When Ford Motor Company was struggling to make ends meet in the 1970s due to the rise of imports and dropping quality in American manufacturing, then CEO Lee Iaccoca had the business savvy idea to sell the Ford Pinto with a scientifically proven flaw that would cause the car to combust when rear-ended by another car.
The worst part about this was that Ford knew about the deficiency and sold the car anyway since the cost-benefit analysis deemed that dealing with lawsuits and settlements was cheaper than remedying the malfunction (“Grimshaw v. Ford Motor Company”, n.d.). Ironically enough, radio ad spots quoted that the “Pinto leaves you with a warm feeling.”
While the Pinto might be a car of the past, this article focuses on the regulation of deceptive advertising law concerning car advertisements in the United States and analyzes other countries’ regulations in hopes to improve the advertising landscape in the United States. The article takes on two cases that recently occurred starting with Nissan’s 2014 Frontier commercial and Volkswagen’s 2016 Dieselgate Scandal. Before looking at these two cases, there should be a baseline understanding of the critical concepts and players in advertising.
The FTC and Why You Should Care
The Federal Trade Commission’s (FTC) sole purpose is to ensure that commercial competition thrives and the consumer survives. With that in mind, advertisements become a large focus of the commission’s scope since advertisement has been known to have a significant effect on the buyer. The FTC wants to make sure those advertisements are ethical and do not mislead the consumer.
The actual legalese under Section Five of the FTC Act states that the agency will attempt to prevent “‘unfair or deceptive acts or practices in or affecting commerce.'” This doctrine is what caught companies like Volkswagen and Nissan for gross and misleading attempts to dupe the buyer into buying their vehicles. The section’s definition of “deceptive acts or practices” is debated as most legal terms are argued in courts.
When these charges are brought up by the FTC, the commission must look at these cases through a specific lens. For instance, where is the line between a serious violation like Dieselgate and communicating to the consumer that not all BMWs are made in Germany?
Reasonable Man Standard
Throughout the Supreme Court’s history, the Reasonable Man standard has risen to the top as the most effective way to look at a deceptive advertisement case. It gives credit to the consumer as being an informed and intelligent individual who can delineate between subtle advertising ploys.
Pessimists might be thinking “But, wait! I know the American public school system has failed numerous students and there has to be someone who believes that all BMWs are made in Germany!” Dean Fueroghne (1989) covers the intricacies of law in advertising in his book, “‘But the People in Legal Said…'”.
The FTC, at one time, went with this kind of thinking with the Ignorant Man Standard to account for the most gullible consumer. The standard had to account that “even if only a single person were deceived, and even if that person were incompetent or a fool,” the advertisement was deceptive and was great enough to the consumer (Fueroghne, 1989). A company has to walk the line between making their product attractive while maintaining a clear product to the consumer.
Lastly, in the realm of automotive media, it is important to highlight the category of deceptive advertising known as, “Performance Claims”. It sounds exactly like what you are thinking. It is a claim made by the producer about the product they sell (Fueroghne, 1989). With cars, this could be from horsepower figures to mileage efficiency. With these claims, a company needs to back up these claims with some sort of reasoning. The legal world calls this substantiation, and the proof must be from a reasonable standpoint. Now let’s see how car advertisements manage to miss these critical points.
2014 Nissan Frontier Commercial
Performance measures are a significant piece in the puzzle of deceptive advertising. Fuerognhne (1989) describes them as “claims that a product will do what the ad says it will do”. Now any motorhead can see where this is going with car commercials from horsepower ratings to towing capacities. Nissan’s case was unique since it made no claims about statistics.
Instead, Nissan commissioned a filmed-on phone camera-style commercial that opens with a souped-up dune buggy struggling to climb a dune when all of a sudden, the 2014 Nissan Frontier races behind the dune buggy which is now at a dead stop on what looks like a 40% grade slope. The truck gets behind the buggy and pushes it up to the peak, and somehow does a 180 in less than two seconds for the driver to lean out the window and stare down the camera (“HillClimb_Frontier”, 2011). It was absurd. It was fraudulent. And it got Nissan in big trouble with FTC.
