Earl Scheib, Inc.

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IK THE 1\fatter EARL SCHEIB, I , ET AL.

ORDER: OPJNIOK , ETC. , r r REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COl\IlIISSIOX ACT Docket ,83. Complaint, Jiay Decision, Oct. 196J Oruer requiring Be,€lly Hils, Calif., operatoJ's of paint and body repair' !'f'I' Yices fol' automobiles at yal'Ol1s locations, to cease representing fa1scl:-- in flch-crtisements in ne\Yspnpcrs, on tr.lc,ision and through ot11el' ad,ertising media that their cl1stomary offe!' of 29. U5 'vas a svecial, lcl111ced lwke: that their SID.9B paint offer was of the same Quality (IS that at 829.03. when in fact it wa. a bait offer. made to attract eustornel's who were then urged to take a much higher priced job: and that all their \york C!lnied a 8-year' guarantee. 'lPLAIXT Pursuant t.o t.he provisions of the Federal Trade Commission Act and by virtue of the authority ypstec1 in it by said Act, the Fe(leral 1050 FEDERAL TRADE- COM:\USSION DECISIOXS Complaint \ F. Trade Commission, having reason to be1icve that Earl Scheib, Inc. a corporation, and Earl A. Scheib, individually nncl as an offcer of said corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges in that respect as follows:

PARAGRAPH 1. Respondent Earl Scheib, Inc. , is a corporation organized, existing and doing business under and by virtue of the Jaws of the State of Delaware, with its offce end principal pbcc of business located at 8737 Wilshire Boulevard, Beverly Hills, California.

Respondent Earl A. Scheib is an offcer of the corporate respondent. He formulates, directs and controls the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. His address is the same as that. of the corporate respondent.

PAR. 2. Respondents are now, and for some time last past have been, engaged in the advertising, offering for sale, sale and distribution of paint, and in performing an automobile paint and body repair service, to the public.

In connection with the performance of the pa,int and the body repair service to a cmtomcr s automobile, respondents own, operate and control (1) a factory in which the paint is manufactumd, (2) area warehouses in which the paint is warehoused or stored and from which the paint is distributed to the various paint and body repair shops and (3) various paint and body repair shops at and in which the said paint and body repair services arp perfo1'ned. All of the manufacturing, storing and distribution of paint, and the performance of paint a,nel body repair services, are done through separate corporations, not specifically designated herein, ,which nre incorporated in the stat.e or district in "hieh said factory, warehouse distributor or paint and body repair shop is located. Prior to the month of February 1862 , thc individual respondent owned all of the capital stock of the various corporations above mentioned a.nd all of the capital stock of a corporation known as Earl Scheib, Inc., a California corporation which added in a managerial capacity for said other corporations. In the month of February 1962, the corporate respondent was organized in t11e State of Delaware. Thereafter, the individual respondent transferred to the said Delaware corporation all of the stock owned by him in the various operating corporati011s as above set forth, and including the stock owned by him in Earl Scheib, Inc. , the California corpora- EARL SCHEIB INC. ET AL. 1051 1049 Complaint tion, to the corporate respondent herein, in exchange for approximately 95% of the capital stock of the corporate respondent. On February 28, 1962, EarJ Scheib, Inc., tl,e California corporation, was merged with the corporate respondent herein and thereby the said corporate respondent became the parent of an the various corporations operating the factory, warehouses and paint and body repair shops.

The individual respondent, through control of the corporate respondent, and formerly through control of the said California corporation, formulated, directed and controlled, and now formulates directs and controls, the acts and practices of each of the said subsidiary corporations in conjunction with the corporate respondent, and formerly the said California corporation. Whenever it is alleged hereafter that the respondents committed certain acts and practices which are claimed to be false, misleading and deceptive, it is intended to be alleged that the said acts and practices were committed by the individual respondent, Earl A. Scheib, in conjunction with Earl Scheib, Inc., the California corporation, or in conjunction with Earl Scheib, Inc. , the Delaware corporation, as the case may be.

