Recall battle shifts to states

In the tug of war between manufacturers and dealers over the burgeoning volume of recalled vehicles, dealers are applying some muscle at the state level.

State dealer associations are going to their legislatures seeking — and getting — new protections they say dealers need to cope with the burden of unrepaired vehicles on their lots, especially as the Takata airbag recalls expand.

The Virginia and Maryland legislatures have passed bills requiring that dealers be compensated when used vehicles in inventory are grounded by manufacturers’ stop-sale orders. Virginia’s bill was enacted in March and will take effect in July; the Maryland legislation, passed in April, is awaiting the governor’s signature. More states are expected to follow their lead.

Recall rights

Dealers have gone to legislatures in Virginia and Maryland to seek new protections when vehicles are recalled and under stop-sale orders. Here are highlights.

• Requires manufacturers to pay dealers at least 1% of the value of the vehicle per month for a recalled used vehicle that cannot be immediately remedied if manufacturers would penalize dealers for selling it
• Requires manufacturers to compensate dealers for recall repairs on the same basis as warranty repairs
• Prohibits manufacturers from using performance measurements to the detriment of a dealer when the dealer has used vehicles subject to a stop-sale order, and provides relief from performance standards if 5% or more of a dealer’s new-vehicle inventory is grounded by law

Maryland (awaiting governor’s signature)
• Requires manufacturers to compensate dealers for vehicles under stop-sale that can’t be immediately repaired
• Prohibits manufacturers from punishing dealers for sharing with customers manufacturer-provided information on any condition that could affect vehicle safety, durability, reliability or performance
Source: Virginia, Maryland legislation

Hall: “A burden on dealers”

“It’s a burden on dealers,” said Don Hall, CEO of the Virginia Automobile Dealers Association. “The manufacturers have successfully transferred this to become a global dealer problem.”

Manufacturers dispute that and condemn the legislative action.

One government affairs executive at an automaker said the legislative push is an “overreach” by dealers trying to shift more of their costs onto manufacturers.

“You take on certain risks by being a dealer,” the executive said. “They make money in lots of ways, but there are costs of doing business.”

The conflict has escalated in recent months as the volume of Takata airbag recalls grows and parts makers scramble to produce enough replacement inflators. In cases in which manufacturers have ordered dealers not to sell unrepaired vehicles on their used-car lots, dealers can be stuck with unsalable inventory for months while they wait for parts.

‘Tower of Babel’

At the heart of the dispute is a difference in how the law treats new vehicles vs. used ones. Federal law bars the sale of new vehicles with pending recalls until they are fixed and requires the manufacturer to compensate the dealer if it can’t provide repair parts. But there’s no such law regarding used vehicles, leaving it up to manufacturers to set policies and decide whether to order a stop-sale.

While some manufacturers have programs to compensate dealers for the costs of keeping those used vehicles around, others don’t. Moreover, dealers and their advocates say, manufacturers have been vague in the way they word their recall notices and policies, which may expose retailers to liability problems.

AutoNation Inc. CEO Mike Jackson described automakers’ recall communications and policies as a “tower of Babel.”

Jackson supports extending the federal law to include used vehicles. But in the absence of consistent national policy on both stop-sales and compensation, he said, dealers can’t be blamed for seeking relief at the state level.

The Virginia law, he predicted, “will become a template.”

‘Point of the spear’

Hall, the Virginia dealer group chief, said he has spoken to between 30 and 40 of his counterparts in other states about Virginia’s legislation, which he said he pursued at the urging of the National Automobile Dealers Association. “They needed somebody to be the point of the spear to get the parts moving,” he said.

Craig Bickmore, executive director of the New Car Dealers of Utah and chairman of the Automotive Trade Association Executives, said he’s contemplating action in his state and that many other state associations are looking into it.

“There is a lot of activity, and there is a lot of concern,” Bickmore said. “There’s got to be work done, and maybe there’s a national fix.”

Peter Kitzmiller, president of the Maryland Automobile Dealers Association, also supports a national approach. But he walked away from an Automotive Trade Association Executives legislative meeting in October convinced that federal legislation wouldn’t happen anytime soon. With his members concerned about the potential for state legislation banning the sale of vehicles with open recalls, Kitzmiller pursued a dealer-backed bill.

Manufacturer groups say the state-by-state legislative effort will only muddle efforts under way to improve recall completion rates, including a commitment in January by automakers to work with regulators, dealers and other stakeholders to develop more effective recall policies.

“We urge state legislatures to allow this ongoing manufacturer-dealer effort to proceed and avoid interjecting legislation at this time,” the Alliance of Automobile Manufacturers said in a statement.

In an emailed statement, Global Automakers spokeswoman Annemarie Pender called the Virginia and Maryland initiatives “inconsistent with the process already underway to address recall completion rates at the national level.”

‘It gets painful’

Carroll Smith, owner of Monument Chevrolet in Pasadena, Texas, says a national approach would be better than a patchwork of state laws. “It shouldn’t be 50 states writing 50 laws,” he said. “There should be federal legislation.”

But in the meantime, recalls are roiling his business. He isn’t retailing or wholesaling vehicles under stop-sale orders, which means he’s storing more vehicles on his back lot. He no longer will take Hondas in trade because that brand has been so affected by the Takata recall.

“It gets painful sometimes,” he said.

For multibrand Virginia dealer William Farrell, stop-sale orders are a growing expense. He has 21 brands across 12 locations and a lot of cars he can’t sell right now.

“It keeps getting expanded almost every week,” said Farrell, who is also chairman of VADA. “Dealing with all these recalls is a tremendous burden on our business.”

Ryan Beene contributed to this report.

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