Competitive Enterprise Institute Files Deceptive Advertising Complaint Against GM

Edward Niedermeyer
by Edward Niedermeyer

The Competitive Enterprise Institute, a public interest group dedicated to free enterprise and limited government, has filed a complaint with the Federal Trade Commission, alleging that a recent advertisement from GM claiming to have “paid back government loans in full” is deceptive [ full complaint in PDF here]. You might be able to guess why the CEI finds the GM ad so misleading, but if not, their explanation is after the jump.

The CEI admits that “In the press release on its ad campaign, GM at least hinted at the fact that there was more government money involved here than just the loan,” a statement that it believes reflects the whole truth of the matter.

But when it comes to GM’s ads, there is no mention whatsoever of this much larger portion of the federal government’s financing, or of the “first step” nature of GM’s loan repayment. All the public learns is that the government loan has been repaid, period. (“In full, with interest, five years ahead of the original schedule”.) Viewers will naturally think that this is the end of the story, when in fact there is still over $40 billion “in financing still outstanding” (to use the words of the Congressional Budget Office).

The failure of GM’s ads to make this clear is deceptive. GM’s statements are “likely to affect a consumer’s choice or conduct regarding” its products. As one leading scholar on advertising law has noted, there is a “well established principle … that advertisers be held responsible for implied, as well as express, misrepresentations.”8 In evaluating the truthfulness of ads, “the proper way to analyze [their] overall impact is to see the ads as consumers see them … rather than the way they might be technically analyzed.”

Most consumers would reasonably interpret GM’s ads as meaning both that GM has paid back all the money that it received from the government, and that those repayments were made with its own funds rather than with other government funds. Neither of these interpretations is accurate. While GM might argue that its ads are literally correct, they are deceptive within the meaning of the FTC Act because they leave a misleading impression with consumers

The CEI complaint notes that GM likely made this misleading statement in order to fool American consumers into believing that it no longer owes money to the US government, a perception that could help its business considerably.

Receiving bailouts at the expense of American taxpayers stuck at the very heart of GM’s image as an asset to America. Consumer purchasing decisions can easily be affected by such considerations, as the FTC has long recognized in prohibiting false claims that products are “Made in the U.S.A.” Indeed, the same buyers who prize “Made in the U.S.A.” cite concerns about GM’s bailout at taxpayer expense in explaining why they buy cars from Ford, the American automaker that did not receive a federal bailout

The complaint concludes with the CEI arguing that:

A prompt investigation by the FTC would serve the American public on this issue of major consumer and taxpayer importance. It would also discourage other beneficiaries of government bailouts from falsely misrepresenting their status.

We agree with the CEI’s assessment that GM mislead consumers, although as the complaint concedes, it did so in such a way that avoided an explicit lie. Whether the FTC will find so subtle a definition of deception actionable remains very much to be seen. Still, an investigation would certainly be welcome.

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  • Rusted Source Rusted Source on May 05, 2010

    To the GM apologists here stating the 61% ownership stake in GM is a glowing "investment opportunity", here's my issue and may be shared by others here on TTAC. That 61% stake is useless if GM doesn't start making strides forward to become a viable, profitable company. If they make it to an IPO and the government re-cooperates even 1/4 of that ownership, is that a success? what about 1/8 or 1/16? What will we call the money lost then, a business expense? To win the public's favor, sometimes you have to bring yourself low, admit your mistakes and ask for help while showing repentance to the mistakes of the past. Showing future vehicles in commercials as a regular staple, hosting a my-car-is-better-than-your-car campaign, and boasting about paying off loans early (in full... with interest... 5 years ahead of schedule) just sends the message of "One day you people will realize you have it all wrong, then you'll be begging to own a GM product". Take a look at Ford, they took the high road. They could have pointed out over and again how GM and Chrysler took the bailout but instead they let the public develop their own opinion about Ford and at the same time keep trying to become a better company (improving financial position, bringing smaller cars that people desire, successfully selling off Volvo for real money). GM has some decent cars, but nobody likes to buy tainted goods no matter how shiny they look.

  • Jmatt Jmatt on May 05, 2010

    Frank Rizzo said: "Where was the CEI when the Bush Administration was logging Iraq war blah blah blah" So, GM gets caught airing fraudulent ads and the left's response is... drum roll, please... Bush did it. And nobody seems to be mentioning the fact that the reason GM is doing this is so that it can receive another ten billion in corporate / union welfare being made available by the Department of Energy. So they pay back six billion at 7% with taxpayer money and pick up another ten billion at 5%. So at the end of the day, GM cheats the taxpayers out of 2% interest by using other taxpayer money, and lines itself up for another ten billion dollar handout courtesy of those same taxpayers. And suddenly the left, which usually whines about corporate welfare, is falling in love with it. But never mind all that. Bush did it!

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