most often, when advertising agencies do provide the disclosures they use a template that someone, at some point, wrote for them and that they try to tweak to be reflective of whatever the promotion of the day is.  This can mean that the language doesn't adequately describe the terms of the promotions and, consequently, is deceptive when viewed by the public.

Thought ultimately the Dealership (or the OEM if the advertising is prepared for OEM use) is still responsible but the advertising agencies have a hand in what gets out to the public as well.

5. The Lawyers.

Finally, the Lawyers have a hand in this also.  All across the country there are local lawyers and big firms alike that represent Dealer Groups.  Most do a fair enough job of it and some shouldn't be in the business at all. But that's like anything else.

The challenge is that there are only a very few lawyers out there that actually have an understanding of the Automobile Industry and what the day-to-day business of either an OEM or a Dealership is like so they're often ill-equipped to provide preventative counsel.  Most "outside" counsel to the automotive industry in North America are not from the Automotive industry but are law-firm bred lawyers whose focus is litigation and billable hours. With this focus they rarely give a thought to the pragmatics of the business situation -- in fact they couldn't since, all too often, they simply don't understand the business realities on the ground.

I witnessed this first hand while working as Legal Counsel for one of the larger OEMs. When, following the original protocols then in place,  we sent a moderately complex matter with a claim of something around $50,000.00 to one of Toronto's biggest law firms (from whom the General Counsel had come, and which we routinely used for such matters) for a "quick" evaluation of the law surrounding the issue.  When the bill came through, at the eye-watering amount of $25,000.00, and after management OEM had several heated exchanges -- and a handful of the more colorful lawyer slurs I've heard -- the matter was brought back to the firm which is when we all realized the problem:  the firm in question -- while fantastic for litigation -- knew about as much about the business considerations of the auto-industry as the typical JiffyLube employee knows about complex brain surgery.

As we subsequently did, OEMs are relying more and more on their in-house legal departments, realizing significant savings along the way in both financial terms and operational ones.  In-house lawyers for the Auto Industry, when properly empowered, become a vital contributor to the day-to-day operations of the business -- they're able to spot issues BEFORE they become a problem -- something outside counsel can simply never do: they don't know the business well enough and they're just don't there every day.

Dealerships have a harder time replicating this for two reasons: first, there are few Automotive Lawyers in private practice (most who've gotten into the business and survived never leave); and, second, they often cannot afford to keep an in-house lawyer (with average salaries for Automotive Lawyers in the $250K+ range). The solution then, is to have the outside lawyers that represent automotive businesses spend the time to learn the business of their clients.  Work out some sort of financial arrangement where the lawyer can audit the operations to learn not only the business itself but the way in which their client carries on business.  We do this as a matter of course for each new Automotive Client and the audits usually bring up a handful of practices that can be easily improved or modified to avoid some of the very same issues that seem to have placed these ten dealers in the FTC's sites.

The Dealers, the Charges, and the Settlements:

According to the Automotive News, the dealerships which eventually settled with the FTC were as follows:

Norm Reeves Honda Superstore 
Cerritos, California 

• The ads run by Norm Reeves Honda Superstore (NRHS) allegedly violated the FTC Act, according to the FTC, by "deceptively advertising that consumers could pay $0 up-front to lease a vehicle when, in fact, the advertised amounts excluded substantial fees and other amounts".
• NRHS also allegedly violated the Consumer Leasing Act and Regulation "M" by failing to disclose certain lease related terms.
• Finally, NRHS was alleged to have violated the Truth in Lending Act and Regulation "Z" by not disclosing certain credit related terms.
• NRHS, which, according to the Automotive News, was Honda's top selling franchise in the United States, claimed the error occurred when the dealership relied on "a standard disclosure template" it had obtained from unidentified sources that were used in an advertisement that was run in March, 2013.

[See the Charges] [See Proposed Settlement] [Comment on Settlement] [Follow the Case]

- Norm Reeves Honda Superstore Advertisement cited by FTC - 

Honda of Hollywood 

Los Angeles, California 

• According to the FTC, Honda of Hollywood (HoH) allegedly violated the FTC Act, by "deceptively advertising that consumers could pay $0 up-front to lease a vehicle when, in fact, the advertised amounts excluded substantial fees and other amounts", and the Consumer Leasing Act and Regulation "M" 

[See the Charges] [See Proposed Settlement] [Comment on Settlement] [Follow the Case]

- Hollywood Honda Advertisements cited by FTC -

Nissan of South Atlanta 

Morrow, Georgia

• According to the FTC, Nissan of South Atlanta (NoSA) violated the FTC Act, by "advertising that consumers could finance a vehicle...with low monthly payments when, in fact, the payments were temporary 'teasers' after which consumers would owe a different amount".
• The advertisements run by NoSA also allegedly violated the Truth in Lending Act and Regulation "Z" by not disclosing certain credit related terms.

