PHILIP R. NOWICKI

BEFORE THE FEDERAL TRADE COMMISSION
FTC File No. P96 4402

Vehicle Buybacks

Comment by:
Philip R. Nowicki, Ph.D.

INTRODUCTION

I am President of a company that specializes in national lemon law research. I did my doctoral dissertation on lemon laws at Syracuse University (1987), was Executive Director of the Lemon Law Arbitration Program in the Florida Department of Legal Affairs (1988-1996), and have served on various national task forces and committees (NAAG, NCSL) since 1989 regarding lemon law issues and reacquired vehicles.

The Lemon Law Arbitration Program is housed in the Florida Office of the Attorney General. Section 681.114, Florida Statutes (1995), requires manufacturers and dealers to notify the Department of Legal Affairs concerning the reacquisition and resale of certain "buyback" vehicles. Section 681.110, F.S. (1995), authorizes the Department of Legal Affairs to enforce and ensure compliance with the lemon law.

Prior to July 1992, the law's resale disclosure requirements were limited to vehicles reacquired as a result of a decision or determination. In 1992, the law was amended to also include "buybacks" through settlements resulting after a consumer submitted a claim to a manufacturer-established arbitration program or had a case approved for arbitration with the state-run program (the Florida New Motor Vehicle Arbitration Board).

From 1993 through 1995, the lemon law section, under my direction, tracked reporting practices of 38 manufacturers regarding 3,454 vehicles reacquired between September 1992 and May 1995, and disclosure practices concerning the resale of these vehicles through December 1995. As a result of the preliminary findings, an investigation was opened in July 1995 concerning 20 manufacturers and 3,412 vehicles. That investigation remains open.

Comments concerning the Florida experience are my opinion and do not represent findings made or conclusions drawn by the Florida Attorney General's Office. Likewise, references made to Florida data are my observations. Statistics reported were drawn from information that is public record.

Question #1(a)

How many vehicles are repurchased each year by manufacturers and dealers? 1

An estimated 23,415 vehicles were repurchased by manufacturers and dealers in 1995 (see matrix at Appendix A). Florida data was used as the benchmark for the estimate (a breakdown is provided at Appendix B). Florida maintains the nation's most comprehensive motor vehicle warranty and lemon law dispute database in the country (see Wall Street Journal story, 8/19/94, at Appendix C). Approximately 3,000 vehicles were reacquired in Florida for 1995 as a result of court decisions, arbitration, settlements and other customer assistance efforts.

To derive a national estimate, 1995 new car and truck registration figures from the Automotive News 1996 Market Data Book (see Appendix D) were used (as a proxy for sales). Florida's total was divided into each states' to obtain a ratio of the number of new motor vehicles sold in each state. For example, Florida had 1,212,894 registered vehicles compared to 763,227 in Illinois, for a ratio of .629.2

A lemon law strength index was devised for each of the 50 states, plus the District of Columbia. States were given an index value of either 1.0, .75, .50, or .25. The value is a function of the lemon law, generally in terms of: [a] vehicles covered, [b] rights disclosure requirements, [c] coverage periods, [d] reasonable repair presumption standards, [e] remedies allowed, [f] type of arbitration provided, and [g] damages and costs allowed when litigated. It is further a function of: [h] lemon law agency funding and staffing, [i] the agency's track record on lemon law matters, and [j] the extent private attorneys handle lemon law, UCC and Magnuson/Moss cases. The number of consumers who pursue their rights and the number of vehicles reacquired are largely a function of these ten factors.

For 1995, consumers recovered more than $23 million from the Florida Lemon Law Arbitration Program for 1995, a national record. The Florida law is recognized as one of the most effective lemon laws in the country (for example, see the reference to Florida's lemon law in the England automotive publication, What Car?, August 1996, at Appendix E). It has a strength value of 1.0. Administration of the Florida

law is funded by a $2 fee on each new motor vehicle sale. Ohio, for example, does not have state-run arbitration and does not have a user-fee funding mechanism. However, it has a broad range of reasonable repair presumption standards and its attorney general's office proactively monitors manufacturer-sponsored arbitration programs for fairness. It has a lemon law strength index of .75.

