Mazda to Pay Fines for Lease Ads, Pollution
Mazda North American Operations agreed Thursday to pay $6.15 million in fines--including the largest civil penalty ever levied by the Federal Trade Commission--for violating federal air pollution rules and state and U.S. mandates to stop obscuring important terms of its vehicle leases in its advertisements.
The Irvine-based auto maker, a subsidiary of Mazda Motor Corp. of Japan, has denied intentional wrongdoing in both matters.
Mazda agreed to pay a $900,000 fine to settle federal Justice Department allegations that it waited more than two years to report an emissions system defect that permitted excessive gasoline vapors to escape from some of its 1989-94 MPV minivans.
In the lease advertising case, Mazda paid $4.05 million to the FTC and a total of $1.2 million to 24 states including California as a result of continuing efforts by regulators to force auto makers to clean up their often confusing and hard-to-understand leasing promotions.
The FTC alleged that Mazda continued airing unclear lease ads for 13 months after agreeing in 1997 to change its ways.
The Mazda fine should “send a strong signal to everyone in the automobile industry . . . that important leasing information cannot be buried in fine print,” said Jodie Bernstein, director of the FTC’s consumer protection bureau.
Leases account for about a third of all new-car sales each year--more than 5 million vehicles in 1998--and have long been a problem area. Many consumers find lease terms difficult to understand and are surprised to find themselves billed for hefty security deposits or, at the end of the lease, for excess mileage and wear and tear.
“Accountants weep when they try to read leases,” said Rosemary Shahan, founder of Sacramento-based Consumers for Auto Reliability and Safety. “There is deliberate obfuscation because the car companies want you to focus on that monthly lease payment to the exclusion of all else.”
Mazda was one of five auto makers that paid $1.9 million in fines in February 1997 and agreed to display lease terms prominently in ads in the wake of consumer complaints. The others were General Motors Corp. and the U.S. units of Mitsubishi Motor Corp., Honda Motor Co. and Isuzu Motors Ltd. of Japan. In 1998, the FTC signed similar agreements, without fines, with Chrysler Corp., now part of DaimlerChrysler, and the U.S. subsidiaries of Japan’s Toyota Motor Corp. and Germany’s Volkswagen.
Mazda executives, in a brief statement Thursday, said the company “did not intentionally violate” the 1997 pact.
Mazda spokesman Jay Amestoy also said the company was unaware of any consumer complaints about the ads in question. The FTC acknowledged that it did not receive complaints but said Mazda owes it to consumers to abide by terms of the 1997 agreement. Amestoy said Mazda has not run leasing ads since June 1998--”not because of the FTC,” he said, “but because consumers are not as interested in leasing.”
Nationally, leasing is down about 3 percentage points this year, to below 30% of new-vehicle sales, but will still account for more than 5 million transactions at the current pace.
In 1997 and the first quarter of 1998, when the questionable ads were televised, Mazda sold 199,734 cars and trucks in the U.S.
Mazda paid $875,500 in fines in the 1997 case.
But the company continued until early 1998 to run four new television ads that presented lease-term disclosures “in small and unreadable print, offset by distracting images or sounds, or that appeared on the screen for too short a time,” the FTC said Thursday.
In one ad, for the Mazda 626 sedan, the amount due at lease signing was partly covered by larger text spelling out the date the offer ended. In another for a Mazda pickup, a visual of the truck driving through the countryside was played behind the text of the lease terms, making it difficult for TV viewers to read, the FTC said.
“Cutting so close to the line just won’t do,” said David Medine, associate director of the FTC unit that oversees consumer and credit financing. “This is critical information that consumers need to help with the second-biggest economic investment, after their house, they’ll ever make.”
As part of the lease advertising settlement, Mazda will distribute a consumer education brochure on leasing through its 750 U.S. dealers.
In the emissions system settlement, Mazda agreed to extend the seven-year warranty on the potentially defective part to 11 years and to reimburse any MPV owners who had the part repaired at their own expense before Mazda acknowledged the problem last year.
The company said fewer than 6,000 of the 226,000 vans sold in the affected years have undergone the emission system repair under an extended warranty mailed to owners in 1998.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Thinking of Leasing?
Consumers should consider several factors before deciding to lease an auto. One source of advice is the Federal Trade Commission, which provides free educational materials through its Web site, https://www.ftc.gov, and its Consumer Response Center, (877) FTC-HELP (382-4357). Among the commission’s tips, from its consumer alert publication “Look Before You Lease”:
* Shop as if you are buying: Negotiate all lease terms, including the price of the vehicle, and obtain all terms in writing.
* Learn the language of leasing: “Open-end” versus “closed-end” leases, “lease inception fee” and other terms are defined in the FTC alert.
* Ask about extra charges: Penalties may be assessed for excess mileage, wear and tear or early termination of the lease.
Source: Federal Trade Commission
