FORD MOTOR COMPANY
Motor Company's Comments on
Vehicle Buybacks -- FTC File No. P96 4402
In November, 1995, the Consumers for Auto Reliability and Safety and other consumer groups ("petitioners") filed a petition asking the Federal Trade Commission ("FTC" or "Commission") to initiate either a rulemaking proceeding or an enforcement action regarding practices associated with the resale of vehicles repurchased by manufacturers due to defects. Specifically, petitioners allege manufacturers and dealers fail to disclose the prior history of these vehicles to subsequent purchasers. The Commission has requested public comment on the issues raised by the petition.
As a manufacturer and marketer of motor vehicles, Ford Motor Company ("Ford") has repurchased motor vehicles from consumers for both customer satisfaction purposes and pursuant to state lemon laws. As such, Ford is very interested in all aspects of regulation relating to the repurchase and resale of motor vehicles. In addition, Ford believes it is necessary to respond to the allegations in the petition, to explain Ford's proactive efforts not merely to comply with state disclosure laws, but to go beyond state law requirements in order to come as close as possible to a guarantee of effective disclosure, and to recommend a preemptive federal legislative initiative that would maximize disclosures to retail customers, severely limit the possibility of so-called "lemon laundering" and represent a workable framework for manufacturers.
Ford's processes are the most comprehensive in the industry and, as previously mentioned, Ford has taken steps not required by law to try to ensure that customers receive appropriate disclosure at the time of sale. Several states have advised Ford that Ford's processes are viewed as the "model" that should be followed by others in the industry to ensure that customers receive appropriate disclosure. While we appreciate these comments, Ford takes a different view as to what an ideal disclosure regime should be. Even with all Ford's proactive efforts, pre-sale disclosure may not occur in every instance. For this reason, Ford believes that federal preemptive legislation or regulation is imperative in order to ensure that consumers receive disclosure of the history of a reacquired vehicle prior to sale, and for manufacturers to be provided a workable regulatory framework. Ford believes strongly that the disclosure method outlined below should be adopted as federal preemptive legislation or regulation.
Proposed Preemptive Legislative Initiative
The most effective way to ensure that customers are informed of the history of a reacquired vehicle prior to retail sale would be to disclose the history of a reacquired vehicle on the Used Car Buyers Guide and to establish an Information Bank for Used Vehicles that would be available for consumers, dealers, and others to consult prior to purchasing a vehicle.
Pursuant to regulations promulgated by the Commission (16 C.F.R. Sec. 455 et. seq., the Used Motor Vehicle Trade Regulation Rule) dealers are already required to disclose certain information to prospective purchasers of a used vehicle on the Buyers Guide. The FTC has the authority to modify this rule to incorporate additional information to be disclosed regarding reacquired vehicles.
Under this proposal, manufacturers would be required to disclose to the purchasing dealer the information, outlined below, required by existing state disclosure laws governing reacquired vehicles. The purchasing dealer would be required by the modified Rule to include this information in a prescribed manner on the Buyers Guide.
This method of disclosure would be very effective in that prospective customers would become aware of the buyback status of a vehicle at the time the customer examines or test drives the vehicle. This allows prospective purchasers to make their purchase decision with all material facts regarding the vehicle before them.
In addition to requiring disclosure of material facts via the federally-mandated Buyers Guide, Ford recommends that manufacturers should be required to report the reason for repurchasing a vehicle to a centrally maintained Information Bank for Used Vehicles. The Information Bank must be designed so that manufacturers' proprietary information (including statistics regarding the number of reacquired vehicles and reasons for buybacks) is kept confidential, while providing information regarding the history of particular used vehicles to prospective purchasers. Required information would include the fact that the vehicle had been repurchased by a manufacturer, the nature of any alleged nonconformity, and any repair(s) performed to address these concerns. Prospective purchasers would be able to easily obtain this information by making a toll-free call to the Information Bank and providing the Vehicle Identification Number which is prominently displayed on all vehicles, or by reference to the Internet.