To estimate how many vehicles are bought back in each state for 1995, the Florida sales ratio is multiplied by the lemon law strength index times 3,000 (the approximate number of buybacks in Florida for 1995). According to this formula, for example, an estimated 2,792 vehicles were bought back in California, 1,899 in New York, 555 in Washington, and 489 in Connecticut. Totals for various states were checked against the states' annual reports and manufacturer-sponsored arbitration program audits. No report or audit provides the information to answer this question, but they do provide a partial gauge to compare the estimates against. Hopefully, other interested parties will provide data or will comment on whether the estimates are too high or too low.

Question #3

At what stage should a car be considered a "buyback" for the purposes of imposing a disclosure requirement?

Thirty-eight states plus the District of Columbia address this issue in their lemon laws or in other laws covering motor vehicles. The range is as broad as a repurchase for any reason or due to an alleged defect in five states to as narrow as an arbitration decision or court order in four states. In between, the "buyback" resale disclosure requirement is triggered in 20 states plus the District of Columbia, when the lemon law presumption standard3 has been met or in nine states after the consumer files for arbitration or brings a legal action. The matrix at Appendix F depicts how the various states regulate this issue. The matrix at Appendix G provides an estimate of the number of 1995 "buybacks" requiring disclosure.4

Lemon laws are generally intended to remedy disputes involving vehicles with chronic defects. The vast majority of lemon laws require consumers to give written notification of the defect to the manufacturer before the manufacturer is obligated to refund the consumer's money or replace the vehicle. Resale disclosure requirements are intended to apprise subsequent buyers of the defect history of the vehicle.

Each year, from the inception of the Florida arbitration program in 1989, an increasing number of vehicles with alleged major problems were reacquired in prehearing settlements. A greater proportion of vehicles with relatively marginal problems were contested in arbitration. Consequently, the law was amended in 1992 to require resale disclosure for vehicles reacquired through settlements occurring after the consumer has filed for arbitration.

A suggested disclosure threshold should be one that targets chronic defects (and serious safety defects5), includes settlements and can be monitored for compliance. This could be upon written notice to the manufacturer (including submission of a request for arbitration) or to the dealer that an alleged defect has not been repaired within a reasonable number of attempts as prescribed by law,6 resulting in the manufacturer or the dealer reacquiring the vehicle. (For example, see the defect notification form at Appendix H. Florida consumers receive it in their lemon law rights booklet at the time of vehicle acquisition. A modified version of the form could accompany the warranty or owner's guide materials).

Question #4

If "buybacks" are defined to include those repurchased prior to the initiation of arbitration or litigation, would disclosure laws cause a chilling effect on manufacturers' willingness to make such "goodwill" repurchases? On the other hand, would disclosure laws that only cover cars that were the subject of a formal arbitration or litigation proceeding lead manufacturers to buyback more vehicles under the heading of "goodwill" in order to avoid the disclosure requirement?

The answer to these questions primarily depends upon six factors: [a] the type of voluntary repurchase covered (e.g., "buyback" due to alleged defect, "buyback" after presumption standard met or arbitration request filed, etc.), [b] the nature and

method of disclosure, [c] other supplementary measures (e.g., title branding, extent of enforcement and type of penalty for noncompliance, etc.), [d] the likelihood of mandated "buybacks" (e.g., availability of state-run arbitration, incentive of additional damages if a consumer prevails in court, etc.), [e] the manufacturer involved, and [f] the monitoring and reporting of these settlements.