-\R. 3. In the cour e and the conduct of their business as aforesaid, respondents now cause, and for some; time last past have caused, their said paint to be shipped from their paint factory located in the State of Cllliforn:a to their warehouses located in various other States of the United States, including the State of California. Thereafter shipments are made from the warehouses located in various States of the 1 united Stales, including the State of California, to the locations of their auto paint and body repair shops located throughout the United States and in the District of Columbia. At. said locations, paint is sold and painting and body repair service is performed on the customer s automobile. In the course and conduct of said business respondents maintain, and at aD times mentioned herein 11ave maintained, a substantial course of trade in said automobile paint and in the antomobi1e painting and body repair service in commerce, as "commerce" is defined in the Federal Trade Commission Act.

P AU. 4. In the course and conduct of their business, and for the purpose of inducing the sale and purchase of their automobile pant and body repair service, respondents have made certain statements and representations with respect to the nature, extent, quality: workmanship, guarantees and prices of the same in advertisement.s in ne'""spapers, publications and through other advertising media, all of which are circulated into various States of the Unit.ed States 1052 FEDERAL TRADE COMMISSIO DECISIONS Complaint 63 F.

other than, and including, the State of origin of the advertisement and in the District of Columbia; and by advertisements on television which are telecast across State lines into States, other than, and including, the State of origin of the advertisement, and in the District of Columbia. Typical, but not an inclusive, of such statements and representations ate the following:

1. In connection with a $29.95 offer:

Special, $20.95.

Vacation Special, $29.95.

Winter Special. $29.95.

Fall Special. $29.95.

Special this 'week, $29.95.

Yet n1 ' price is stil-fol' limited time--only $29, 95. E,en with this costly new silcone, I wil stil paint any car-for limited time-fol" only $20.95.

2. In connection with H, $10.9G ofter:

'I more days, $19.95. Any car. Variety of colors. 19.95. That is the full price to paint any car. That's right-that' s the full price-just 819, 95 this week. You sa,e lO! Instead of $29. 95 its only $19.95 whether you own an Austin or a Cadilac. 3. In connection with a guara.ntee:

Your three efil' written guarantee is honored at any Earl Scheib Paint Shop in o\"er 100 cities agrlinst faeling, peeling, crinklin '\R. 5. Through the use of the aforesa.id statements and representations, and others of similar import ancl meaning, but not. specifically set forth herein, the respondents have represented, and now represent, directly or indirectly:

1. In connection with the $28.85 offer, that $28.95 is a special reduced or bargain price.

2. In connection "jth the $19.95 offer, that $19.95 is the fun price to paint any automobile in a variety of colors with thb same quality and workmanship: the same selection of colors and the same guarantee as in a $29.95 job.

3. In connection with the guarantee, that all paint work is gmllanteed regardless of price, against fading, peeling and crinkling for three years.

PAn. 6. The aforesaid statements and representations were, and are, false, misleading and deceptive. In truth and in fact: 1. The price of $29.95 is not a special, reduced or bargain price but, on the contrary, said price is respondents' custollltry, usual and regular price.

2. The offer to paint any automobile for $19.95 in a variety of colors with the same quality workmanship, selection of colors and &;

EARL SCHEIB Il\ ET AL. 1053 1049 Comp1aillt guarantee as in a $29. D5 job is not a bona fide offer but, on the contrary, it is made for the purpose of inducing the public to come to respondents' place of business to obtain said $19.95 paint job. .When a customer responds to such advertisement and goes to one of the various paint shops, employees and representatives of respondents disparage said $19.95 paint job in such a manner as to discourage the offer and attempt to, and frequently do, sell a much higher price paint job to said customer. In instances 'where the customer insists on the ::19.D5 paint job he is- then informed by respondents' employees and representatives that such work is not guaranteed and is not of the same quality as the $2D. DD job.

3. All of respondents' paint ""ark is not guaranteed against fading, peeling and crinkling for three years regardless of the price, but. on the contrary, in order to obtain said guarantee, body repair work must be performed and no guarantee is issued for work performed for the price of $lD.95.

PAR. 7. In the conduct of their business, at all times mentioned herein, respondents have been in substantial competition, in commerce, "With corporations, fil'ns fllld individuals, in the manufacture sale and distribution of products of the same general kind and nature as that sold by respondents and also ,,"ith those engaged in the business of painting and performing body repair work on automobiles.