Consumer education programs about the Information Bank's existence and function would be implemented to ensure that consumers are aware this information is available. Education could take place via public service campaigns on radio and television to promote general awareness in the community. More specific information regarding the Information Bank would be made available at the point where consumers make a used car purchase decision. Brochures and signs could be prominently displayed to ensure that any individual making a purchase decision is aware that they may easily access the history of a used vehicle.
Ford's proposed methods of ensuring that all relevant information is available to prospective purchasers would be especially effective because disclosure would not be dependent upon information passing through several levels of the distribution chain of repurchased vehicles. Prospective purchasers would be able to determine for themselves the history of a vehicle by (1) examining the Buyers Guide for disclosure information, and (2) calling the Information Bank to ensure all relevant information was disclosed on the Buyers Guide. The Information Bank would act as a "check" to ensure dealers are making appropriate disclosure on the Buyers Guide. In addition, all prospective purchasers of a vehicle would be able to determine material facts about a vehicle before they make a purchase decision, rather than at the actual point of retail sale.
This disclosure method would even make information regarding the history of a reacquired vehicle available to prospective purchasers outside the direct purchase chain in situations where a dealer purchasing a vehicle at auction subsequently wholesales the vehicle. As comprehensive as Ford's disclosure system is -- and we believe it is the best in the industry -- we recognize that from time to time our dealers will wholesale a reacquired vehicle when the dealer has been unable to sell it at retail. This occurs with respect to a very small percentage of reacquired vehicles. Once the vehicles are out of our dealers' hands, we no longer can monitor disclosure. The information contained in the Information Bank would also be available to a second, third, or fourth retail purchaser. The current disclosure process would not provide this information to subsequent retail purchasers.
Ford's proposed method of ensuring disclosure would also be cost effective. Since the Commission is already enforcing compliance with the Used Motor Vehicle Trade Regulation Rule, there would only be incremental costs of enforcement. As all used car dealers currently are familiar with the Buyers Guide and are required to comply with the Rule, implementation and training costs would be minimized at the dealer level. This procedure would also reduce the substantial compliance costs incurred by some manufacturers from follow-up programs such as Ford's "recontact program" which is described later on.
Ford's historical and current disclosure practices and policies demonstrate that even when manufacturers, such as Ford, go beyond state law requirements in order to come as close as possible to a guarantee of effective disclosure, pre-sale disclosure may not occur in every instance. Preemptive federal legislation or regulation such as Ford's proposal are necessary to ensure relevant information regarding a reacquired vehicle is disclosed to a prospective purchaser prior to sale.
Ford's Historical and Current Disclosure Practices and Policies
Ford has been a leader in the disclosure area since 1988 when states began to amend their lemon laws to require disclosure to subsequent purchasers. Manufacturers were faced with a choice: disclose, or sell buybacks in other states. Ford formed a task force to determine how, and under what circumstances, Ford would provide disclosure of its repurchased cars and trucks. Ford made a customer satisfaction decision it is proud of: disclose every buyback in every state, no matter what the reason for the buyback and regardless of whether state law mandated disclosure. Ford also decided to provide a 12 month/12,000 mile warranty for every buyback, even for vehicles bought back for goodwill purposes. (A copy of the warranty statement is Attachment 1.)
Thus, at a time when the easiest solution was to resell buybacks in any of the dozens of states not requiring disclosure, Ford implemented a nationwide disclosure policy and provided a 12 month/12,000 mile warranty in every case. Under this policy, Ford discloses the buyback status of vehicles to purchasing dealers and requires those dealers to make disclosure of this fact to their customers. Since Ford does not sell vehicles directly to customers and is not present at the time of retail sale, Ford must rely on dealers to pass on the disclosure to retail customers. Attachment 2 is a copy of Ford's disclosure form, and Attachment 3 is the letter announcing this national program to all Ford and Lincoln-Mercury dealers.