Part of these questions can be answered from Florida's settlement database.7 Its resale disclosure provision covers voluntary "buybacks" that occur after a case has been submitted to manufacturer-sponsored arbitration or been approved for state-run arbitration. It tracked these "buybacks" as well as those that occurred after a consumer has reported chronic defects to the manufacturer (see survey copy at Appendix I).

Jaguar reacquired nearly half its vehicles reported to have chronic defects prior to the consumers' filing for arbitration. BMW, Chrysler, Hyundai and Mazda bought back roughly 20 to 25 percent at this stage. Of the 15 manufacturers who sponsor arbitration programs in Florida, Ford and General Motors,8 had the highest voluntary "buyback" rate, about 25 percent of all their eligible cases.

In the Florida state-run arbitration program, Ford, Hyundai, Subaru and Volkswagen as a matter of policy settled the vast majority of their cases. Chrysler and Mazda settled a majority of the cases, but, in many instances, did so as the time of the hearing approached. BMW, General Motors, Honda and Volvo settled approximately 30 to 40 percent of their cases. Isuzu, Mitsubishi and Nissan

generally settled less than 20 percent of their cases, while Mercedes-Benz and Toyota almost never settled. Ninety percent of the settlements are "buybacks."

Florida has published comparative indexes ranking various aspects of manufacturer performance. These indexes generated media coverage which, in turn, encouraged most manufacturers to continue or increase their settlement policies. (For example, see Business Week item, 8/24/92, at Appendix J and 1992 Davis Productivity Award summary at Appendix K). To date, the Florida experience suggests that disclosure laws, alone, do not have a "chilling" effect on most voluntary repurchases and that such "buyback" policies differ dramatically among manufacturers. Time will tell what influence Florida's title branding law (effective 10/1/96) will have.

Disclosure laws force manufacturers and dealers to make economic decisions concerning which party, be it themselves, the original consumer, or the subsequent consumer, bears the burden of the defective vehicle. To attain the optimal benefit, policymakers should strive to craft the threshold that best balances these interests, carefully taking into account the other critical factors that come into play.

Question #5

How can it be determined whether a vehicle has been successfully repaired prior to reselling it? How long should a vehicle be considered a "buyback"?

Manufacturers and dealers should be encouraged to repair reacquired vehicles before they are resold to consumers. Ford probably does the best job of all manufacturers in this regard. However, in many situations, there is no easy way to determine whether a chronic defect has been successfully repaired.

Vehicles are sometimes reacquired because of long periods where the vehicle was out-of-service for repairs, chronic intermittent or season-related problems that could not be duplicated upon repair, or even failure to satisfy a consumer's repeated complaints about a problem considered by the manufacturer to be a normal characteristic or inherent in the design of the vehicle. In some instances, the problem is related to specific driving conditions (road, weather, number of passengers, etc.) that are difficult to replicate. In other instances, the consumer alleges that a chronic problem still exists and the manufacturer contends its been corrected. If an arbitration board or court finds for the consumer, the decision may not necessarily generate additional repairs before the vehicle is resold. Sometimes, a particular repair appears to fix a problem, but the problem recurs months later.

Selling dealers should disclose the vehicle's defect history and show prospective buyers work orders for repairs performed on those defects after the vehicle was reacquired. Manufacturers and dealers can warrant repair of those defects to help facilitate the resale of the vehicle. However, given the above concerns, it does not seem feasible to sanction procedures or disclosures that a defect has been successfully repaired, regardless if the determining source is the manufacturer, the dealer, an independent entity or a government agency.

It stands to reason that a consumer would want to know a vehicle's prior defect history, even if that consumer was not the first subsequent consumer. This protection should be balanced against the type of the required disclosure and its long-term costs and benefits. Policymakers might consider a fixed period of time (e.g., so many years) after the resale of the vehicle to the first subsequent consumer as the determinant of future disclosure requirements.

Questions #6 and #1(b)

What are the current practices of auto manufacturers, auction companies, and dealers regarding disclosure of the fact that a vehicle is a "buyback" to subsequent purchasers? Are consumers receiving the disclosures? How many reacquired vehicles are resold to consumers in the same state or in another state?