PAR. 8. The use by respondents of the aforesaid false, misleading and deceptive statements, representations and practices has had, and now has, the capacity and tendency to mislead members of the purchasing public into t.he erroneous and mistaken belief that said statements and representations "Were and are true and into the purchase of substantial quantities of respondents ' said paint and automobile paint and body repair services because of such erroneous and mistaken beliefs.

PAn. 9. The a.foresaid nets and practices of respondents, as herein alleged were, and are, a11 to jhe prejudice and injury of the public and of respondents competitors a.nd constituted, and nO\.. constitute unfair methods of competition in commerce and unfair and deceptive acts and pra,dices in commerce, in violation of Section 5 of the Federal Trade Commission Act.

Jir. Roy B. Pope supporting the complaint. BuchalteT, Nemer, Fields Savitch by llfr. Irwin R. Buchalter Los Angeles, Calif. , for respondents.

Initial Decision 63 F, INITIAL DECISION BY ANDREW C. GOODHOPE, HEAIUNG EXAMINER DECEMBER 4 , 1902 STATEMENT OF PROCEEDINGS The Federal Trade Commission issued its complaint against the above-named respondents on May 2, 1962, charging them with engaging in unfair acts and practices, in commerce, in violation of Section 5 of the Federal Trade Commission Act by the use of false and misleading advertising in connection with the respondents business of repairing and repainting automobiles. A copy of said complaint with notice of hearing was duly served upon T8sponclents. Respondents thereafter appeared by counsel and filed answer denying, in substance, having engaged in the illegal practices charged.

Hearings on the charges were thereafter held at which time testimony and other evidence were offered in support of, and in opposi tion to, the allegations of the complaint, said evidence being duly recorded and filed in the offce of the Commission. At the dose of a11 the evidence and pursuant to Jeave granted by the undersigned proposed findings, conclusions of law, proposed order and briefs were filed on October 29, 1962, by counsel supporting the complaint and for the respondents.

Proposed findings not. herein adopted, either in t.he form proposed or in substance, are rejected as not supported by the evidence or as involving immaterial matters.

After having reviewed the entire record in this proceeding and the proposed findings and conclusions and supporting briefs, the undersigned finds that t.his proceeding is in the interest of the public and, based on the entire record, makes the following: FINDINGS OF FACT 1. Respondent, Earl Scheib, Inc., is a corporation orga.nized, existing and doing business under and by virtue of the laws of the State of Delaware, with its office and principal1 phce of business located at 8737 Wilshire Boulevard, Beverly Hills, California. Earl Scheib Inc., was organized in the State of Delaware on December 22, 19fH. 2. Earl A. Scheib is the President of Earl Scheib, Inc. The business address of Earl A. Scheib is 8737 'Vilshirc Boulevard, Beverly Hills, California.

3. Corporate respondent is now, and for some time last past has been engaged in the advertising, offering for sale, and through its subsidiaries, sales and distribution of paint, and in performing an EARL SCHEII3 ) INC. , ET AL. 1055 1040 Initial Decision automobile paint and body repair service to the public. It is a nationwide automobile paint company with approximately 128 auto paint shops presently in operation through the United States. 4. In connection with the performance of the paint and body repair service to a customer s automobile, corporate respondent owns operates and controls through its subsidiaries (1) two factories in which the paint is manufactured, (2) area warehouses in which the paint is ,,-arehoused or stored and from which the paint is distribnted to the yarious paint and body repair shops, and (3) various paint and body repair shops in which the said paint and body repair services are performed. All of the manufacturing, storing and dis4 tribution of paint, and the performance of paint and body repair services, is done through separate corporations not specifically named herein, which are incorporated in the states or districts in which said factory, warehouse distributor, or paint and body repair shop is located.

5. Prior to thc month of February 1962, the individual respondent owned all of the c.apital stock of the various corporations above mentioned and all of the capital stock of a corporation known as Earl Scheib, Inc. , a California. corporation, which acted in a managerial capacity for said other corporations. Thereafter, the individual respondent transferred to a new Delaware corporation (corporate respondent) aU of the stock owned by him in the various operating corporations as above set forth, and including the stoele mvned by him in Earl Scheib, Inc. , the California corporation, to the corporate respondent herein, in exchange for approximately 95% of the capi1al stock of the corporate respondent. On February 28 , 1962, Earl Scheib, Inc., the California corporation, was merged with the Delaware corporate respondent herein, and thereby the corporate respondent became the parent of all the various cor. porations operating the paint factories, warehouses and paint and body repair shops.