 [See the Charges] [See Proposed Settlement] [Comment on Settlement] [Follow the Case]

- Nissan of South Atlanta Advertisement cited by FTC -

Infiniti of Claredon Hills 

Claredon Hills, Illinois 

• The FTC alleged that Infiniti of Claredon Hills (ICH) allegedly violated the FTC Act by "advertising that consumers could pay $0 up-front to lease a vehicle when, in fact, the advertised amounts excluded substantial fees and other amounts.
• The advertisements run by ICH also allegedly violated the Consumer Leasing Act and Regulation "M" by failing to disclose certain lease related terms.
• The Automotive News reported ICH's Executive Manager Peter Korallus as explaining that ICH "committed an oversight when we used the term 'no money down' in our ads, when the FTC does not consider collecting licensing, taxes and other fees to be no money down". ICH reportedly has changed their ad and promised to "be more diligent in the future". 

 [See the Charges] [See Proposed Settlement] [Comment on Settlement] [Follow the Case]

- Infiniti of Claredon Hills Advertisements Cited by FTC -

Paramount Kia 

Hickory North Carolina 

• According to the FTC, Paramount Kia (PK) violated the FTC Act, by "advertising that consumers could finance a purchase with low monthly payments when, in fact, the payments were temporary 'teasers' after which the consumer would owe a much higher amount, by several hundred dollars."
• The advertisements also allegedly violated the Truth in Lending Act and Regulation "Z" by not disclosing certain credit related terms.

[See the Charges] [See Proposed Settlement] [Comment on Settlement] [Follow the Case]

- Paramount Kia Advertisement cited by FTC-

Fowlerville Ford 

Fowlerville, Michigan 

• The FTC, alleged that Fowlerville Ford (FF) violated the FTC Act by "sending mailers that deceptively claimed consumers had won a sweepstakes price, when, in fact, they had not."
• The advertisements also allegedly violated the Truth in Lending Act and Regulation "Z" by not disclosing certain credit related terms.

[See the Charges] [See Proposed Settlement] [Comment on Settlement] [Follow the Case]

- Fowlerville Ford Advertisement cited by FTC -

Southwest Kia 

Group of companies, including:     

• New World Auto Imports - Dallas, Texas 
• New World Auto Imports - Rockwell, Texas 
• Hampton Two Auto Corp. - Mesquite Texas 
• The Southwest Kia Group (SKG) allegedly violated the FTC Act by:
1. "deceptively advertising that consumers could purchase a vehicle for specific low monthly payments when, in fact, consumers would owe a final ballon payment of over $10,000."
2. "deceptively advertis[ing] that consumers could drive home a vehicle for specific low up-front amounts and low monthly payments when, in fact, the deal was a lease and they would owe substantially more up-front" 
• The advertisements also allegedly violated the Consumer Leasing Act and Regulation "M" by failing to disclose certain lease related terms.
• Furthermore, the advertisements allegedly violated the Truth in Lending Act and Regulation "Z" by not disclosing certain credit related terms.

 [See the Charges] [See Proposed Settlement] [Comment on Settlement] [Follow the Case]

- Southwest Kia Advertisements cited by FTC -

Casino Auto Sales 

La Puente, California 

• According to the FTC, Casino Auto Sales (CAS) ran advertisements in a mix of English and Spanish that allegedly violated the FTC Act by "deceptively advertising that consumers could purchase vehicles at specific low prices when, in fact, the price was $5,000.00 higher."

 [See the Charges] [See Proposed Settlement] [Comment on Settlement] [Follow the Case]

- Casino Auto Sales Advertisement cited by FTC - 

Rainbow Auto Sales 

South Gate, California  

• According to the FTC, Rainbow Auto Sales (RAS) ran advertisements in a mix of English and Spanish that allegedly violated the FTC Act by "deceptively advertising that consumers could purchase vehicles at specific low prices when, in fact, the price was $5,000.00 higher."

