CHRYSLER CORPORATION

CHRYSLER CORPORATION PROPOSED RESPONSES TO:

Issues for Comment to FTC on "Lemon Laundering"

The Commission seeks comments on various issues raised by the petition. Without limiting the scope of the issues it seeks comments on, the commission is particularly interested in receiving comments on the questions that follow. Responses to these questions should be itemized according to the numbered questions below, to which they correspond. In responding to these questions, include detailed, factual supporting information whenever possible.

1a. How many vehicles are repurchased each year by manufacturers?

Chrysler reacquired 5,100 units in 1995 and an additional 2,000 units under the Renault Encore/Alliance program.

1b. How many vehicles are repurchased each year by dealers?

Only dealers would have that information.

1c. What is the disposition of these vehicles?

With units reacquired by Chrysler Corporation, 1) they are repaired, sold and disclosed through an auction bidding process. 2) sold for "parts only" through a salvage auction network or 3) donated to Chrysler approved apprentice program schools.

1d. How many are resold to consumers?

90%-95% of the units sold at auction are eventually retailed to consumers with full disclosure.

1e. How many are resold within the same state?

Chrysler Corporation sells repaired units through a 28 auction facility network. The units are consigned to an auction closest in proximity providing all legal requirements are fulfilled.

 

Note: Chrysler dealers come to these auctions from various states. While the overwhelming majority of units are sold in the same, or immediately surrounding states at the nearest auction, we do not know what percentage are re-sold by those dealers within the same state as the vehicle was reacquired.

1f. How many are transported to another state and resold.

Occasionally, market conditions suggest transfers, e.g. dark color cars or cars without air conditioning do not sell well at Southern states' auctions, pickup trucks in New York, etc. Otherwise, the only time we transport a vehicle to another state is when legal jurisdiction prohibits the sale within the perimeter of a particular state, or if we do not have an auction facility within that state.

1g. What happens to those not resold?

They are either sold for "parts only" or donated as stated answer 1c.

 

2a. How many of the repurchased vehicles are successfully repaired after they are bought back?

All reacquired vehicles resold at auction, regardless of the reason for reacquisition, are repaired prior to auction for any outstanding conditions detected. Vehicles assigned to scrap, donation or salvage are obviously not repaired prior to such assignment since these vehicles are not to be resold to the public.

2b. Are there studies showing whether subsequent purchasers of these 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

We do not have the comparison results between repurchased and non-repurchased vehicles, however, a sample study performed 4 years ago, indicated that a repurchased vehicle sold to a subsequent retail purchaser encounters very little if any repair history.

 

3. At what stage should a car be considered a buy back for the purposes of imposing a disclosure requirement?

AAMA and Chrysler have proposed guidelines for such determination. Essentially, it is whenever a vehicle is repurchased pursuit to a "mechanism" (informal or state), or a vehicle which has entered a mechanism is settled and repurchased prior to decision. We would also agree that any vehicle that exhibited catastrophic safety failure, e.g. brakes, steering, etc. even if repaired should be disclosed. [See AAMA letter to California DMV, dated April 1, 1996)

4. Should any car that is taken back by the manufacturer at any stage in a dispute over alleged defects be considered a buyback?

No. This will discourage manufacturers from resolving customer complaints at the earliest possible point to maximize customer satisfaction. If every vehicle repurchased must be disclosed with elaborate detail and at a potential cost penalty, manufacturers will be more reluctant to provide quick, responsive repurchase to customers if mandatory mechanisms exist.

 

Additionally, the assumption that if a manufacturer buys back a car there must be a problem with it, is simply not accurate. There are many occurrences in which consumers dislike an aspect of a vehicle, e.g. a particular engine noise, a particular design feature or situations in which problems are ultimately fixed by the manufacturer but the consumer remains dissatisfied with his buying experience. While these vehicles do not have legitimate "lemon" status, "branding" them as such with disclosure of non-existent problems is more confusing to eventual subsequent purchasers.

5. If not, under what circumstances should a vehicle be considered a buyback?

See 3 above.

6. Should only those vehicles in which there has been an impairment of value be considered a buyback?

This is usually the standard used by manufacturers in a typical "common sense" approach to resolving early customer complaints when no "presumption" exists. Again, see 3 above.