In Florida, manufacturers are required to report the "buyback's" Vehicle Identification Number (VIN) to the Attorney General's Office within 10 days of the reacquisition or transfer of the vehicle. Disclosure of the reason the vehicle was reacquired, a listing of the vehicle's defects and a one year/12,000 mile warranty must be made on either a form prescribed or approved by the Attorney General's Office (see Appendix L for the state-prescribed form). One manufacturer, Ford, had its resale disclosure form (see Appendix M) approved, in lieu of use of the state form. Within 10 days following the vehicle's resale, the selling dealer is required to send a copy of the disclosure form containing the subsequent consumer's signature.

To monitor the "buybacks," arbitration records were reviewed from 1993-1995 at the Florida New Motor Vehicle Arbitration Board (FNMVAB), the AAA/Autosolve Program,9 the BBB/Auto Line Program, the Chrysler Customer Arbitration Board (CAB), and the Ford Dispute Settlement Board (DSB).

Manufacturers reported 1,532 VINs (44.4%) of the 3,454 reacquired vehicles to the Attorney General's Office, and 426 (12.3%) of the resale disclosure forms were returned. Appendix N provides a breakdown of the 3,454 vehicles that records indicated were reacquired by 38 manufacturers on both a voluntary and mandatory basis, the number of VINs reported and the number of resale disclosure forms returned.

Small manufacturers appeared to be unaware of their reporting and disclosure obligations. Twenty reacquired five or less vehicles and, of these, 1310 submitted no information. The other seven, Coachmen, Fleetwood, Georgia Boy, Rolls-Royce, Saab, Safari, and Suzuki reported 16 (72.7%) of the VINs for the 22 vehicles they reacquired.

Seven manufacturers reacquired at least 8, and, as many as 27, vehicles. BMW and Jaguar reacquired 30 vehicles between them, but submitted no information.

The other five Alfa Romeo, Mercedes-Benz, Subaru, Volvo, and Winnebago reported 46 (65.7%) of the VINs for the 70 vehicles they reacquired.

Eight manufacturers reacquired at least 43, and, as many as 138, vehicles. Honda, Hyundai, Isuzu, Mazda, Mitsubishi, Nissan, Toyota and Volkswagen reported 315 (46.1%) of the VINs for the 683 vehicles they reacquired. Chrysler, Ford and General Motors respectively reacquired 553, 1098 and 975 vehicles and reported 1155 (44.0%) of the VINs.

One manufacturer, Hyundai, was fairly consistent in reporting its VINs. It reported 91.7% of the VINs for FNMVAB, AAA, and BBB awards, and 86.8% of the prehearing settlement "buybacks" from these three programs. However, several manufacturers had dramatic differences in VIN reporting rates depending upon whether the "buyback" was the result of a decision or a settlement. For example, Isuzu and Mazda respectively reported 96.9% and 90.7% of the VINs for FNMVAB awards, but only 12.5% and 2.1% of the FNMVAB settlement "buybacks."11

Toyota reported 74.4% of the VINs for FNMVAB, AAA, and BBB awards, but only 20% of the prehearing settlement "buybacks" from these three programs. Volkswagen reported 80% of the VINs for FNMVAB and BBB "buyback" awards, but only 36.6% of the FNMVAB and BBB settlement "buybacks." Mitsubishi reported 73.3% of the VINs for FNMVAB awards, but submitted no information for 20 FNMVAB prehearing settlement "buybacks."

General Motors and Honda had low reporting rates for BBB settlement "buybacks." GM reported 65.3% of the VINs for FNMVAB and BBB "buyback" awards, 56.1% of the FNMVAB "buyback" settlements, but only 20.9% of the BBB settlement "buybacks." Honda reported 44.4% of the VINs for FNMVAB and BBB "buyback" awards, 33.3% of the FNMVAB settlement "buybacks," but only 5% of its BBB settlement "buybacks."

