Understanding the FTC CARS Rule with Jim Ganther, CEO of Mosaic Compliance Services

Paul J Daly: 0:05

Jim, thank you so much for spending some time with us today and helping us make this public policy day coverage. Happy.

‍Jim Ganther: 0:11

Glad to be here. Thank you very much for having me.

Paul J Daly: 0:12

I like how you dressed up. Tell us a little bit about your bow tie.

Jim Ganther: 0:16

This particular boat, beautiful. Well, it's important to me and I wear it because we're in Washington DC today. And this bow tie is the handwritten notes of Ronald Reagan's Mr. Gorbachev, tear down this wall space. So it's a good looking tie. It goes with what I'm wearing. And I can be a subversive, conservative Republican inside of enemy territory.

Paul J Daly: 0:40

It's amazing. It's amazing. Um, tell us a little bit about mosaic.

Jim Ganther: 0:43

What does mosaic do? Oh, mosaic exists to keep car dealers out of trouble.

Paul J Daly: 0:48

And they like to get in trouble. They don't like it, but they're good at

Jim Ganther: 0:55

what we do to be crass. What we do is we manufacture admissible evidence to insulate car dealers from class action lawsuits and punitive damages. Yeah, and we are. And we're good at it. But put less cynically Yeah, is we understand that buying or leasing a car in the United States is one of the most heavily regulated activities on Earth, right. It is only slightly less regulated than building a nuclear power plant. Are you kidding? The wetlands on top of a manatee eating a bald eagle and Al Gore's backyard? Thank you. We'll be here all week. Don't forget to tip your waitress

Paul J Daly: 1:34

production crew is Nathan, our producer is back there losing himself.

Jim Ganther: 1:40

Somewhere, yeah. Nathan just blew out a hemorrhoid. So I know I'm getting somewhere. How can dealers follow laws they don't even know exist? And the answer is they can't. So what we do at our core competency, is we draft policy documents. And online web based training that educates dealers transfers knowledge, so that they can change behavior and treat people like they're more than commodities. So they can love they more than cars,

Kyle Mountsier: 2:15

they can do the things that they're best at right? Well, right and be given the tools and resources to do that. But you do some stuff in the background too, with some of the biggest providers that dealers are utilizing, so that the dealers are protected by the relationships that they have to right,

Jim Ganther: 2:32

that is correct. Our original distribution model was agent based, and it really didn't work, because we were trying to make our services as cheap as possible, so the dealers would buy them. But if you do that there's not enough room for a commission that would get agents interested in right getting excited about offering it. So we do is we typically partner with TPAs product providers and administrators, and we private label our services, so that they generally will offer a core of compliance services that surrounds the f&i box. Because they haven't they do have, I would say, a moral obligation to make sure that their products are sold in a legally compliant manner. So they protect the f&i box. But we want to grow beyond that and protect the entire dealership. For example, the most common complaint against car dealers is anecdotally, sexual harassment, doesn't help you to only train four f&i managers on sexual harassment prevention, it has to be everybody. And the cars rule is going to implicate implicate a lot of the dealership topic of conversation, it will get there. But so those are some of the things we do for our channel partners. And we've been very busy, because NADA is only two weeks away as we film this. Yeah. And all of them want to have a cars rule response ready. And we've literally been working overtime.

Paul J Daly: 3:59

Well, let's dive into that. Then let's just take take the path right into that. So the cars rule has come out. It's going to be in effect very shortly. We expect a lot of conversation that NADA, there's definitely some conversation about amongst the people that are at this event today. How would you most simply say to a dealer, this is what you need to be doing right now. Not simple, lowest common denominator. We're teaching to the back of the class here. Yeah.

Jim Ganther: 4:26

The lowest common denominator is find out what it means. The rumor mill is churning in overtime. And there's an awful lot in the secondary press and some of which I've written and continue to write. But it's a very complex topic. In the two days prior to right now, I was in Kentucky doing two one hour seminars on cars roll and it was Reader's Digest version. We're planning we're working with Bob at Business Media to put on a one day symposium Las Vegas, April 18, that is gonna be eight hours of content and none of it is going to be dead air and none of it is going to be superfluous. It's a very complicated rule. It doesn't just impact the dealers doesn't just impact how they sell, for example, forgive the monologue. But one of the things that they have to wrap their minds around is this concept of offering price. Today, dealers might advertise MSRP, or special dealership price. But you're not allowed under the cars rule to add a penny for anything after that price, that offering price unless it's government charges, tax tag, battery disposal fee, and so on. So if you have a doc fee that you tag on at the end, that is illegal,

Kyle Mountsier: 5:53

right? If you have to, you have to price,

Jim Ganther: 5:56

offering price offering price is

Paul J Daly: 5:57

a term of art, all that so.

