NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION

VEHICLE BUY-BACKS - - COMMENT

FTC FILE NO. P96 4402

The National Independent Automobile Dealers Association (NIADA) is a professional organization representing over 14,000 used motor vehicle dealers throughout the fifty states.

From its inception in 1946, NIADA has attempted to maintain high industry standards regarding the sale of quality used motor vehicles. In that regard, the Association is seriously concerned about the issues raised in this request for comments.

As a supplier of used motor vehicles to the consuming public, the NIADA recognizes its relationship to the issues raised by the petitioners. In that regard, however, there are several issues which are of concern to the NIADA.

First, the suggestion that there is some collusion between used motor vehicle dealers, manufacturers, automobile auctions and new motor vehicle dealers to circumvent state lemon laws and thus thwart the goal of giving consumers notice regarding reacquired vehicles is misplaced. To the Association's knowledge, there is no evidence of any collusion involving used motor vehicle dealers to circumvent the various states' lemon law requirements. Used motor vehicle dealers receive vehicles from their sellers and our goal is to have the dealers pass on to the consuming public any notices or information affecting the cars which they receive. In fact, it is the used motor vehicle dealer who is often the secondary victim of the lack of a buy-back notice because the used motor vehicle dealer is very often the entity selling the vehicle to an end user. If the used motor vehicle dealer receives no notice from its supplier, then it has no information to pass on to the consumer. It is, therefore, in the best interest of the NIADA members to receive as much information as possible in order to be able to pass it to a potential customer and thereby avoid the costs, legal and otherwise, associated with having failed to disclose required information.

Second, we are not certain that the scope of the asserted issue is as broad as asserted in the petition. Of the alleged 50,000 annual "buy-backs", we are unaware of any empirical data indicating the number of such vehicles with severe safety defects or non-conformities which substantially impair the use, safety or value of the vehicle. Although the NAAG Working Group Report Summary, November 1, 1990, suggests that the number of good-will repurchases is not significant, we question how that conclusion was reached. Our conversations with our members, new motor vehicle dealers and manufacturers suggest that many vehicles are repurchased in order to maintain customer good-will even though the alleged "non-conformity" has never been reproduced during diagnostic testing.

Further, "fit and finish" items such as paint and related details have sometimes been held to not substantially affect use, safety or value, yet a dealer or manufacturer may repurchase the same in order to maintain its customer base. Thus there remains a question about the number of vehicles with mechanical non-conformities and of those, how many are actually repaired before resale?

Finally, no doubt, there exists a small number of vehicles with severe safety defects. The question is whether this small portion of the total number of repurchased or reacquired vehicles warrants FTC intervention. The NIADA urges caution in accepting as true, claims made with little or no empirical basis to support them. For example, petitioners suggest that since motor vehicle crashes are the leading killer of Americans under the age of 35, "undoubtedly these unsafe used car "lemons" contribute to the enormous economic and human toll exacted by motor vehicle crashes" Federal Register: April 30, 1996 (Vol. 61, No. 84, page 19070). While no one wishes anyone to suffer harm, such apples to oranges comparisons are dangerous and should be met with cautious skepticism when deciding what role the Federal Trade Commission should play, if any.

Likewise, the suggestion that fraud actions based upon state common law are ineffective does not appear to be true. A quick telephone poll of state associations and various NIADA members reveals that common law fraud actions are routinely utilized by plaintiffs to assert claims based upon misrepresentation concerning vehicles. Petitioners also seem to ignore the effect the Uniform Commercial Code and state Unfair and Deceptive Sales Practices statutes have on the conduct of which they complain. Literally, every state has adopted the Uniform Commercial Code with its provisions regarding express and implied warranties and various other relationships between buyers and sellers. Likewise, the states have adopted consumer sales practices type statutes with provisions for three times actual damages and attorneys fees. One of the hallmarks of these types of statutes is that any misrepresentation concerning the nature or quality of a product is unfair and deceptive, subjecting the offending party to the remedies noted above and potentially additional remedies. Therefore, any suggestion that the consumer who purchases a "lemon buy-back", however defined, is bereft of substantial and adequate remedies, denies the reality of today's panoply of consumer statutes.

Given these considerations, NIADA suggests the following definition of "Reacquired Vehicle":

"Reacquired Vehicle" means any new motor vehicle reacquired by a manufacturer pursuant to an order of any court of competent jurisdiction, through any dispute settlement procedure created by a manufacturer as a result of a state's enactment of a "lemon law" which authorizes the same, or through any other formal dispute resolution procedure".

We believe this definition confronts the problem asserted, addresses the enactment of state lemon laws with buy-back notice provisions, acknowledges the efforts of manufacturers to develop dispute resolution procedures pursuant to these state mandates and allows some flexibility for dealers in affecting "good-will" repurchases, adjustments or trade-assists.

Thus defined, the NIADA will support regulations directed at providing notice to consumers that the vehicle he/she is contemplating purchasing is a "reacquired vehicle".

However, NIADA's members, as often the final contact with the consumer purchaser, advocate a notice requirement that is only equivalent to whatever notice is given to the used motor vehicle dealer. If, for example, the used motor vehicle dealer receives no notice, it should not be required to give notice. Regardless of the problem alleged concerning the sales process, the FTC must also be aware that consumers who trade in a vehicle will often omit to tell the used motor vehicle dealer certain critical information about the vehicle. If the consumer or any other entity in the sales history of a vehicle receives a "reacquired vehicle" notice and fails to pass on that notice to the used motor vehicle dealer, then such dealer should not incur any liability for failing to provide a notice to its purchaser.

Conversely, we acknowledge that if a notice, in whatever written format, is given to the used motor vehicle dealer, then the dealer should be obliged to pass on such notice to its purchaser.

The NIADA further believes that any information transmission (notice) requirement should also be subject to a bona fide error defense if the dealer has adopted policies and procedures reasonably designed to prevent errors from occurring.

We are not unsympathetic with the petitioners' position and applaud the FTC's request for public comment regarding the concerns raised in the petition. The NIADA remains committed to working with the Commission and any other appropriate entity to address this situation.