CORPORATION PROPOSED RESPONSES TO:
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
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
1b. How many vehicles are repurchased
each year by dealers?
- Only dealers would have that information.
1c. What is the disposition of these
- 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
- 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
- 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"
- Absolutely. As I indicated previously,
such requirements would discourage such repurchases due
to inappropriate labeling of such goodwill repurchased
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
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
- 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
13. Are consumers receiving the
disclosures? Who is responsible for ensuring that disclosures are made
- 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
- 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
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
- 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
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
- 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
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.