Competitive Enterprise Institute Files Deceptive Advertising Complaint Against GM

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.