Vehicle safety recalls: The good, the bad and the ugly
The unprecedented increase in vehicle recalls, in turn, has spawned unprecedented regulator scrutiny in how dealers sell vehicles under recalls to consumers. WANADAês Dealer Law Panel at last weekês member briefing covered the gamut of dealer vehicle sales to consumers where recalls are involved.
New cars: The number of cars recalled has increased dramatically in the past few years, with an average of 15 million a year for each of the past three years, said NADAês regulatory counsel and Briefing panelist Doug Greenhaus.
If a dealer receives a stop-sale letter from the federal government, the dealerês new-car sales manager must be told not to deliver any vehicles of that model and year until the defect can be repaired. A customer may reserve a vehicle by entering into a contract for it, but the car cannot be delivered until it is repaired.
By federal law, dealers are entitled to compensation from the automaker for holding the vehicles: 1 percent of the price (usually invoice) monthly, prorated for partial months, until the vehicle is repaired. The letter about compensation comes from the franchisor; but GM is the only automaker thus far that explains how it will work.
Sometimes it is hard to find out if a vehicle is under open recall, said co-panelist Mike Charapp. Every dealer should have a system in place to check a vehicleês recall status utilizing the governmentês official website www.safercar.gov that should happen just before delivery, with a dated disclosure form stating that the dealer has done so. Although the site is not 100 percent accurate, itês the only thing a dealer can rely on, said Greenhaus. We recommend you use it for disclosure because itês got the governmentês name on it.
Used cars: There are no federal guidelines on selling used cars under open recall. But automakers may tell dealers not to sell them. Otherwise itês at the discretion of the dealer. On average, a used vehicle sits in inventory 60 days and costs a dealer $1,200 in floor plan, depreciation and other costs, said Greenhaus. Sometimes it may take up to two years before the parts are available to do the repair.
On the other hand, if your automaker tells you to stop sale, I recommend you pay attention, Charapp said.
Stop-sale notices will be sent by the automaker only to dealers of that brand, so dealers with an off-brand vehicle in inventory will not know about the stop-sale without checking www.safercar.gov. Dealers with different franchises at different stores should be sure to share stop-sale notices, Greenhaus said.
Dealers should also check the VIN of any used cars they buy on www.safercar.gov to see if the car is under recall.
Stop-drive: Six percent of all recalls get a stop-drive notice, Greenhaus said. The automaker sends a notice to the customer and the dealer, and the car is listed on www.safercar.gov. A dealer cannot sell a stop-drive vehicle.
Rental fleets: As of June 1, dealers or others with a rental fleet of 35 vehicles or more must disclose to the consumer who is renting if the vehicle is under open recall. Although most dealers do not have such large rental fleets, NADA recommends disclosing recall status even for small fleets. The law does not define whether loaner cars are considered rental, but NADA recommends disclosure for loaners as well.
Service vehicles: If the dealership fails to inform service customers there is an open recall on a vehicle in for repairs, the automaker does not have to compensate the dealer for service work done under warranty, said Greenhaus.Download Bulletin PDF