[See the Charges] [See Proposed Settlement] [Comment on Settlement] [Follow the Case]

- Rainbow Auto Sales Advertisement cited by FTC -

Settlement:

The nine (9) dealers discussed above were all able to come to provisionary settlement agreements with the FTC, known technically as "consent orders", the proposed settlements generally prohibit  violations of the FTC Act by barring dealerships:

"from misrepresenting any advertisement for the purchase, financing, or leasing of motor vehicles, the cost of leasing a vehicle the cost of purchasing a vehicle with financing, or any other material fact about the price, sale, financing, or leasing of a vehicle"

Provisions would also address and Truth in Lending Act or Consumer Leasing Act violations.

The prohibitions would be in effect for twenty (20) years and their violation could result in serious financial repercussions against the dealers.

The FTC is keeping an open comment period for each individual settlement where consumers affected by the specific violations may voice their concerns.  (See the corresponding links above for more information.)

Continuing to Trial:

Whereas the other nine (9) dealerships were able to settle with the FTC, it appears that Courtesy Auto Group of Attleboro Massachusetts (CAG)was either unable or unwilling to do so.  As a result, the FTC, in a 4-0 vote in favor, issued an "Administrative Complaint" against CAG alleging that the it:

• "violated the FTC Act by deceptively advertising that consumers can lease a vehicle for $0 down and specific monthly payments when, in fact, the advertised amounts exclude substantial fees."
• furthermore, the FTC com plait alleges that the advertisements "allegedly violate the Consumer Leasing Act and Regulation "M", by failing to disclose or clearly and conspicuously disclose certain lease related terms."

The issuance of the "Administrative Complaint" marks the first step in proceedings against Courtesy Auto Group which will lead to a formal trial and hearing before an Administrative Law Judge (ALJ).

The complaint itself sets out a list of Orders (which the FTC is requesting the ALJ issue and which Courtesy Auto Group will doubtlessly challenge at the upcoming hearing) that Courtesy Auto Group must comply.  As written the orders would be in effect for twenty (20) years and, in general terms, require Courtesy Auto Group to:

• not misrepresent costs related to vehicle purchasing
• not misrepresent costs related to vehicle leasing
• not misrepresent any material fact about the price, sale, financing, or leasing of any vehicle.

Once approved by the ALJ, should Courtesy Auto Group fail to adhere to the Orders of the FTC, the FTC will have the right to seek damages in accordance with Section 19(b) of the FTC Act that permit the Courts to "grant such relief as the court finds necessary" and includes and, or all, of the following:

• recession of contracts
• reformation (amendment) of contracts
• refund of money
• return of property
• payment of damages
• public notification respecting the rule violation or deceptive act

[See the Administrative Complaint] [Follow the Case]

- Courtesy Kia Advertisements cited by FTC -

Final Thoughts.
While we wait to see what other Dealerships the FTC will target, Franchise and Independent dealers  as well as OEMs across the country should be looking to their marketing practices and having their legal representatives evaluate them to ensure compliance with consumer protection laws.  The FTC has indicated that this is just the beginning of an action that may well affect a great many dealers throughout the country.







If you're an Automotive Dealer that would like assistance reviewing your marketing materials for FTC compliance, or for general assistance with your dealership's operations, contact Attorney Denis-Andrei Mesinschi for a business evaluation and let us show you how we can help your business thrive in today's increasingly competitive, and regulated, marketplace.

Mesinschi Law Offices
1-888-516-4298
www.canamlegal.com




ABOUT ATTORNEY DENIS-ANDREI MESINSCHI. 
Attorney Mesinschi is an attorney licensed to practice law in several states within the United States and Canada and founder of the Mesinschi Law Offices, a boutique cross-border law firm that caters to the business community and maintains one of the few active automotive-specific practices in North-America.  As a life-long, dyed-in-the-wool, car fanatic, Attorney Mesinschi's started in the automotive industry at the age of sixteen at an automotive parts desk, worked on an automotive assembly line through undergrad and, at the age of 24, became one of the youngest corporate counsel in the Canadian automobile industry's history.  Attorney Mesinschi works with Dealerships, OEMs, suppliers, and other actors in the automotive industry providing experienced legal counsel, business and operational consulting services.  

ABOUT THIS BLOG.
The Automotive Blog @ Mesinschi Law Offices is a blog dedicated to all things automotive.  We will feature legal articles and analysis relating to the automotive industry and consumers but will also feature opinion articles on vehicles, business matters and any manner of topic that might be of interest to car lovers.  From time-to-time we will invite guest contributors and remind our readers that the opinions and views expressed by the authors do not necessary reflect the views of the Mesinschi Law Offices, its staff, or associates.  -- Enjoy.

Why an automotive blog? Why not?

By: Denis-Andrei Mesinschi

January 1, 2014

Why does the Mesinschi Law Offices need an Automotive Blog?  