Kyle Mountsier: 6:00

And that impact and that impacts the everyone in store, everyone in marketing all of the third party providers that have to display that price, the disk, the disclosures alongside of that price that tells you what is included in that price.

Jim Ganther: 6:15

Oh, it gets worse. What is the largest? What's the largest department by headcount front of the store in most dealerships? Here I am asking you the questions. This is fun. Yeah,

Kyle Mountsier: 6:26

I mean, typically service No, in front of the house, oh, it's

Paul J Daly: 6:30

gonna be sales. It's saying lots of things all day long. There

Jim Ganther: 6:34

you go. Well, those people have to be very well trained on the cars role. Why? Because that concept of offering price, the FTC says it has to be the first thing you say it has to be in your very first communication with any customer, right out of the box. So I'm not making this up. If you're on the showroom floor, and you're looking at a beautiful Toyota Tundra, and a customer comes up and says, That's a beautiful truck, how much will it tow? What is its towing capacity? You have to reply, it costs $83,412. Your first communication oral or in writing online has to include the offering price has to include it has to be it doesn't be the first thing item but it has to be your first communication to include that customer in the whether they care or not. You're standing

Paul J Daly: 7:30

next to the vehicle that would you say a Tundra? Yeah. So the tundra says $64,957 on the sticker. But you can't say that number. You have to say the number with that plus, anything else that is now bundled in with that vehicle?

Jim Ganther: 7:46

No, because the number that's on the sticker the MSRP that you've just identified a problem. It has to be the offering price. Well, whoever made this rule, and you know, we know who they are, and where they live. Some of them are Oh, my God, I'd pay the neighbor kid to start your car. So you definitely lived here. There is a absolutely they don't sell cars. And clearly whoever complexity don't round. Yes, the transaction how business works. So the Monroney label, that sticker is going to come on the conical every time the OEM, but what if your offering price is higher than the MSRP? For sure? Well, okay, I've got this law that says I have to display that Monroney label. But the Monroney label is going to have certain information that conflicts with my offering price, what if your OEM requires you to advertise the MSRP? Well, that's illegal. That is going to be a violation unless you

Kyle Mountsier: 8:49

have zero additional fees or anything like that. Is very, very rare.

Jim Ganther: 8:53

Unless you're absolutely selling it for MSRP. What about rebates? Your car's rule? I think, I think this piece is actually logical. And I'm not offended by this piece of it. You're not allowed to deduct from the offering price rebates, unless they're available to everyone. You can't stack them you can't stack the first time

Paul J Daly: 9:17

and then be like, Oh, well that doesn't apply to you. You didn't serve in the military. So having come from a different manufacturer and all the

Kyle Mountsier: 9:22

and I think more most of us have gotten used to that but there's still a lot of bad actors that will kind of like they'll put the price online and have 18 rebates all that don't stack together and the bottom is all

Jim Ganther: 9:35

your way down at the bottom. No, no, no, no, no, no, it was illegal to fine print. At fine print is dead. I believe denim stickers are dead.

Paul J Daly: 9:46

I think I just well identified the T shirts. You need to hand out at your event.

Kyle Mountsier: 9:51

Fine price to print is dead. Yeah. Really. And then And then really small. I really mean it. Yeah. Good. At various really good,

Jim Ganther: 10:01

you could conceivably have an addendum sticker but not if it adds any cost. And this gets really complicated. I'm not sure I know the answers yet. And I've been studying this virtually every day for a month. If you're one of the requirements of the cars rule is that essentially we're going to have to see on our installment sale contract something like another Tila box only bigger, because you're going to be required to tell people, what is the cost of any what the FTC calls add ons and or other pejorative sense? Well, that add on might be a very important gap waiver, which in certain circumstances, that is a very valuable thing to have, or a service contract? Well, if the service contract costs $2,000, today, you can say, hey, that costs $2,000, as of the 30th of July, you're gonna say it cost$2,000. But you must also disclose how

Kyle Mountsier: 10:58

much of tax is related to that financing, after you financed

Jim Ganther: 11:03

it for 72 months at 9.98%. That $2,000 service contract might wind up costing you 930 800. So you've got to disclose to price

Kyle Mountsier: 11:14

raising, because you find the technical mapping required to do

Paul J Daly: 11:20

that, because everything is segmented right now. The financing is the financing the problem

Kyle Mountsier: 11:25

because it's also like the the DMS systems that own 80 plus percent of the market currently today have fixed field systems. And so even even just their ability to remove the fixed field system in order to populate those data points, is an extremely complex.