Complaints focused on the improbability of an unaltered Nissan pickup could push a dune buggy at a dead stop up a sandhill, and they were correct. In fact, the commercial used cables to execute the impossible feat. Then, there was the camera angle which made the slope look steeper than it was shown in the final product. As mentioned previously, the common car nut would say that this is just absurdist puffery that did not intend to convince the consumer that a Nissan could perform this stunt.
Unfortunately, a car company must be aware of the reasonable man standard and judge whether their ad communicated a more absurdist tone or a serious, “we’re not kidding” tone. The way I see it, Nissan’s choice to make this advertisement in the medium of a shot on phone-style was a mistake and seemed almost convincing, even for an enthusiast like me.
European Union on Dieselgate — What Was It?
Back in the early 2010s, Volkswagen used to sell an efficient diesel known as, “TDI”, but as everyone knows, diesel is one of the more polluting combustion engines in the world. No matter the reputation, Volkswagen marketed the TDI with “Clean Diesel Technology” and boasted “lower CO2 emissions compared to 93% of other vehicles” (“What Is TDI”, 2022).
With this robust advertisement, Volkswagen also produced software (better known as “defeat devices”) that would trick the EPA testing systems into thinking that the TDI was compliant with the Clean Air Act. Once the EPA finished testing, the engine would revert to producing nitrogen oxide emissions 40 times over the limit (Atiyeh, 2019). There is no better definition of fraudulence better than what Volkswagen had done.
How did the EU respond?
It is difficult to ascertain what kind of regulation the European Union enacted against the company but many sources reflect Volkswagen’s actions to put out the blazing fire it had set for itself. Jae Jung and Elizebeth Sharon (2019) identified VW had cited “respective laws and standards were either absent or less strict than those of the United States, and that the use of its device did not contravene any laws or regulations that were in force in those countries at the time.”
Simply put, Volkswagen tried to shield itself from the backlash of the public by claiming that they were only in violation of the United States’ regulations. As shallow as that sounds for a company, they are correct in that sense, but this still does not cover their deceptive advertising that the TDI was a “clean engine”. This is explained in Reuter’s 2016 report on Dieselgate on how Volkswagen violated 20 different countries’ consumer laws.
Exaggerated Environmental Claims
One of them is the “Consumer Sales and Guarantees Directive — which prohibits companies from touting exaggerated environmental claims in their sales pitches — and the Unfair Commercial Practises Directive, both of which apply across the EU” (Reuters Staff, 2016). No matter the violations, Volkswagen held firm to avoid a wide-scale compensatory action in Europe in places such as Ireland (McAleer, 2016). The company reasoned that if they recognize one of the European countries, they would have to address all compensation claims in Europe (Jung & Sharon, 2019).
Talking about this issue is difficult to not immediately place Volkswagen in the hot seat for lying to their customers and then adamantly refusing to compensate them for deceiving them. Ethically speaking, this is one of the most heinous violations of trust in the market since the Enron Scandal. Seven years after the initial breaking news and complaints filed in England and Wales have finally settled with a $242 million payout to victims (Ridley, 2022). There must be legal processes with each case against Volkswagen to ensure justice is being carried out and that takes time, but in some cases where the company actively deceived its consumers, it is surprising there was a lack of urgency from the European Union.
China’s State Administration Of Industry And Commerce (SAIC) on Dieselgate
Having reviewed a more latent response to the Dieselgate Scandal, I was curious to see how an autocratic country like China would handle this issue. Zhihong Gao (2008) claims that the Chinese advertising market is worth exploring for its unique situation as a young and rapidly expanding section of world trade. Although being a relatively new market, there is no doubt that China has a firm grasp on what is portrayed in the media. China’s State Administration of Industry and Commerce (SAIC) is the main source of influence on marketing in China but multiple government agencies also influence the media.
This includes the Ministry of Culture, State Administration of Radio, Film, and Television, and many more that will censor content that pushes the boundaries of what the state deems acceptable (And I thought the United States was mired in red tape). This unique situation offers insight into this article’s focus on car advertising since one would think that deceptive advertising would not be an issue in this society. However, there are still ways for companies to slip through the legal cracks.