Later, to put more "teeth" into the process Ford amended this form to state that the dealer's purchase of the buyback vehicle constituted its agreement to indemnify Ford from any cost or liability arising from the dealer's failure to disclose the status of the buyback. (See center of Disclosure Form, included as Attachment 4. Instructions accompanying the Disclosure Form are included as Attachment 5.)
Ford pays its Ford and Lincoln-Mercury dealers $400 to administer a buyback from a customer. In 1994, Ford began paying dealers an additional $300 just for living up to their obligation to make disclosure. Although Ford is not involved in the retail sale transaction between a dealer and retail purchaser, Ford believed higher compliance could be achieved by dealers if dealers were paid an added bonus for fulfilling their obligation to disclose to purchasers. We pay this bonus to all of our dealers, even though some states still do not require disclosure. (See Attachment 6 for a letter to a particular dealer spelling out its eligibility for bonus payments for disclosing the status of the buybacks it sells to its customers.)
Along with Ford's announcement to dealers that they would receive a bonus for making proper disclosure of buybacks, Ford informed them in an all-dealer letter that penalties, such as loss of auction privileges, would be imposed for failure to make disclosure. (See Attachment 7.)
In 1995, Ford announced to dealers a "recontact program". Under this program Ford contacts the dealer's customer and makes disclosure if the dealer did not. As one would imagine, accomplishing this goal comes at great cost to Ford. Significant cost is incurred in paying a supplier to monitor the buyback process to determine whether the dealer has made disclosure to his customer. For a description of the procedure that is followed, see the all-dealer letter (Attachment 8) and the procedures provided to Ford field personnel (Attachment 9.)
Ford is presently developing procedures that would help ensure disclosure at the time a potential customer examines a vehicle. First, Ford is planning to affix a notice, to be removed only by the retail purchaser, on the driver's side rear window disclosing the buyback status (Attachment 10). Second, Ford is planning to affix permanently a sticker in the door jamb directly below the Vehicle Identification Number plate (Attachment 11). No law (with the exception of California which requires a sticker) requires these measures but, again, we plan to proceed with them later this year in order to be certain that we have taken every action available to provide notice to the retail purchaser.
Ford has gone beyond state law requirements to try to assure that all purchasers of a reacquired vehicle receive notice of the fact that a vehicle had been repurchased by Ford. Even with all the procedures Ford has instituted, in some instances a purchaser may not receive disclosure prior to retail sale. Adoption of Ford's proposal via federal preemptive legislation or regulation would ensure that all prospective purchasers of a reacquired vehicle would have access to the history of a vehicle prior to making a purchase decision.
In Ford's discussion above, Ford has addressed Questions 6 and 7 of the Request for Comment. Below are Ford's comments on several other of the issues discussed in the Petition and Request for Comment.
Uniformity of Disclosure and Labeling Requirements (Question 1 and 10)
Which Vehicles should be Considered "Buybacks" for Disclosure Purposes (Question 3 and 4)
Number of Vehicles Repurchased Annually (Question 1)
Success of Repairing Repurchased Vehicles (Question 2)
Ford believes that preemptive, federal legislation or regulation is necessary to ensure that consumers receive disclosure of the history of a reacquired vehicle prior to retail sale of the vehicle. Uniform legislation would simplify compliance for manufacturers and dealers, would ensure consumers have access to the history of a vehicle prior to purchase, and would require enforcers monitor only one process.
Ford appreciates the opportunity to comment on issues relating to disclosure in the resale of vehicles repurchased by manufacturers, and to dispel the allegations stated in the petition that Ford is engaged in any sort of "lemon laundering." Ford makes every effort to comply with the various state laws regarding disclosure; in fact, Ford has made great efforts to go far beyond statutory requirements to try to come as close as possible to a guarantee of effective disclosure. Without federal preemptive disclosure laws, however, some consumers may continue to purchase reacquired vehicles without receiving pre-sale notice of the history of the vehicle.