Paul J Daly: 11:45

No one thinks there's nobody in this room thinking about that or talking about that whatsoever. No

Jim Ganther: 11:50

one thought about that every menu that I've ever seen, will be illegal on the 30th of July. Every DMS and it's not that there's anything wrong with DMS is but they are literally not yet programmed to facilitate compliance with it. So if the rule were in effect today, everyone's going to jail. Or everyone's the FTC to lock off everyone's wallet. Yeah. It's tough.

Paul J Daly: 12:22

You just got them all day said they'll shoot the

Kyle Mountsier: 12:24

lock, lock off your wallet right there. Just put it on a shirt.

Jim Ganther: 12:27

Well, what about the websites?

Kyle Mountsier: 12:29

The websites are a big deal. Yeah, I mean,

Jim Ganther: 12:31

you can you can avoid some of the advertising pitfalls by simply not advertising price. have pictures of representative vehicles. Say how many you have in stock, promote the value of your dealership build interest in the brand and not mentioned price? This

Paul J Daly: 12:49

whole little segment that comes out by the fifth every month called offers. And the offer can't be we have cars for sale? Well for you. I'm

Jim Ganther: 13:00

a boomer. Yeah, that's why I wear a bowtie and have this many chins. Oh, is that Howard? Yeah, that's how it works. And I love the way you set up the lights. So the glare from my bald spot doesn't blind your viewers. So boobers like I still remember these things called newspapers. Print is not dead, but it's not healthy, right? Even I start my car buying journey online, I go to furman.com. And I want to take a look at what vehicles they have. And they have a little you know, little square for every vehicle in their inventory. Every one of those squares must have offering price attached to it. In other words, the cars rule says that when you're offering a specific car, you must disclose the offering price in close proximity. And there can be no fine print. No disclaimers, no click here for the Internet price. Yeah, no call for price, no call for price. Yep, that stood no requiring consumers to give personal information. cell number here's

Kyle Mountsier: 14:03

here's one, etc. We could go all day for this. I'll go one more. But the interesting thing about OEMs is that dealers typically have historically especially pre pandemic have offered prices below what we call map pricing, the manufacturer approved pricing. And if you do that it is required by the manufacturer to have a one to one relationship with the customer meaning that customer has to actually enter their information before they get that price from the dealer and advertise it. What that means is that either no dealer will be able to price a vehicle at that price or the OEM has to change their rules as far as what the dealer is allowed to price to the customer visibly before that time. It's a massive piece. Yeah,

Jim Ganther: 14:49

that's that's very good. That's very insightful, but that makes you in the 99.99 Mmm percentile of insight. People are just big meaning to figure out what the rule says, then they're going to figure out what is this? How does this impact me and all that the last thing you're gonna think about is how does it impact everybody else I touch. So, you know, the companies that make the websites, the easiest thing in the world for E commerce compliance is not to review the online ads of every dealer every day, that is incredibly time consuming and expensive. It's much easier to get the people who make the websites themselves to change the way they make their templates, no fine print, no Click here for price. We can fix that at the top level and take that particular headache off the plate of the dealer. But there are other things at the dealership, such as mandatory training. I hate to tell you, we're in the training business, when the government passes a regulation that requires dealers to buy what I sell. I am conflicted. You don't need to tell us no, no, what I mean is saying the safeguards rule. Two years ago, the safeguards rule was revised. Our top line revenue shot through the roof. Yeah, this is much more impactful to dealers. And you know, I'm telling Melissa she's shopping for Mercedes probably as we speak.

Paul J Daly: 16:24

She's like, it's like that again.

Jim Ganther: 16:25

I'm gonna come home they're gonna be digging for the pool in our backyard. She

Paul J Daly: 16:28

already has she actually already has a deposit on this Rolls Royce. They revealed. That

Jim Ganther: 16:32

was a beautiful Rolls Royce and I think she's signing death warrants for minx right now.

Kyle Mountsier: 16:37

Yeah. But Jim, you've been more than fun. You are certainly a lot more than cars not just in your approach to business but also people and we really thank you for helping us put on this today and joining us in this conversation. Thank

Jim Ganther: 16:50

you very much for having me. This was fun.

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