The National Automobile Dealers Association, aka NADA, today announced a J.D. Power report showing that many consumers could see the value of their vehicle trade-ins decline by an average of $1210 if auto dealers were prohibited from selling or leasing any used vehicles with open recalls. Currently there is no resale restriction.
What prompted the study is the “Used Car Safety Recall Repair Act,” an amendment to a broader transportation bill, proposed by Senators Richard Blumenthal (D-Conn.) Bill Nelson (D-Fla.) and Edward J. Markey (D-Mass.) requiring auto dealers to fix all outstanding safety recalls before selling or leasing any used passenger motor vehicle. One problem with the draft bill is that it could exempt roughly two-thirds of used vehicles from what should be the beginning of a good approach to solving a chronic problem – owners ignoring recalls in spite of numerous automaker attempts to have get their vehicles repaired.
“There are now more than 46 million cars and trucks on our nation’s roads with unrepaired safety recalls; last year alone, five million used cars subject to safety recalls were sold to new owners without the necessary repairs. This critical legislation will protect consumers and help reduce the number of unsafe cars on the road,” said Markey.
Laudable.
However, AutoInformed thinks the bill ignores the equal protection clause of the United States Constitution. Could it be here that we have a group of politicians trying to give the impression of doing something good by singling out one, arguably, unpopular business group – franchised auto dealers – while exempting far more numerous voters? This bill could also be an example of incomplete staff work. Nonetheless, much more work is needed, if we really want to increase the rate of completed recalls.
NADA says each year, 10 million vehicles are traded-in to franchised dealers, and in virtually all of these transactions, the trade-in manager at the dealership uses a combination of electronic analytic tools and physical inspections to decide how much of a “trade-in allowance” to offer the consumer. This trade-in allowance is an important part of the overall transaction because, typically, the consumer uses it to fund the down payment needed to finance another purchase or lease.
Well, first, open recalls should have an adverse impact on the value of those trade-ins. The bill may increase the rate of safety repairs by forcing all dealers to close open recalls prior to selling a vehicle. However, it may also decrease the rate by deterring dealers from acquiring certain vehicles, thereby encouraging consumers to sell them to other private parties who are less likely to get open recalls fixed.In the aviation world, if the FAA issues a so-called airworthiness directive covering a plane, either the operator complies or the plane is illegal and grounded. There are fines and penalties, including civil or criminal actions for non-compliance.
Data collected by the Alliance of Automobile Manufacturers show that vehicles sold in private, consumer-to-consumer sales have by far the worst recall completion rates. Thus, any approach that drives sales to the private market or independent dealers, who are now exempt from the Blumenthal would ultimately lead to fewer recalled vehicles getting fixed.
There is no analysis in the J.D. Power study about what happens to people on the receiving end of such unsafe vehicles that do not comply with Federal Motor Vehicle Safety Standards because of an open recall that should had been performed by the previous owner. The report was intended to look only at the bill’s effects on the admittedly complicated analysis that makes for the value of a used vehicle.
NADA acknowledges there are additional factors to consider regarding reselling a recalled vehicle. J.D. Power’s analysis relates only to the additional expenses of: the cost of financing the vehicle purchased from the consumer, the cost of storing the vehicle, the cost of insuring the vehicle, and depreciation costs.
The Power study, “An Economic Assessment of Trade-In Value Reduction Caused by Preventing Auto Dealers from Selling Passenger Vehicles with any Open Recall,” says that the enactment of the “Used Car Safety Recall Repair Act,” requiring auto dealers to fix all outstanding safety recalls before selling or leasing any used passenger motor vehicle could have an adverse impact on the value of those trade-ins.
No kidding. They are unsafe, although in the case of some recalls – say the wrong emission sticker under the hood, it is not a dire situation. There is a gaping hole in the legislation. It would not prevent the sale of used vehicles with incomplete recalls in consumer-to-consumer sales, which account for roughly 30% of used car sales. If independent used car dealers remain exempt from the bill, than ~66% of used cars sold would escape regulation.
NADA told AutoInformed it “supports a 100% recall completion rate, but achieving that requires policies that focus on consumer empowerment, not policies that are overly broad, harmful to consumers, and ultimately counterproductive to the goal of getting more, not less, recalls completed. The fact is that the overwhelming majority of recalls do not require or warrant the drastic step of grounding, and there is no evidence that a blanket grounding of all vehicles with open recalls will make the roads or consumers any safer.”
The problem with this line of lobbying claiming that there is “no evidence” is that there is none because grounding has never been tried. However, NADA has some valid points. Incomplete grounding seems absurd. As does including all recalls in a stop sale on used vehicles. There are many, many more technical details that need consideration. The report should be must reading for any supporter of the bill, particularly legislators and their staffs.
AutoInformed says this bill is premature. It needs to cover all, repeat all used vehicle sales on certain types of recalls. Then the marketplace can determine the value of vehicles with open recalls.