It doesn't, but we're doing it anyway.  

We could try to come up with some marketing-speak reason and say its to "serve our Automotive Clients" (But what's wrong with the emails and newsletters of pertinent legal changes/cases/tips we send them now?);  We could say its for getting the word out about the fact that we represent everyone from Dealers to OEMs in cases ranging from litigation avoidance techniques, to advertising oversight, to dealer development strategies, to even general business consulting (we do, and word about our Automotive Law services seems to be spreading quite rapidly on its own); We could even say that it would be a good platform to advocate for those things automotive-related that we believe important to speak out about (though there are better ways to achieve these sorts of things).  While an "automotive blog" can do some or all of these things, it really is not the real reason we're doing it.  In truth, if we're being completely honest, we're doing it because we can and want to (maybe even need to).   I'll try to answer some of the questions that have come up when discussing this idea:

"Where'd this (explicative deleted) idea come from?"

The idea for an Automotive Blog actually came from a few different people over the years - most likely thinking that if I would just get it out of my system and not talk to them about cars their own lives would be the better for it.  

"Yes, we all really do wish you'd shut up about cars... but if you like the idea, why didn't you do it sooner?" 
I've always managed to find an excuse not to do it:  too busy/not enough time/etc. etc..  I've also been reluctant as I don't consider myself a writer:  I can write some of the best contracts out there: give me a 200-page software licensing agreement to put together and I'll be happy for days;  complex merger/acquisition agreement? No problem;  cross-border sales agreement? any-day, any-time.  However, when it comes to writing eloquently or, worse yet, in a whimsical and easy-to-read fashion, I'm at a complete loss. You might as well be give me two hammers and ask me to fix a space shuttle while blind-folded with my left leg in an alligator's mouth.  

"So why now?" 
Why not now?  Its the start of the year, we all set out new resolutions and things of that nature, so its the perfect time.

"Better than losing weight, getting fit, donating more to charity?"
We do all of that already, and, yes, I realize I have a Fiat 500 around my mid-section that needs to be dealt with but this could be fun and serves other purposes too.

"Like?"
Well like all of those good marketing-speak things I mentioned in the introduction.

"Right. So why would a lawyer that's spent so much of his life, time, and money building a practice in two countries, across multiple jurisdictions, want to spend any time talking about cars?  Don't lawyers usually just buy some flash car and drive about all-self-important like?" 
Well, in my defense, cars came well before the law -- (which for me is a minor miracle seeing as most of the influential people I knew until the age of twelve were lawyers or somehow had something to do with the law).  For me, the obsession with started at about the age of two.  My first actual memory is of sitting on my godfather's lap, my toddler hands at the wheel of his canary yellow Lada in Bucharest as he taught me "drive" the car.    

It was all down-hill from there: My favorite (and most vivid) memory of coming to North America was of the yellow TransAm in the airport parking lot and of the white Buick Regal sedan (with burgundy velour seats and wire wheels) that picked us up to take us to our new home; My very first job was as the automotive parts-desk kid / auto-service whipping-boy at Canadian Tire (think Pep-Boys/Auto-Zone for our American readers); I worked the night-shift on Chrysler's (then, DaimlerChryler) assembly line during undergrad for tuition (and car-part) money; I even spent a few months screwing together high-powered engines for rich/spoiled kids in southern Ontario who were more than eager to spend mom/dad's money on making some imported econobox go faster. After completing law school I would once again gravitate back to "the industry" for a stint as  Legal Counsel for one of the larger foreign automakers, a job that I really enjoyed and took great pride in even though it had more than its share of inter-office political intrigue.  When I left, I did it to try to, as they say in legal circles, "hang my own shingle" but, as it would turn out, the automotive part of my practice remained important (and a personal favorite).

"So who's going to be involved in this blog?"
Well I will, as well as various other contributors from within, and outside of, the automotive industry.

"And what will it be about?"
We'll cover the legal topics around the automotive industry, obviously. However, we'll also go into all sorts of other things.

"For example"
General interest stories about cars or life in the Automotive Industry, historical tidbits about cars and the industry, even reviews from time to time.

"Great you like cars, you know about cars, you've spent (way too much) time around cars, you've even roped others in to help with this. That still doesn't answer the question: Why does the Mesinschi Law Offices need an Automotive Blog?"
It doesn't.

"Then why do it?"
Because we can.
And it might be fun.

Disclaimer.  All conversations appearing in this work are fictitious. Any resemblance to real conversations with people living or dead is purely coincidental.  Enjoy.