Ford, had a high reporting rate for "buybacks" awarded by its own program, but low reporting rates otherwise. Ford reported 92.8% of the DSB "buyback" awards, but only 11.1% the FNMVAB awards, 7.2% of the FNMVAB settlement "buybacks," and 4.4% of the DSB settlement "buybacks."

Chrysler and Nissan reported no VINs for "buybacks" from their own arbitration programs. Chrysler reported 90.6% of the VINs for FNMVAB awards and 75.8% of the FNMVAB settlement "buybacks," but submitted no information for 107 CAB "buyback" awards and settlements. Nissan reported 17.4% of the VINs for FNMVAB awards, but submitted no information for six FNMVAB settlement "buybacks" and 83 BBB "buyback" awards and settlements.

The reasons for noncompliance are varied. BMW, in several instances, used the state-prescribed form to indicate the VIN, but did not been forward that information. Chrysler used its own disclosure form for most CAB "buybacks," but did not report this information. General Motors, Jaguar, Mazda and Volkswagen sometimes used their own forms in conjunction with or in lieu of the state forms. When they did not use the state-prescribed form, they virtually never submitted the information. Consequently, notice of the VINs was not received.

Sometimes, it appeared that manufacturers did not report VINs when dealers were involved in the settlements. For example, when attempting to verify settlement terms concerning two FNMAB cases, Mitsubishi reported that the dealer acted independently in the reacquisition the vehicles. However, for reasons unknown, Mitsubishi did report the VINs for any settlement "buybacks."

In other instances, it appeared that manufacturers did not report VINs to the extent settlement terms did not follow any formula. This was more common in the manufacturers' arbitration programs than in the state-run program. For example, buyer certificates, generally ranging from $2,000 to $5,000, are increasingly being offered to consumers instead of trade assistance or some other method of sharing expenses to replace the vehicle. To use the certificate, the consumer must apply it towards the purchase of the same manufacturer's vehicle. Arbitration files indicated that 200 vehicles were returned and certificates used to obtain replacement vehicles, but no VINs for the original vehicles were reported and no resale disclosure forms were returned.

For the most part, there was no explanation for the sporadic pattern in reporting settlement "buybacks." It was also unclear why some manufacturers would report some decision "buybacks," but not others. The Florida experience suggests that, for most manufacturers, these deficiencies appeared to be more of a matter of neglect or a low priority given to the assignment, more so than intent to deceive the next transferees. For a few manufacturers, that distinction seemed less clear.

Some of the above reasons also appeared to apply to information reported on the forms. Many forms returned by manufacturers when reporting VINs contained erroneous or misleading information often diluting or defeating the purpose of the form. For example, in several instances, decision "buybacks" were either marked as settlements or as efforts to promote "goodwill." Conversely, some settlement "buybacks" were marked as decisions and a few "buybacks" that occurred without

the consumer filing for arbitration were marked as arbitration settlements or decisions. Some FNMVAB "buybacks" were marked as BBB or DSB "buybacks."

Of the 1,542 forms where VINs were reported, defects were not listed on 189 of them. Chrysler failed to list the defects on 132 (38.5%) of the forms it submitted. Among the other major manufacturers, Volkswagen did not indicate the defects on 20% of the submitted forms, followed by Honda at 12.5%, Isuzu at 12.1%, and GM at 11.6%. Most manufacturers, however, were diligent in this respect, and, for the most part, the defects listed corresponded to the defects alleged or found to be the reason for the "buyback."

Of the 1,353 forms that listed defects, 62 contained unsolicited qualifying language. For example, Mercedes-Benz returned 23 forms, but indicated on 20 that the defects were repaired. Ford sent 18 (3.8%) forms that either mentioned repairs performed or an inability to duplicate defects in order to repair them. GM and Toyota respectively submitted 12 (3.6%) and four (5.8%) forms containing defect explanation language that, in several instances, essentially amounted to affirmative defenses that no defects existed. Again, for the most part, Ford, GM and Toyota included, manufacturers listed the defects without disclaimers.

