CALIFORNIA DEPARTMENT OF MOTOR VEHICLES

June 26, 1996

Donald S. Clark, Secretary
Office of the Secretary, Room 159
Federal Trade Commission
6th & Pennsylvania Ave.
Washington, DC 20580

Re: Vehicle Buybacks -- Comment. FTC File No. P96 4402

Dear Mr. Clark:

This letter is in response to the request for comments concerning disclosures in the resale of vehicles repurchased due to warranty defects.

1. The California Department of Motor Vehicles believes that many warranty return vehicles are transported into this state and resold to California residents, and that similar vehicles are transported out of this state for resale to consumers in other states. We do not possess reliable numbers on the volume of such vehicles, or numbers on the separate category of "trade assist" vehicles exchanged with dealers for new vehicles.

 

2. We do not have information on whether repurchased vehicles encounter a frequency of repair that is greater than, equal to, or less than that of purchasers of non-repurchased used cars of like models and model years.

 

3. A car should be considered a "lemon law" buyback if it was repurchased by its manufacturer due to a defect in the vehicle pursuant to consumer warranty laws. While not any car that is taken back by its manufacturer in a dispute over alleged defects should be considered a buyback, certainly those which would be ordered repurchased in an arbitration or court proceeding should be considered a warranty buyback, even if the manufacturer repurchased the vehicle before the consumer complaint reached that adjudicative stage.

 

4. Correctly framed disclosure laws should not cause a chilling effect on manufacturers' willingness to make true "goodwill" repurchases. Disclosure laws that only cover cars that were the subject of formal arbitration or litigation proceedings could allow manufacturers to buy back vehicles that should be warranty returns in order to avoid disclosure requirements.

 

5. A vehicle should be considered a lemon law buyback permanently, or until it acquires a history or status that is more significant then that of a lemon. For example, a resold lemon vehicle involved in a serious accident and declared a total loss salvage should be branded as such, even if that means deleting the lemon notation because in California the title or computer history only has room for the salvage status.

 

6. The recent practices of auto manufacturers, auction companies, and dealers regarding disclosure of the fact that a vehicle is a buyback leave much to be desired. Many of these disclosure methods do not occur at the wholesale or retail level or are otherwise not effective in California to fully inform retail consumers, and this problem has given rise to a multitude of private lawsuits in California accusing manufacturers and dealers of fraudulently failing to disclose prior lemon status of a vehicle. The Chrysler case currently pending before the California Department of Motor Vehicles is an illustration of the magnitude of the problem. It is not known to what extent manufacturers have recently taken affirmative steps to rectify this problem under the new California title branding law, which became effective January 1, 1996. (see attached California Civil Code section 1793.23.)

 

7. Title branding in the name of the manufacturer as soon as the manufacturer reacquires a warranty return vehicle is probably the most effective method to ensure that consumers will eventually be informed of the prior status of their vehicle, and it provides a powerful incentive to dealers to comply with manufacturers' instructions regarding disclosure. An examination of what particular information about a vehicle's history and prior repairs to consumers before they buy a particular vehicle merits careful study, with consideration given to the requirements of other states and the possibility that some kind of reporting uniformity among jurisdictions and manufacturers may be attained. A used vehicle "Monroney Act" sticker prepared by the manufacturer containing repair information in summary form would be an example of a change that could benefit the industry by ensuring disclosure of material facts regarding problems and repairs, thereby enhancing consumer knowledge about the vehicle.

 

8. The new law in California utilizes manufacturer titling of buyback vehicles and the placement of a permanent decal to ensure that subsequent purchasers are advised that vehicles are buybacks. Although no studies on effectiveness have been done, experience with title branding of salvage vehicles suggests that putting the vehicle history information on the title and registration card is a effective way to ensure disclosure, even to subsequent purchasers many years after the fact. While the benefits are permanent, the costs to manufacturers, auction companies, dealers, and consumers are minor.

 

9. Disclosure and title branding laws could be enforced by requiring manufacturers to title brand in the relevant state as soon as a problem vehicle is reacquired by the manufacturer. The various states should all have warranty statutes and title branding laws of their own, and give full faith and credit to the acts of the other states, so that one state's branded title could not be "laundered" by the simple expedient of transporting a vehicle to another state that is lax about putting the previous state's title brand on a new title. The idea of a national databank of VIN numbers on buybacks, salvage vehicles, and other classes of vehicles is worth exploration.

 

10. A uniform national standard with minimum disclosure and labeling of repurchased vehicles could be an effective method to get buyback information to subsequent purchasers. If the labeling of a vehicle's history is done by the manufacturer on a standard form affixed to the vehicle, then there would be consistent and effective disclosure wherever a reacquired vehicle is resold. A uniform national standard may also serve to develop a fair, rational pricing system for resold vehicles at the wholesale and retail levels that would be less than wholesale and retail prices for undamaged vehicles, but not artificially low because of consumer concern and fear about the unknown conditions in buyback vehicles.

Enclosed for the Commission' reference and review are copies of the new law and the Chrysler decision. The Department of Motor Vehicles appreciates this opportunity to send comments to the Commission. If you would like more information about the role of the California Department of Motor Vehicles in enforcing our state disclosure laws, please feel free to contact Senior Staff Counsel Bernard Lu in the Department's legal office.

Sincerely,

Carole Bedwell
Acting Chief Deputy Director
Department of Motor Vehicles

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