 

"Significant or substantial impairment of use, value or safety" is usually the term of art in most lemon law statutes to describe non-conformities of the vehicle that rise to the level of a "defect". As such, there is usually a minimum number of un-repaired conditions before a "presumption" status occurs.

 

Simply because a consumer claims a vehicle condition is "significant", or "repetitive", or even though no problem is found by the dealer or manufacturer rep, and still not repaired to the consumer's subjective satisfaction level, should not be the unilateral standard to require substantial expense for repurchases. That determination is for an arbitration mechanism or court.

7. If so, how should "impairment in value" or any similar limiting term be defined?

There is unlikely to be a totally objective and consistent answer here, as noted earlier. However, there are few occurrences when manufacturer and consumer would agree on the significance of a problem with a vehicle and the manufacturer would not step up to the problem. The litigation costs of such failures are substantial. In fact, in most cases, the manufacturer has already offered to repurchase vehicles exhibiting "significant impairment" and the offers are rejected by consumers seeking windfall recoveries and/or plaintiff lawyers hoping to multiple their fee demands by extending the litigation. This is probably the single biggest "obstacle" to quick, responsive resolution of customer problems with a buy back by the manufacturer.

8. Since manufacturer buybacks are only one segment of the buyback market, how can defective vehicles bought back by the dealer and/or traded in by consumers he identified?

The clearest answer is to impose the same requirements of disclosure on those independent parties. Manufacturers cannot instruct or require dealers to conduct their businesses in particular ways, as evidenced by the strict franchise law limitations passed in virtually all states.

 

Equally, subsequent retail purchasers reselling vehicles are way beyond the manufacturer's, and in many cases, the dealer's ability to influence. A central database of originally repurchased vehicles, accessible on the Internet or through local Secretary of State offices would provide subsequent consumers the opportunity to check the original repurchase status. This would allow any subsequent purchasers to check the original status of the vehicle and also acknowledge some responsibility on the buyer to investigate his or her purchase decisions.

9. If "buybacks" are defined to include those repurchased prior to the initiation of arbitration or litigation, would disclosure laws cause a chilling effect on manufacturers' willingness to make such "goodwill" repurchases?

Absolutely. As I indicated previously, such requirements would discourage such repurchases due to inappropriate labeling of such goodwill repurchased vehicles.

10. On the other hand, would disclosure laws that only cover cars that were the subject of a formal arbitration or litigation proceeding lead manufacturers to buy back more vehicles under the heading of "goodwill" in order to avoid the disclosure requirement?

Given the expansive description of voluntary repurchase disclosure proposed in 3 above, it is unlikely there will be a volume or pattern of such avoidance. The average reduction in resale value for a vehicle labeled a lemon is substantially less than the cost of repurchasing a whole vehicle early just to avoid that option on some small percentage of vehicles later. Besides, manufacturers do not object to disclosure of legitimate problem vehicles to the public.

11. How long should a vehicle be considered a buyback? Permanently? Until successfully repaired? Some other time period? How can it be determined whether a vehicle has been successfully repaired prior to reselling it?

Chrysler repairs ALL repurchased vehicles prior to resale. That is not to say that prior similar problems, or completely new ones, may subsequently occur. That is the nature of used vehicles. However, if a vehicle has a chronic problem, or one that we do not believe can be fixed to meet our, and our customer's expected standards, the vehicle is donated or scrapped and not resold at all.

 

A permanent "branding" status may unreasonably reduce future resale potential for subsequent buyers due to conditions that have no impact on current status of the vehicle as a quality used car.

12. What are the current practices of auto manufacturers, auction companies, and dealers regarding disclosure of the fact that a vehicle is a buyback to subsequent purchasers? What types of disclosures are given? Are these disclosure methods effective?

Chrysler discloses each and every reacquired vehicle it resells at auction with the form attached (or an equivalent type form since some states have their own form). The vehicle is identified as a reacquired vehicle in the catalog of vehicles at sale at the auction, and is so announced at time of sale. At purchase, the dealer is provided disclosure documents, which he must sign, and instructions to provide these documents to subsequent buyers and retain a copy in his sales files. Chrysler is absolutely confident that dealers are fully aware of the condition of reacquired vehicles at the time they repurchase them. A visit at any of our auctions would confirm this.