When vehicles were reacquired by manufacturers, they were usually returned by the consumer to the selling or servicing dealer in exchange for a refund or replacement vehicle. Generally, the lending institution or leasing company, if applicable, was already been paid off and the consumer was expected to provide clear title along with the vehicle. Some dealers resold the vehicles themselves. However, in the vast majority of instances, the vehicles were sent to auctions. The three domestic manufacturers and some import manufacturers used closed auctions, limiting the resale of these vehicles to their franchised dealers.

Many of the Florida "buybacks" went to auction in Orlando and Atlanta. To a lesser extent, others were sent to Texas and Oklahoma, the Northeast and the Midwest. In some instances, the franchised dealer wholesaled the vehicle to another dealer.

From a sampling of several hundred title searches, it appeared that a majority of the reacquired vehicles were transferred out-of-state, and approximately 40 percent were resold within the state of Florida. In a few instances, reacquired vehicles were donated to vocational schools, and in at least one instance, scrapped entirely. It is not known how this percentage of instate sales compares with sales of other similar age vehicles (e.g., program cars, off-lease vehicles, etc.), states that have title branding requirements (the Florida title branding requirement does not take effect until October 1, 1996), small states, or states that share borders with several states.

Of the 1,542 VINs reported, 426 (27.6%) subsequent consumers were known to have received resale disclosure forms.12 Of these 426 vehicles, 224 (52.6%) were resold to Florida consumers and 202 (47.4%) were resold to consumers in other states. Appendix O provides a breakdown of the number of vehicles resold in Florida and in 34 other states.

Of the major manufacturers, Ford, Honda, Isuzu and Mazda dealers were the most effective in obtaining consumer signatures and returning copies.13 When VINs were reported, resale disclosure forms were known to have been received by 64.4% of Ford's subsequent consumers, 53.7% of Mazda's, 43.8% of Honda's, and 39.4% of Isuzu's. On the other end of the spectrum, only 5.8% of Toyota's subsequent consumers, 4.5% of Hyundai's and Mitusbishi's, 0.9% of GM's, and 0.0% of Nissan's subsequent consumers were known to have received resale disclosure forms when manufacturers reported the VINs.

These differences suggest that some manufacturers are willing and able to exert enough control over the distribution and resale of these vehicles to influence disclosures made. In contrast, other manufacturers appear to be either unable or unwilling to do anything to facilitate the distribution of disclosure information to subsequent consumers.

Questions #7 and #8

What methods are or would be the most effective in getting information about a vehicle's history and prior repairs to consumers before they buy the vehicle? Title branding? Disclosure documents to be given to consumers? What type of disclosure requirement should be imposed? What methods have been adopted by the various states to ensure that subsequent purchasers are advised that vehicles are buybacks? How effective have these methods been? What have been the costs and benefits of these state requirements?

Thirty-eight states plus the District of Columbia have disclosure laws designed to protect the rights of subsequent buyers. The laws vary widely as to the specific language and other information which must be disclosed, the form the information is to appear on, and the method by which prospective consumers are to be apprised of the form's existence. The matrix at Appendix P depicts how the various states regulate this issue.

Several manufacturers have developed their own disclosure forms to be used on a national basis. However, 25 states require manufacturers to provide detailed language that the vehicle was bought back under the particular state's lemon law, and 11 of these states require that language to appear on a form prescribed or approved by the state. The manufacturers' forms generally do not have the extra space to accommodate the additional language these states require to be disclosed. Sometimes, the manufacturers' forms lack the necessary print size, categories to describe the vehicle's history or particular placement for the subsequent consumer's signature that some states deem necessary for the disclosure to serve its intended purpose.

