Consumers could see trade-in values drop under recall proposal
Many consumers could see the value of their trade-ins drop by an average of $1,210 and by as much as $5,713 if dealers were prohibited from selling any vehicles with open recalls. Thatês the principal finding of a J.D. Power study commissioned by NADA. Congressional legislation proposed by Sen. Richard Blumenthal (D-Conn.), would require auto dealers to repair all outstanding safety recalls before selling or leasing any used passenger vehicles.
The J.D. Power analysis looked at the cost of financing the vehicle bought from the consumer, the cost of storing and insuring it, and depreciation costs. Costs are higher for out-of-brand trade-ins, which need to be transported to an in-brand dealer for repair.
Dealers would not know in advance how long a recall delay would last and so must estimate it, the report said. Assuming a repair delay that is shorter than the actual repair delay is a risky proposition for a dealer, and thus they are more likely to act as if they believe the range of repair delays will be on the high end of the range of repair delays observed in the past for recalls of similar scale and complexity, said Jonathan Banks, executive analyst at the Used Car Guide division of J.D. Power and the reportês lead author. In a hypothetical situation, a lack of clear information could reduce the trade-in value offered to a consumer by hundreds of dollars if a trade-in manager were to overestimate a 30-day recall delay by an additional 30 days.Download Bulletin PDF