13. Are consumers receiving the disclosures? Who is responsible for ensuring that disclosures are made to the

The only party in contact with the eventual retail purchasers of these vehicles is the dealer. Manufacturers are prohibited from selling at retail and hence cannot be at the point of such sale. Some of these vehicles may be wholesaled to other dealers or resold at auction (dealers are instructed to provide the disclosure documentation with the vehicle under those circumstances). As noted above, a centralized vehicle database with this information would provide the consumer with an alternative source of such information.

14. Are the disclosures specific enough to identify or reveal the vehicle's previous history and the repairs performed?

As you can see from the examples provided, the disclosures attempt to instruct the consumer of the specific reason or circumstance for the repurchase; the nature of any non-conformities that led to that repurchase; if the non-conformity was fixed and when. Clearly, the consumer knows the vehicle was reacquired by the manufacturer and is on notice to that effect when he signs this disclosure.

15. What are the costs and/or benefits of these disclosure methods to manufacturers?

There can be substantial costs to comply with the various state forms, procedures and notices, supervision of repairs, personnel to effectuate the repurchase, disclosure and auction processes, as well as the potential for a reduction in value. However, Chrysler agrees that these procedures are appropriate.

16. To auction companies? To dealers? To consumers? To other parties?

We could not speculate on other parties' views in this regard. However, the auction company is provided with all the necessary documentation to complete the disclosure, the dealer, and hence the consumer receive a low mileage vehicle that has been fixed by Chrysler with the most comprehensive vehicle warranty of any used car in the country, i.e. 12/unlimited mileage whole vehicle coverage. If we were not confident of the condition and satisfaction of these vehicles we would not warrant the whole vehicle regardless of mileage.

17. What methods are or would be most effective in getting information about vehicle's history and prior repairs to consumers before they buy the vehicle?

A centralized database of such information readily accessible to consumers.

 

A separate requirement that dealers be responsible for providing disclosure to subsequent buyers.

 

Addition of a box on the current Used Vehicle Sales form to indicate Reacquired Vehicle to assist and ensure the dealer informs the consumer of the status of the vehicle.

 

18. Title branding?

Branding is useless to the first re-purchaser. They seldom see the vehicle title prior to purchase, and in some states, never see the title if the vehicle is financed. Even for subsequent purchasers, they may or may not see the title prior to sale. In any case, such a brand is likely to diminish future sale prices of the vehicle to consumer-owners long after any effect of the original reasons for reacquiring the vehicle have passed.

 

19. Disclosure documents to be given to consumers?

This can only be done at the retail seller level, i.e. the dealer. And even if there was a mandatory legal requirement of the dealers overriding state laws, many consumers would deny having read/understood the information.

20. Other methods? If disclosure laws are the most effective method, then what type of disclosure requirement should be imposed? What are the costs and/or benefits of these various methods?

One alternative to a centralized database is to require the User Vehicle Sales Agreement to also have a provision for Previously Reacquired to require the dealer to provide this information at the point of sale. The consumer could then be on notice to inquire further. This procedure would be minimal cost to all parties and the database is already federally enacted. It would just take funding.

21. What methods have been adopted by the various States to ensure that subsequent purchasers are advised that vehicles are buybacks? How effective have these-methods been? What have been the costs and benefits of these State requirements to 'manufacturers? To auction companies? To dealers? To consumers? To the States?

22. If disclosure or title branding laws are or would be most effective, how should any such disclosure or title branding rules be enforced? By FTC regulation? By model State law? By a national databank of VIN numbers? By other means?

National databank, query by VIN, Internet access or 800 phone access is the most consistent and easiest to implement. Whatever procedure must be consistent for all buyers and pre-empt state laws to prevent "forum" shopping and undue burden of multiple document/disclosure requirements.

23. Uniformity in the disclosure and labeling of repurchased vehicles might resolve the problem of interstate shipment of vehicles to avoid individual state requirements.

We would favor a consistent policy as noted above, but it would have to be pre-emptive of individual state requirements to be effective.

What are the costs and/or benefits of diverse State requirements versus those of uniformity? Would a uniform national standard be an effective method to get buyback information to subsequent purchasers? What would be the costs and/or benefits of a national standard?

We cannot project national costs, across manufacturers and state standards. But a single standard, with a single procedure for acquiring and disseminating information to consumers and others is the most efficient and cost effective method, in our opinion.