If you’ve ever questioned the value or effectiveness of the National Automobile Dealers Association (NADA), look no further than the decision handed down this evening by the United States Court of Appeals for the Fifth Circuit, vacating the dreaded CARS Rule the Federal Trade Commission has been trying to put in place for more than a year.
(As a side note, the Fifth Circuit is located in New Orleans in a stately courthouse just 1.2 miles from the Ernest N. Morial Convention Center, where the dealer association held its annual convention over the weekend).
NADA and the Texas Automobile Dealers Association (led by President Darren Whitehurst), petitioned the court for a review of the CARS Rule on January 4, 2024, the same day the FTC published the rule, which was supposed to go into effect in July 2024.
The FTC responded to the petition by staying the Rule pending a decision by the court, which listened to oral arguments on October 9, 2024.
If you enjoy reading long legal documents, have at it — I provided the decision below. But if you’re one of those “TLDNR” folks, here’s the Cliff’s Notes:
1. Two of the three judges on the panel ruled in favor of the dealers agreeing with NADA that the FTC violated its own rules when it neglected to issue an advance notice of proposed rule making.
2. The court refrained from providing an opinion NADA’s two other arguments. 1). The FTC failed to articulate a reasoned basis for the Rule, and, 2). The FTC’s cost-benefit analysis was not legitimate.
This victory is why NADA’s exists. It is a big win, but you won’t see the NADA folks taking a victory lap, spiking the ball, or doing the homerun dance. Mainly because, the organization will have countless more battles, conversations, and challenges with government agencies, and rubbing one’s face in a loss only makes the job harder.
A word for dealers — Even though this latest attempt by the FTC was an overreach, confusing, and poorly executed (implementation would have cost dealers millions of dollars), we all know the industry has a big perception problem. And the fact the decision was made on what some will argue was an inconsequential and harmless error (that’s what the dissenting judge argued) will not help.
The point being, make sure your people are conducting business ethically and that you’re following the law. The FTC will continue to hand down huge judgements against dealers, as it has been doing over the last couple of years.