Most manufacturer forms contain space to indicate repairs performed. Some states do not want this information on the form, since they are not equipped to verify the success of these repairs. Some states, for tracking purposes, require space on the form to list the arbitration case number, the title number, the transferees and transfer dates, and the subsequent consumer's address. The manufacturer forms either do not solicit this information or do so only to a limited extent.

Manufacturers have good reason for concern over the diversity of requirements. The states' have a compelling argument why specific or additional information is essential to carry out legislative intent. Most of the elements of this issue appear to be resolvable.

Nine states require the disclosure information to be attached to the vehicle. Connecticut and Utah also require the disclosure to be included in the contract.14 Maine and Wisconsin have FTC-approved alternative used car window stickers15 and require the disclosure to be incorporated on the sticker. Disclosure in Connecticut is not required if the manufacturer can demonstrate in an independent engineering inspection report that the defect has been cured.

Forty states plus the District of Columbia have requirements governing the resale of reacquired vehicles (see the matrix at Appendix Q). Fourteen require manufacturers to report "buybacks" to a designated state agency, usually the Attorney General's Office or Department of Motor Vehicles. Connecticut, Florida, Georgia, Iowa and South Carolina require the manufacturer to submit the "buyback" VIN to the appropriate agency. Eight require manufacturers to correct the defect before the "buyback" can be resold. Georgia and Washington condition this requirement to serious safety defects. Five prohibit the instate resale of "buybacks" with certain safety defects.

Fifteen states plus the District of Columbia require title branding of vehicles reacquired pursuant to their lemon laws (see Appendix R for the branding language each jurisdiction requires). Alabama and South Dakota limit this requirement only when the vehicle is resold in their state. California also requires lemon law title brands from other states to be noted on the resold vehicle's registration card. Two other states, Idaho and New Hampshire, require that title brands received from other jurisdictions be carried forward on the vehicle's title.

Title branding has no direct value to consumers as a disclosure device. Consumers who finance the transaction may not see the title for years until the note is paid off. Even those who pay cash will not see the title for weeks after the sale has been consummated. However, a branded title can be a vital catalyst for disclosure to occur. Title information is on file in the state where branded. Although "buybacks" are moved out of state and retitled in other states, some states share title information in their databases. Furthermore, through companies like CarFax, consumers can request a title search that may reveal a brand, or at least help locate the state of origin where agency officials can be contacted to find title history information. When manufacturers do not submit the title to be branded and the vehicle is moved out of state, title searches have limited value and disclosure is unlikely to occur.

Regulation of manufacturer "buyback" notification requirements and title branding is lax for a number of reasons. Locating most "buybacks" when the information is not provided by manufacturers is an arduous process. Many agencies barely have the funds to assist original consumers who seek to invoke their lemon law rights. The more rigorous a state's "buyback" resale requirements, the more likely manufacturers will not comply, until enforced. Enforcement or title branding adversely affects settlement "buybacks" to some degree, and, to a much greater degree, generates an exodus of "buybacks" to other states.

Because few states have the resources to police compliance or share the information with other states, even states with strict measures are vulnerable to undetected "buybacks" shipped in from other states. Due to the interstate nature of this problem, the costs to enforce for any one state often outweigh the benefits its citizens derive.

Questions #9 and #10

If disclosure or title branding laws are or would be most effective, how should any such disclosure be enforced? By FTC regulation? By a national databank of VIN numbers? Would a uniform national standard be an effective method to get buyback information to subsequent purchasers? What would be the costs and/or benefits of a national standard?

A federal standard, a nominal federal tax, and a national VIN databank are the imperative ingredients to address this issue. Warranty materials could contain a form original consumers complete and forward by certified mail to manufacturers to invoke their lemon law rights. Consumers would be directed to send a copy to the FTC, with the FTC address included. Voluntary or mandatory "buybacks" that result after receipt of that form (or other similar notification or filing for arbitration) could require disclosure before resale. The disclosure could appear on the FTC used car "buyer's guide." Most or all of these regulations could be promulgated. Some state requirements would have to be preempted. Others could be left intact if benefits to consumers exceed the costs to comply.

