TEXAS DEPARTMENT OF TRANSPORTATION

June 27, 1996

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

Dear Secretary:

The Texas Department of Transportation (TxDOT) has reviewed the Federal Register Notice dated April 30, 1996 (Volume 61, Number 84) Pages 19067 - 19072 requesting comments on the practices of motor vehicle manufacturers, their franchised dealers, and other firms and individuals in the resale of allegedly defective vehicles previously repurchased from consumers because of warranty defects. Attached are the comments in response to this request and the comments are numbered to correspond to the questions raised by the FTC.

We appreciate the opportunity to comment. However, at this time we do not desire to participate in the July 15, 1996 Public Forum. If our department can be of further assistance, please contact me at (512) 305-9507 or L. David Brunke at (512) 505-5166.

Sincerely,

Jim Bisson
Assistant Executive Director
Motorist Services

"VEHICLE BUYBACKS"--COMMENT.

FTC FILE NO. P96 4402

1. Since 1992, manufacturers have been ordered to repurchase or replace 247 motor vehicles under the Texas Lemon Law as the result of contested case hearings. The breakdown by calendar year is as follows:

1992 - 59
1993 - 74
1994 - 59
1995 - 55

2. TxDOT does not track this information.

3. A disclosure requirement should be imposed on vehicles ordered to be repurchased or replaced under a lemon law program as a result of a hearing or arbitration. Any vehicle repurchased or replaced prior to the completion of a hearing or arbitration should not be considered a "buyback" for the purposes of disclosure requirements because it creates a conflicting consumer interest as explained in number 4.

4. In our view, defining "buybacks" to include vehicles repurchased or replaced prior to a final order creates a bad situation for consumers, depending on whether the consumer is the current owner of the vehicle or a "downstream" purchaser of the vehicle. Defining "buyback" to include those vehicles repurchased prior to the initiation of arbitration or litigation would cause a chilling effect on the manufacturers' willingness to make "goodwill" repurchases. Thus, it would work to the detriment of the current owner of the vehicle. On the other hand, defining "buybacks" to include only those vehicles that were the subject of a formal arbitration or litigation proceeding would, in our opinion, lead manufacturers to buy back more vehicles under the heading of "goodwill" in order to avoid the disclosure requirement. Therefore, it would be detrimental to "downstream" purchasers of the vehicle. In fact, in Texas, manufacturers settle a high percentage of the complaints filed against them through trade assists, repurchases and replacements. For your information, from 1992 to 1995, manufacturers repurchased (including trade assists) or replaced 929 vehicles to settle lemon law complaints. Avoiding the disclosure requirement is one reason frequently advanced to explain why the settlement rates are so high. Other reasons mentioned for the high rates include maintaining market share and obtaining a release from the consumer.

5. In our view, a vehicle should remain a "buyback" permanently or at least for 10 years due to the difficulty and practicality of determining whether it has been successfully repaired.

6. Texas law requires a manufacturer that has been ordered to repurchase or replace a vehicle to issue a disclosure statement, through its franchised dealer, which must accompany the vehicle through the first retail purchase. The disclosure statement must be in the attached format or in a format approved by TxDOT. Any manufacturer that fails to provide the required notice is subject to a civil penalty. Because manufacturers are not required to return a copy of the completed disclosure statement to TxDOT, the degree of compliance is unknown. However, TxDOT staff estimates that the compliance is low. In fact, an enforcement action is currently pending against a manufacturer for failing to provide the notice in 4 specific cases over the last two years. For your information, the complaint filed against this manufacturer also includes Florida lemons "laundered" through a Texas auction.

7. In our view, a disclosure statement is an effective way of getting information about a vehicle's history and prior repairs to consumers before they buy the vehicle. For example, our disclosure statement (see attached) requires the manufacturer to (1) describe the reason(s) the vehicle was repurchased/replaced; (2) repair the problem(s); and, (3) issue at least a 12 month/12,000 mile warranty. The disclosure statement also lists the agency's toll-free number for consumers to call for more information concerning the repurchase/replacement. In addition, title branding would also be an effective way to address the "downstream" problem of the resale of "lemons," especially after the first retail purchase.

8. See comments to question #7, above.

9, 10. Because of the movement, perceived or otherwise, of vehicles across state lines, a national databank of VIN numbers would greatly enhance the ability of states to enforce disclosure or title branding requirements. A FTC regulation requiring any person transporting a " lemon" across state lines for resale to notify the states concerned would also enhance enforcement.