6. The individual respondent, through control of the corporate respondent, and formerly t.through control of saiel California corporation, and othenvisc, formn1ated, directed and controlled and now formulates, directs and controls the acts and practices of corporate respondent and of each of said subsidiary corporations in conjunction with the corporate respondent, and formerly the said ;California corporation. rrhis direction and control includes an of respondents advertising practices and materials involved in this proceeding. 7. In the course and conduct of their business, as aforesaid respondents now cause and for mme time last past have caused, paint to be shipped from the paint factories to the warehouses located in 1056 FEDERAL TRADE CO::vDlISSIO DECISIONS Initial Decision 63 F.

various other States of the United States. Thereafter, shipments are made from the warehouses to the locations of the auto paint and body repair shops located throug-hout the United States and in the District of Columbia. At said locations, paint is s01d and painting and body repair service is performed on the customer s automobile. In the course and conduct of said business, respondents maintain and at all times herein ha.ve maintained, a substantial course of trade in said automobile paint and in automobile painting and body revair service -in commerce, as "commerce" is defined in the Federal Trade Commission Act.

8. In the conduct of the business, at all times mentioned herein respondents ha.ve been in substflutiaJ competition, in commerce, with corporations, finllS and inc1h-iduals, in the manufacture, sale and distribution of products of the same general kind and nature as that sold by respondents and also "with those engaged in the business of pa,inting and performing body repair ,,-ark on automobiles. 9. In the course and conduct of the business, and for the purpose of inducing the sale of purchase of the automobile paint and body repair service, the respondents have made cert.ain statements and representations with respect to the nature, extent, quality, workma.nship, gua.rantees and prices of the same in advertisements in newspapers, publications and through other advertising media, all of which arc circulated into various States of the United States other than, and including, the State of origin of the advertisement and in the District of Columbia; and by advertisements on television ivhich arc telecast across State lines into States other than and including the State of origin of the advertisement, and in the District of Columbia. Typical, but not all inclusive, of such statements and representations are the- following statements which are exactly as they appeared in the context of their advertising format in conjunction with other matters:

(1) In connection with a $29.95 offer:

Special, $29.95.

"Vacation Special, $20.95.

Winter Special, $29.95.

Fall Special, $29.95.

Special this week, $29.95.

Yet JI Y price is stil-for limited time-only $29.D5. limited Even with this costly new silcone paint, I wil stil paint ally car-for time-for only $29.95.

(2) In connection with a 819.95 offer:

'7 more days. $19.95. Any car. Variety of colors. $19.95. That is the full price to paint any car. EAHL SCHEIB , I::C. , ET AL. 1057 1048 Initial Decision That's l'jght tllat' s the full price just $19.95 this weel;:. You save $10. Instead of $ 85 its olll ' S18. D5 whether :rou own an Austin or a Cadilac. That' s the full price, just $19.95, and you select from a variety of beautiful C0101' S, close out of ID60 colors.

(3) In connection with a gmnantee:

Your' three eflr written guarantee is honored at any Earl Scheib Paint Shop in over'100 cites ngninst fading, peeling, Clinkling. 10. The first charge of deception against the respondents is the use of the word "special" and ,yards of similar import as set forth in part in nbpal'ngraph 1 of the inth Finding above. $29.93 is the price which respondents have consistently charged since they began business for the repainting of an automobile with the excep tion of the $19.95 price and the $24.95 price in California. The advertising indie-ates that the $29, 95 price is a special reduction aT bargain price from respomlent.'s usual price. This is not true; consequently, it is fa.1se and misleading to so advertise the $29.95 ofter'. R.respondents urge that the meaning which they intended to give to the word "special was that it was special when compared to the prices charged and services offered by respondents' competitors. But the advertising useel by the respondents in this regard could very easily indicate that this was the meaning which they intended. :However, :it is clear from examining the advertising that it distinctly oonveys the meaning that the $29.95 price is a reduction from respondents' normal a.nd usual price. The word " special" js used in such close association with the price of $29. 95 that it is impossible to sepa.rate the two as they appear in the advertisements. III fact, the theme of the advertisements is that the $2, 95 price is a truly ll1Uusual offer definitely limited in duration. A t.rue "special" offered by the respondents is the $19. 95 paint job discussed in the next finding. Throughout. t.he record, it is referred to as a "special", which it is since it is a temporary offer at $10.00 less than respondents usual and customary price. Consequently, the exa.miner finds that respondents' use of the word " specinJ" and words of similar import in advertising its $2fJ, 95 paint job is false and misleading. Inte? ational , 1461 (1956); Ameri-Association of Photographers 52 F. C. 1450 can Albllm, Inc. 53 F. C. 913, 915 (1957). 11. The second charge of false and misleading advertising- is that respondents' achertising of a special $19.95 paint job was 110 more than a sham to get prospective customers into the Earl Scheib shops and thereafter to disparage the $19.95 paint job and atte.mpt to sell the customer up to the $29.95 paint job. In this connection, it is respondents' practice at about the time new models of automobiles a.re brought onto the market in the fall of each year to re-examine 1058 FEDERAL TRADE COMMISSION DECISIOKS Initial Decision 63 F.

their entire line of autolllobile paints, introduce new colors, and eliminate out-af-elate or slow-moving colors. In addition, in the various paint shops the renmanis of paint used to paint automobiles were saved in a drum during the year and were called "slop paints. The respondents used these "slop': paints and the discontinued lines of paints in carrying out its $19.95 special offer. The record establishes that the paint used in the $19. 95 paint jobs was of the same quality as used for the $29.95 paint jobs. The record also establishes that the quality of T\orkmanship in the preparation of the auto and applying of the paint was also the same. The testimony of the witnesses called by complaint counsel dealt \with statements made by Earl Scheib representatives pertaining to the differences between the $19.95 paint job and the $29.95 paint job and with the selections of colors available at the $19.95 price. The record estf1bl1s11cs that representatives of Earl Scheib, Inc. advised nt least. some. prospective customers that t.he paint used in the 819.95 paint job was a flat enamel paint I"which required Iyaxing and pollsl1ing and did not contain siheones as did the paint used in the 829.95 jobs. As a result, prospective customers purchased the $29. 95 paint job. Commission Exhibit 28 A to F makes it clear that this manner of selling prospective customers up to the $29.95 paint job Iyas discussed and planned by Earl Scheib representatives. It ,yas empl1asizecl in this document that the customer was to b advised t.hat respondents' Diamond Gloss silicone paints were, used in the $29,95 job. The impression left, without nctl10Jly stating it, was that such '-Nas not the case in the Imme1' pricec1 2pecial paint jobs. Respondent Scheib and his 1'ep1'esentati\'cs testified that this bulletin '\as suppressed as soon a2 it came to ::\11'. Scj)ieb' s attention; howover, Commission Exhibits 2.\) and 30, which were published by respondents immediately after Commission Exhibit 28, do not direct that the. approaches to prospective customers described in Commission Exhibit 28 be st.opped. Consequently, it is found that the respondents, through their representatives, have practiced deception on prospective customers by disparaging the quality of the paint used in the S19.95 paint job in an effort to sell the $29.95 paint job. There is no substantial evidence that respondents' representatives stated that a different or poorer quality of workmanship is used in the $19.95 paint job than is used in the $29.95 job, or that the $19.95 pa.int job does not carry the same guarantee. A number of witnesses were crJled by complaint counsel who tes tified that they, jn response to advertisements for the S19, 95 special1 made appointments or went to Earl Scheib pfllnt shops only to dis- EARL SCHEIB, INC" ET AL. 1059 1040 Initial Decision cover that the colors available were so limited in number (two to ten) and of such undesirable colors that they either refused to have their cars painted or purchased the $29.95 paint job to obtain a satisfactory color.