Funding would require a $1 surcharge on all new motor vehicle sales. Half of the proceeds could be kept by the FTC primarily to maintain the VIN databank. The FTC could contract out this responsibility. Manufacturers and dealers would be required to report the "buyback" VINs to the national databank and make the appropriate disclosure on the "buyer's guide" sticker. The other half of the proceeds could be used for enforcement purposes. The FTC could distribute funds to those states authorized and willing to enforce the federal standards. A fraction of the original consumers' notices to manufacturers, copied to the FTC, would provide the database necessary for government officials to randomly draw from to "spot check" compliance. Subsequent buyers could access the VIN databank through a toll-free number. The $1 surcharge would take an act of Congress. The benefits to the public would clearly exceed that cost.

Dated: July 26, 1996

________________________________
Philip R. Nowicki

1 It is virtually impossible to derive absolute totals that distinguish between manufacturer and dealer buybacks. Usually, both entities facilitate the return and reacquisition of the vehicle.

2 The Florida total of 1,212,894 includes a high percentage of fleet registrations, including sales to rental car companies. To the extent this percentage (perhaps as high as 25%) exceeds that in other states, the sales ratios in other states (compared to Florida's) are skewed too low and the estimate of 23,415 reacquired vehicles may also be too low.

3 Two of the 20 states, Massachusetts and Wisconsin, deem a vehicle eligible for lemon law relief when a substantial defect has been subjected to a reasonable number of attempts.

4 The estimated percentage of "buybacks" requiring disclosure for a particular state corresponds to the range covered by its resale disclosure requirement using either columns two, three, four or five in Appendix F as the gauge. For example, for Pennsylvania, it would be 75% of its "buybacks" (column 3), while for Florida, it would be 50% of its "buybacks" (column 4).

5 In Connecticut, the District of Columbia, Georgia, Hawaii, Iowa, Minnesota, Ohio, Texas, Virginia, Washington and West Virginia, a vehicle is also presumed to be a "lemon" if certain serious safety defects cannot be cured after either one or two repair attempts.

6 If a UCC or Magnuson/Moss cause of action induces a voluntary "buyback," written notice of intent to revoke acceptance or that the warranty failed of its essential purpose could be the triggering mechanism for disclosure.

7 Florida does not monitor "buybacks" that occur as a matter of "goodwill" (i.e., the consumer has neither experienced chronic or safety-related problems nor filed for arbitration).

8 Alfa Romeo, AM General, Chrysler, Honda, Hyundia, Kia, Isuzu, Nissan, Porsche, Rolls-Royce, Saab, Toyota, and Volkswagen are the other 13 manufacturers.

9 The AAA/Autosolve program was dissolved in May 1994. Its manufacturer sponsors, Hyundai, Porsche and Toyota (including Lexus) now sponsor the BBB/Auto Line program. Hyundai's Autosolve settlements and decisions were obtained directly from Hyundai.

10 Airstream, Aston Martin, Clarion, Four Winds, Gulfstream, Holiday Rambler, Lotus, Newmar, Porsche, Scotty, Spartan, Thor, and USA Motor Corp.

11 Isuzu submitted no information for two BBB "buybacks," one from a decision, the other a settlement.

12 There were several returned resale disclosure forms where a dealership was identified as the subsequent consumer. These forms were not counted in the 426 total.

13 Ford has its selling dealers send the signed forms to them and then forwards copies to the Attorney General's Office.

14 The District of Columbia also has this requirement.

15 As of December 1995, the FTC regulation was modified to allow the "buyer's guide" to be displayed on areas of the vehicle besides the window, as long as it can be viewed conspicuously from the outside.