Now directing the reader’s attention to Dieselgate again, one finds an anomaly in China’s reaction to the heinous scandal. The Chinese perspective is a difficult lens to tackle given the lack of definition for deception in advertising laws (Gao, 2008). Furthermore, there is little to no evidence on how China reacted to the Dieselgate scandal. Only speculation can be said about China’s reaction to one of the worst business scandals of the last ten years. Given what Bertel Schmitt (2016) has said about Volkswagen’s stake in the Chinese market, there was “no diesel sales to lose” and therefore, no consumer to deceive.
Given this dead end, it is fair to say that Dieselgate’s level of impact on China is relatively insignificant in the context of government regulation but what does it say about China’s reaction to deceptive advertising? Shockingly, there is no documentation about criminal trials or governmental action to ensure China’s population is safe from deceptive advertising. Could China see this as an advantage over the automotive giant to prop up domestic commerce? At this time, it is hard to gauge how the country reacted to the automotive scandal.
Successes and Challenges for the FTC
Now we will examine the various successes and challenges remaining for the FTC.
After analyzing how some of the world’s largest economies reacted to the infamous Dieselgate scandal, it is important to review how the United States handled the matter and look for improvements to prevent this abuse of the consumer. Being the country where the scandal first became known, the US seized the opportunity to show the world the nation’s stance on Volkswagen’s unfair practices with a formal complaint from the FTC (“FTC Charges Volkswagen”, 2016).
The result saw a Volkswagen payout of $20 Billion in compensatory buybacks, lease terminations, or refitting customers’ cars with Environmental Protection Agency (EPA) approved emission systems (“Volkswagen to Spend”, 2016; “Federal Judge Approves FTC”, 2016). As sad as it was to see how other nations responded to the violation of ethics, it was comforting to see that the United States’ legal system is not completely mired in red tape.
Sure, compensation is supposed to balance the wrongs committed by the company, and that “balance” can be subjective from person to person, but the reaction was relatively swift compared to countries in Europe. No amount of money can ever replace trust in the consumer, but this settlement shows that there are consequences to wrongs committed by seemingly invincible corporations like Volkswagen.
The FTC demonstrated the definition of holding an entity responsible for clear and blatant deceptive acts against the consumer but the nation is currently going through a movement: Revenge of the Electric Cars [Back in the day when cars were first showing up on the road, there was a chance that the choice of fuel was going to be electricity but was dashed once Henry Ford flooded the market with the model T (Matulka, 2014)].
The Internal Combustion Engines (ICE) are on their way out and with that comes a whole new platform for companies to advertise with angles that will promote green energy, power statistics, and range numbers. These appeals to the general audience will be the future scandals the FTC and more importantly, you, the reader, will need to be looking for when participating in the free market.
This article has evaluated two cases of fraudulent and deceptive acts by two (formerly) reputable automakers and looked into how economic giants such as the EU and China responded to the heinous Dieselgate Scandal. The findings concluded that the United States used the best course of action to ensure the company paid for wronging the public with the fraudulent advertisement of a “clean diesel”.
Certainly, it is easy to look back and think, “How could anyone have believed a diesel engine could be environmentally friendly?” Maybe we wanted to believe that as efficient as the powertrain was, it was also not choking the Earth of oxygen. Lastly, the article identified one of the biggest concerns for car advertisement today: electric cars. There needs to be oversight and verification of claims made by Tesla, Rivian, Lucid, or any company buying into the battery-powered car.
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Ridley, K. (2022, May 25). Volkswagen in $242 mln UK ‘Dieselgate’ settlement. Reuters. Retrieved June 6, 2022, from https://www.reuters.com/business/autos-transportation/volkswagen-242-mln-uk-dieselgate-settlement-2022-05-25/
Schmitt, B. (2016, February 2). How Volkswagen really blew it: It was China, not Dieselgate. Forbes. Retrieved June 6, 2022, from https://www.forbes.com/sites/bertelschmitt/2016/01/29/how-vw-blew-it-chapter-one-china-not-diesel/?sh=382924d6140d
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(n.d.). Volkswagen to Spend up to $14.7 Billion to Settle Allegations of Cheating Emissions Tests and Deceiving Customers on 2.0 Liter Diesel Vehicles. (2016, June 28). Federal Trade Commission. Retrieved June 6, 2022, from https://www.ftc.gov/news-events/news/press-releases/2016/06/volkswagen-spend-147-billion-settle-allegations-cheating-emissions-tests-deceiving-customers-20.
See Also — Record High Diesel Prices Persist
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