Respondents urge that their advertising in this regard i clear and indicates that only a very fe\y colors 'vels offered in the advertisements. This argument. is based on the use of tlle words "closeout of 1959 (1960, 1961) colors " both on television and in the newspapers. Complaint counsel, however, urge that the use by the respondents in their television and newspaper advertising of the words "variety of colors" and "select from the beautiful variety of our close-out of 1960 colors " indicates that a wide variety of colors ,;were available to prospectiye customers, and that the selection of a very few (two to ten) undesirable colors when they arrive for their paint jobs makes such advertising false and misleading. Respondents: advertising never indicated the actual number of colors ayailable at any time during the $19.95 special deals. The record establishes that there is a very largo number of paint colors for automobiles- estirnates in th: n corcl range as high as 3 000 It is found, therefore, that the advertising by respondent that there was a variety of paints available during a close-out of a previolls year s line of paints was false and deceptive in that respondent made avaihtble only H, very few (two to ten) selections of undesirable colors. It is also found that one of the purposes of this advertising was to entice prospective customers into the Earl Scheib paint shops and sell them up to the $29.95 paint job.

J2. The third principal charge of deceptive advertising was that involving respondents' three- year guarantee in connection with its paint jobs. At the close of thc case- In-chief and before any defense evidence was offered, complaint counsel was permitted to amend the charges pertaining to respondents' representa.tions concerning its guarantee to the following:

.All of responclents' paint 'work is not: guaranteed against fading, peeling and (';'inkling for three yel1rs regardless of the price; but on Ihe contrary, in orcler to obtain such guurimtee ball;: \Yo1' must be performed: further, tlle guarantee which is given to the cn"tomers is not an nnc01l1itionul gUHmntee lmt a pl' O rata g"l1:11:1nlee, and when a customer steel;;s to have the gU3cflltce complicc1 with an adr1itio:wl charge is dcmallc!ecl.

1 The charge as itorjgiDnI1 ' appeared in the complaint was as follows: " A11 of respondpnts' p:llnt work is not guaranteed against fading, peeling Ilnd crinkling for three years regarrlle"s or "the price, but, on the eontrary, in order to obtain snirl g'\Jarantee, bo(ly repair work m\lst be performed and no guarantee is issued for work performed for the price ofs19.95.

Initial Dedsion 63 F.

However, in his proposed findings counsel in support of the complaint only requests a finding as follo\vs: Hc.,:ponrlents' pnint jobs arc not guaranteed for three years without additional cost to the purchaser. On the contrary, the guarantee is pro-rated over' a three year IJel'iod.

Consequently, it appears that counsel ;n support of the complaint has dropped the charge that respondents require body work before a guarantee is given as well as the cha.rge of failure to give guarantees on the $19.95 paint job dropped during the trial In any event there is no substantial or credible evidence in the record that respond ents do require body work to be done before the three-year guarantee is given to customers for any of the paint jobs. The respondents have, however, regularly advertised that a threeyear guarantee is given on its paint jobs without disclosing that the guarantee is a jJTO rata guarantee whereby before the guarantee is 11Onored the customer must pay a percentage of the original cost based on the number of the 36 months elapsed since the orjgina1 paint job. The failure to reveal this fact in the advertising constitutes false and misleading advertising. Pa1'c6r Pen CO. Y. Fed6rall'trade Oommi sion 159 F. 2c1 509 (7th Cir., 1946), 4 S.&D. 597. 13. Respondents' counsel urges that respondents have at an times been willing to eliminate any of its advertising \which the Commission feels is deceptive. In fact, counsel urges that promptly upon notice that the Commission was questioning its advertising, it stopped the use of the word "special" in advertising its 829.95 paint job and also changeel its g-llarantee advertising to make it clear that the gmnante is jJro 1'ata when this was questioned. This change in the respondents' advertising practices did not occur until after respondents were being investigated and since respondents ate still engoged in the same business and advertising extensively, the examiner docs not feel that the discontinuance was of a nature which would \warrant dismissal of these charges and feels that the protection of the public interest requires an order to cease and desist. 14. Respondents' counsel aho urges that since respondents "ere 'iyilling to take a. consent order prohibiting the use of the word special'. and requiring full disclosure of the nature of the guarantee before the complaint issued in this matter and so advised Commission representatives that the Commission is now foredosed from issuing any order in these areas. This arglll1ent is rejected. COXCLT SIOXS 1. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents. EARL SCHEIB INC. T AL. 1061 1049 Initial Decision . Complaint herein states cause of action and this proceeding is in the public interest.

