The question of whether used vehicle dealers should be required to complete open recalls on vehicles before they can sell them is a major one for consumer protections groups – one which U.S. Senator Richard Blumenthal believes he has answer for.
According to a recently released study from the nonprofit Consumers’ Checkbook and the Consumer Federation of America (CFA) claims that at least 40% of all used vehicles sold at retail have at least one unrepaired recall problem.
Between 2010 and 2018, automakers in the U.S. recalled 238 million cars and light trucks due to unsafe defects, the report noted. As mandated by federal law, automobile manufacturers inform owners of vehicles with recalls, which are often dangerous problems.
Query shows many end up on used-car lots
Checkbook’s investigation showed many cars deemed unsafe until repaired end up on used-car lots, where they’re resold by dealers that have not fixed the problems nor informed buyers about them.
“It is unbelievable – and a surprise to most consumers – that dealerships routinely sell vehicles with open recalls, and in most cases it’s perfectly legal to do so,” said Kevin Brasler, executive editor of Consumers’ Checkbook.
“What other industry gets a pass on knowingly selling defective dangerous products? A store would face massive fines and lawsuits if it knowingly sold contaminated meat or produce or filled prescriptions with medications after a pharmaceutical company warned that they might contain harmful contaminants. So why do we let used-car sellers get away with knowingly peddling dangerously defective vehicles? It’s unacceptable.”
A new ally in the fight
Consumers’ Checkbook and the CFA may get a new partner in the effort to force retail sellers to change. Sen. Blumenthal, a longtime automotive safety advocate, introduced the Used Car Safety Recall Repair Act, also known as S. 1971, on June 25, 2019. It was referred to the Senate Committee on Commerce, Science and Transportation.
Massachusetts Senators Edward Markey and Elizabeth Warren co-sponsored the bill. Markey and Blumenthal are some of the most outspoken critics of the auto industry’s lapses in safety. However, no action’s been taken on the bill at this point. However, Blumenthal still believes.
The National Automobile Dealers Association posted a statement on its website in September 2020 stating such a law would “cripple the used vehicle market,” creating what amounts to a trade-in tax by devaluing used vehicles by an average of $1,210 to as much as $5,000, according to one study it cited. The statement said that while dealers support a “100% recall completion rate,” some recalls are too minor to justify federal legislation like Blumenthal’s.
“I doubt many drivers would consider door latches that might fail, airbags that might not deploy, seat belts that might not work, engines and brakes that might fail, and other serious safety defects our investigation routinely revealed as ‘minor’ problems,” said Brasler. “While car dealers, manufacturers, and their trade associations insist they’re working hard to make their products are safe, they’re clearly not doing nearly enough to actually make them so.”
Independent dealers could suffer
The used-car operation of vehicle franchises are typically notified by their OEMs about recalls; however, independent dealers aren’t. There are federal data bases the public can check to see if their cars are under recall, but these data bases aren’t designed to be used on an industrial scale, they say.
That means a used-car dealer would have to look up and check, one at a time every car purchased for retailing.
In addition, all recall work is done by franchise dealers, which essentially acts an additional revenue generator since those repairs are charged back to the automaker. Conversely, independing used-car dealers would have to send these vehicles to franchise dealers for the repairs – putting money in the pockets of their competition.
That could lead to franchise dealers deliberately doing recall repair work slowly as a way of gaining an advantage over the competition. It is reasonable to believe that even the most honest and dedicated franchise dealer will give top priority in doing recall work to vehicles that dealer has sold over vehicles coming in from the competition.
Additional issues facing sellers
A recall repair law can also hurt used-car dealers in other ways. Most used-car dealers use floor planning to purchase inventory. Floor planning is simply borrowing money to buy cars. Most used-car dealers don’t have $50,000 in cash on hand to make inventory purchases for the month, so they borrow cash to keep inventory on hand.
However, this essentially starts a stopwatch for dealers. In order to keep interest payments down, selling vehicles within, say, a month becomes important. This is known as inventory turn. Experts say efficient used-car dealers should turn a vehicle within 20 days of purchase to stay on top of interest payments and keep costs down.
If a dealer has to send a car out to get recall work done before being able to retail the vehicle, then that turn rate can easily go from 20 days to 30 days. Those additional costs are likely going to be passed on to consumers in the form of higher prices.
It could conceivably hurt franchise dealers as well because models under recall could become less attractive to independent dealers and that could knock down resale values of these cars.
One factor that goes into the decision-making process of new-car buyers is will he or she be able to get good trade-in value when it comes time to sell the car. Vehicles that maintain strong trade-in value become more attractive to many new-car buyers.