MONTGOMERY COUNTY, MD DIVISION OF CONSUMER AFFAIRS

VEHICLE BUYBACK -- COMMENT
FTC FILE NO. P96 4402.

Comments of the Montgomery County, MD
Division of Consumer Affairs

We commend the Commission and Staff for embarking on this buyback project. For years many of us in the consumer complaint business have spent a great deal of resources and energy in assisting new car owners receive buybacks of problem vehicles. The eventual fate of the bought-back vehicles has received short shrift. As such, we do not at this time have a great deal of information to convey on this topic (though we are gaining more all the time). Regardless of the eventual outcome of this proceeding, we believe it is worthwhile in and of itself because it will produce and disseminate information on these important issues.

Buybacks Are Appropriate for Federal Action

As both the Federal Register notice and the petition recognize, buybacks often cross state lines before they are sold to subsequent purchasers. As a practical, if not a legal matter, this makes it impossible to deal totally with the problem at the state level. Maryland, for example, requires that when a buyback vehicle from Maryland or any other state is transferred to a Maryland dealer, the manufacturer must disclose its history to the dealer, who in turn must pass it on to the prospective purchaser. But we do not know of any Maryland agency that monitors out-of-state buybacks coming into the state, and it is far from clear how they could determine compliance with this provision effectively. Even if the only result of the Commission's involvement in this area and federal enforcement actions relating to state lemon law disclosure requirements, the Commission will have improved the status quo.

A Sliding Scale Approach to the Wording and Form of Disclosures May Be Appropriate

Several of the Commission's questions relate to how buyback should be defined. That issue becomes less important if a sliding scale is employed. Thus, vehicles that are bought back per a judgment could have the strongest wording and form of disclosure, e.g., title branding, while vehicles voluntarily taken by a manufacturer after allegations of defects could have an appropriately worded separate written disclosure.

To some extent, this sliding-scale approach is already occurring in the status quo. For example, Attachment A to these comments is a copy of a form that has been used by Ford Motor Company for consumer disclosures of buybacks. The form distinguishes between various categories of buybacks but notes in all cases that it was returned due to a defect.

Buyback Disclosures Need Not Have a Chilling Effect on Voluntary Buybacks

There is no doubt that some manufacturers appear to be especially reluctant to disclose some types of buyback information. This, of course, is a tacit admission of the materiality of this information to consumers. While there may be some trade-offs between disclosure requirements and manufacturers' willingness to buy back vehicles, these trade-offs can be minimized.

That some manufacturers have employed significant disclosure programs while buying back a substantial number of vehicles shows that trade-offs can be avoided. The Ford form discussed above, for example, indicates that disclosures have been made even on goodwill buybacks. Our experience with Ford indicates that it, nevertheless, is one of the manufacturers most willing to take back vehicles voluntarily. Similarly, we have seen Chrysler disclose a vehicle's history even when its response to a customer's complaint is to provide a certificate good toward the purchase of another Chrysler vehicle. The old vehicle would then merely be a trade-in toward a new vehicle but disclosures are still provided for at resale.

Perhaps one of the keys to the above discussed Ford and Chrysler policies is that the manufacturers give a significant warranty to subsequent purchasers of these vehicles. Dealers have told us that these warranties can make these vehicles very attractive. This is an appropriate way for the manufacturer to bear the cost of the problem vehicle and to overcome consumer reluctance. We are sure that, in an atmosphere of full disclosure, manufacturers could come up with other innovative ways to overcome consumer reluctance. The sliding-scale approach discussed above could also help overcome manufacturer reluctance.

We look forward to further participating in this proceeding.

Respectfully submitted,

Evan W. Johnson
Administrator, Auto Unit

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