3. The use by respondents of the aforesaid false, misleading and deceptive statements, representations and practices has had, and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and a.re true and into the purchase of substantial quantities of respondents' automobile paint and body repair services because of such erroneous and mistaken beliefs. 4. The aforesaid acts and practices of the respondents as found herein are all to the prejudice and injury of the public and of respondents' competitors and constituted, and now constitutes, unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce, in violation of Section 5 of the Federal Trade Commission Act.

ORDER It is ordered That Earl Scheib, Inc., a corporation, and its offcers and Earl A. Scheib individual11y and as an offcer of the said corporation, and respondents' representatives, agents and employees, directly or through any corporate or other device, in connection with the advertising, offering for sale, sale or distribution of paint, or other products or in the painting and repa.iring of aut.omobiles, in commerce, as "commerce" is defuled in the Federal Trade Commission Act, do forthwith cease a.nd desist from representing, directly or by implication:

1. That merchandise is sold or services performed at a "special" price or words of similar import unless said price is reduction from the customary, usual andl'regular price at which the merchandise has been sold, or the services performed by the respondents, in their recent regular course of business; or otherwise misrepresenting, in any manner, the amount of savings to purchasers of respondents' merchandise or services; 2. That any merchandise or services are ofiered for sale when such offer is not a bona fide offer to sell such merchan(lise or perform the services so offered at the stated price; 3. That any merchandise sold or services performed, or ouered to be sold or performed, is guaranteed, unless the nature and extent of tJ1C glUlrantee and the manner in ",which the guarantor will perform thereunder are clearly and completely disclosed. It is f'w,the?' o1Yle1'ed That the charges in the complaint that respondents have fnllec1 to gi\'e three-year guarantees with their $19. paint job and that respondents lw\'c required that body "\\'ork be clone in order to obtain such three-year guarantee be disJnisscd. TSO-Ols-B9- , 1062 FEDERAL 'TRADE COMMISSIO DECISIONS Opinion G3 F.

OPINION OF THE CO)nrrSSION MAY 24 , 1963 By Macintyre Oornrni88ioner:

This matter is before the Commission for consideration of respondents' exception to Paragraph Two of the order to cease and desist contained in the hearing examiner s initial decision filed December 4 1962. The provision which respondents find objectionable prohibits them from representing directly or by implication: Tbnt any merchandise or services are offered for sale when sucb offer is not a bona fide offer to sell such merchandise or perform the services so offered at the .stated price.

The respondents claim that this ordcr is too broad in its terms in that it goes beyond the scope of the facts upon which it is based and that it is vague and uncertain and does not apprise them of their obligation to comply.

The facts upon which this prohibition is based as reveal1ed by the record can be briefly stn.tecl. The respnnc1enj.s operate n nationwide chain of automobile painting shops. "\Vhile. their regular and usual price of painting an a.uto11obile is $29. , they on occasion advertise to pa,int "any ear" in a "variety of colors" for a limited time for $19.95. The hea.ring examiner foundupol1 reliable evidence that one of the purposes of this special advertising outer was to entice prospective customers into the Tcspondents' paint shops, and to there try to s811 them the 829.95 paint job. The evidence revcaJs that respondents used tv,o techniques to s\vitch customers to the more expensive job. Salesmen "lvere :instructed to advise prospective customers and c1:id advise them that the paint used in the $19.95 job was inferior to that used in the higher priced joh. They also dispara,ged it by advising customers that it I'ms a flat p tint and that it did not contain silicones. The other procNlure used was to offer the prospective customer such a limited c.hoice of colors That they would upon their own volition, ask for the more expensive paint job. The record reveals that ome of respondents' outlets oiIered the prospects only two color, and apparently the maximum offered by any outlet was ten colors. The colors themselves "ere apparently not very desirable, for one witness described them DS "off': colors flesh:: colors, and colors yon do not ordinarily see on cars. Another described the colors as "hideons.

