NATIONAL AUTOMOBILE DEALERS ASSOCIATION (NADA)

June 28, 1996

Office of the Secretary
Federal Trade Commission
Sixth Street and Pennsylvania Avenue, N.W.
Room 159
Washington, D.C. 20580

Ladies and Gentlemen:

The National Automobile Dealers Association (NADA) is a national trade association of 20,000 franchised automobile and truck dealerships involved in the retail sale of new and used motor vehicles, both foreign and domestically produced. NADA members also engage in automotive service, repair and parts sales.

On April 30, 1996, 61 FR 19067, the Federal Trade Commission (the FTC) requested public comment on the practices of motor vehicle manufacturers, their franchised dealers and others in the resale of allegedly defective vehicles which have previously been repurchased from consumers because of warranty defect. NADA, whose members sell these "buyback" vehicles, offers the following comments.

Overview: NADA strongly supports full disclosure of vehicles repurchased due to defects. As the FTC is no doubt aware, it is very difficult to draw a bright line to determine which vehicles repurchased by manufacturers should trigger a disclosure requirement to subsequent customers. This difficulty is demonstrated by the diverse treatment these disclosure issues are given by the various state lemon laws.

NADA believes that, while we support disclosure of buyback vehicles, the requirement of when to disclose that a vehicle is a buyback must be clear and definite. The disclosure should not unfairly taint a vehicle as defective when it has been repurchased as an effort to preserve goodwill and there is no alleged or actual defect in the vehicle. NADA is fully supportive of the efforts that manufacturers have made in recent years to address customer's problems with vehicles, which may be real or perceived, in a timely fashion. We believe that any disclosure requirement which causes the manufacturer to stop or significantly reduce goodwill repurchases will have a detrimental impact on our customers.

The following responds to the specific questions that the FTC set out in the April 30th notice for comment.

1) How many vehicles are repurchased each year by manufacturers? How many vehicles are repurchased each year by dealers? What is the disposition of these vehicles? How many are resold to customers? How many are resold within the same state? How many are transported to another state and resold? What happens to those not resold?

There are very few new vehicles which are repurchased solely by dealers. In most cases, the manufacturer repurchases the vehicle; in some instances, the manufacturer and the dealer both contribute to the repurchase.

It is our understanding that almost all vehicles repurchased by the manufacturer are re-sold at the nearest factory auction; these vehicles are not normally shipped to different parts of the country to be re-sold.

2) How many of the repurchased vehicles are successfully repaired after they are bought back? 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 model years?

NADA does not have any specific information or studies on these issues.

3) At what stage should a car be considered a buyback for the purposes of imposing a disclosure requirement? Should any car that is taken back by the manufacturer at any stage in a dispute over alleged defects be considered a buyback? If not, under what circumstances should a vehicle be considered a buyback? Should only those vehicles in which there has been an impairment of value be considered a buyback? If so, how should "impairment in value" or any similar limiting term be defined? Since manufacturer buybacks are only one segment of the buyback marker, how can defective vehicles bought back by the dealer and/or traded in by consumers be identified?

NADA believes that a manufacturer who repurchases a vehicle through either a voluntary or formal buyback should disclose the factors that triggered the buyback to the dealer who purchases the vehicle. NADA would support a disclosure process which would require a dealer to pass on the disclosure it received from the manufacturer to the retail customer.

There are certain "trade assist" repurchases in which there is no real or alleged defect relative to the vehicle. These vehicles are repurchased in order to satisfy customers and generate goodwill for the dealer. In these "goodwill repurchase" situations where there is no real or alleged defect -- a disclosure to the next purchaser of the vehicle should not be mandatory. For example, a disclosure should not be required if a dealer buys back a car from a customer because the customer did not like the color or the trunk was too small. Disclosure in these types of situations serves no useful purpose and may detract from needed disclosures which are made when there is an actual problem with the vehicle.

4) 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? 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?

This is an issue which could have a significant adverse impact on both consumers and dealers. NADA will not attempt to speak for manufacturers and state at what exact point certain disclosure requirements would have a chilling effect on the manufacturer's decision to repurchase vehicles. However, it is reasonable to assume that requirements which unfairly require all vehicles that are repurchased for whatever reason, to be disclosed as "defective" or a disclosure requirement which is unclear as to which vehicles are to be disclosed will at some point cause manufacturers to re-think their repurchase policies. This result would be detrimental to consumers and dealers. Consumers are the dealers customers. Any decision made by the manufacturer to help resolve a problem a customer is having with a vehicle benefits both the consumer and the dealer.

6) 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? Are consumers receiving the disclosures? Who is responsible for ensuring that disclosures are made to the consumer? Are the disclosures specific enough to identify or reveal the vehicle's previous history and the repairs performed? What are the costs and/or benefits of these disclosure methods to manufacturers? To auction companies? To dealers? To consumers? To other parties?

The types of disclosures given by dealers to consumers concerning these repurchased vehicles vary depending on specific state law requirements. Many dealers make disclosures to customers by passing on the disclosures the dealer received from the manufacturer at an auction. (Examples attached).

7) What methods are or would be most effective in getting information about a vehicle's history and prior repairs to consumers before they buy the vehicle? Title branding? Disclosure documents to be given to consumers? 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?

NADA believes that whatever the disclosure format is, there must be a clear criteria as to when disclosure or title branding is required. If some form of title branding is considered, it is our position that the manufacturer should be required to take the necessary steps to have the title branded.

Conclusion:

NADA fully supports the disclosure of buyback vehicles and we look forward to developing a reasonable format with all interested parties, as well as participating in the public forum outlined in the Federal Register notice. Thank you for the opportunity to comment on these issues.

Sincerely,

J. Peter Kitzmiller
Assistant Director, Regulatory Affairs