It is the Commission s cone111sion based upon its rev-ic" of t.he fads in Bvic1ence, thflt ihe, primary purpose of the 819.95 paint job flClvertising was to induce prospects to can at respondents' plac.es of business where an attempt would be made to switch them to the higher EARL SCHEIB , IXC.. ET AL. 1063 1040 Fin.alOrder priced $29.95 job. This is, in short, a typical "bait and switch" promotion scheme, and it does violate the Federal Trade Commission Act.

the Respondents suggest an order which would merely "prohibit use of any misrepresentation by advertising the avail bility of colors when such number of colors is not actual11y available. " While this suggestion has merit in that it is specific, it is much too narrow to cope with the bait advertising practices utilized by respondents. It is the Commission s view that bait advertising orders should inveigh against failure to disclose any material facts in advertisements designed to lure prospects to the advertisers' places of business for the purpose of obtaining leads or prospects for the sale of merchandise higher in price than that advertised. To accomplish these ends, we shall enter an order in lieu of Paragraph Two of the hearing examiner s order which will direct respondents to cease and desist from: 2. Advertising or offering to paint an autOlllobi1e at an attractively low price for the purpose of obtaining leads or prospects for the sale of a mom expensive painting job, 1111ess a11material details of the low price job, including the colors and comparative quality of paints available, are clearly and conspicuously disclosed.

While respondents have not excepted to Paragraph One of the initial decision s order to cease and desist, we note the meaning of this provision is clouded by its uncertain const.ruction. To correct this deficiency and without intending thereby to affect in any manner its scope, the Commission has modified Paragraph One and will set aside the hearing examiner s version.

With the exception of Paragraphs One and Two of the order to cease and desist, the initial decision of the hen ring examiner is adopted as the decision of the Commission. FINAL ORDER OC'TOBER 22 1963 Pursuant to g 4.22 (c) of the Commission s Rules of Practice, published May 16, 1962 27 Fed. Reg. 4600, 4621 (superseded Angust 1 1963), respondents \Were duly served \With the Commission s decision on respondents' exception to the hearing exrnniner s initial decision and with an order afford-ing them the opportunity to file within twenty (20) days any exceptions they may have to the terms of the Commission s Proposed Final Order; and Respondents having fied no exceptions to said Proposed Final Order within the twenty (20) day time a1Jotted therefor, the Pro- 1064 FEDERAL TRADE CO:\L\1JSSIO DECISIONS Final Order 63 F.

posed Final Order becomes, and is hereby issued as, the Final Order of the Commission:

It is ordel' That Earl Scheib, Inc., a c.orporation, and its ofiicers and Earl A. Scheib, individual11y and as an offcer of the said corporation, and rc:opondents' representatives, agents and employees, directly or through any corporate or other device, in connection with the advertising, offering for sale, sale or distribution of paint, or other products or in the painting and repairing of automobiles, in commerce, as "commerce" is defined in the Federal Trade Commission Act, do fortlnvith cease and desist from: 1. Using the word "special:' or any \yord or 'YDrds of similar import, in advertising or saies Jitenlture, to refer to any price charged for any merchandise or services, unless such price eonstitutes a reduction from the customary usual and regular price at which the merchandise has been sold, or the services performed by the re.spondents, in their recent regular course of business; or otherwise misrepresenting in any manner, the amount of savings to purchasers of respondents merchandise or services.

2. Advertising or offering to paint an automobile at an attractively low price for the purpose of obtaining 1cards 01' prospects for the sale of a more expensive painting job, unless all materia.l details of the low price job, including the colors and comparative quality of paints a.vailabJe, are clearly and conspicuously disclosed.

3. Representing, directly or by implication, that any merchandise sold or services performed, or ofierec1 to be sold or performed, is guara.nteed, unless the nature and extent of the perform guarantee and the manner in which the guarantor -will thereunder are clearly and completely disclosed. It i8 further ordered That the charges in thc complaint that respondents have failed to give three-year guarantees with their $19.95 paint job and that respondents have required that body work be done in order to obtain such three-year guarantee be dismissed.

It is further O1'dered That the hearing cxalniner s initial decision excepting Paragraphs One and Two of the order to cease and desist which are set aside, be, and it hereby is, adopted as the decision of the Commission.

It i8 further ordered That respondents shall, within sixty (60) days a.after service upon them of this order, file with the Commission a report, in --writing, settjng forth in detail the manner and form in which they have complied with the order set forth herein. THE KRISTEE PRODUCTS CO. ET AL. 1065 Complaint