Pub. 6 2016 Issue 3

15 Connect instantly with the CUDL network of over 1,000 credit unions and over 42 million potential shoppers they represent. CUDL's proprietary system makes it easier than ever to access pre-approvals, increase processing speed, get instant decisions and receive faster funding. It's time to harness the power of the nation's largest credit union auto lending network. Learn more at cudl.com MORE APPROVALS. LENDERS. CUDL CAN DO THAT. Once NHTSA and/or the automaker determine that a vehicle fails to comply with the FMVSS or contains a safety-related de- fect, NHTSA and/or the manufacturer may launch the recall. Once this decision is made, the wheels are put into motion: recall remedies are developed, franchised dealers are trained to perform the repairs, and registered owners of the vehicles are contacted using records in state DMV databases. As just about every franchised new car dealer has seen recently, these events do not always occur in the above-described order. [Reference: 49 U.S.C. Part 301] Vehicle recalls trigger several different legal and policy im- plications for dealers, as described below. New Vehicles Under the federal Motor Vehicle Safety Act, new vehicles that are subject to a safety recall cannot be delivered until the defect is corrected. (While federal law contains no prohibition against advertising such vehicles, some state laws, such as those in Cali- fornia, prohibit advertising vehicles not actually for sale, and/ or separately require that an advertisement must be withdrawn within 48 hours of withdrawing a vehicle from sale). [Reference: 49 U.S.C. §§ 30101 et seq.; 30120(i); 49 C.F.R. Parts 567, 571, and 573.11; California Vehicle Code §§ 11713(b); 11713(c); 11713 (i); 24000, et seq.] On the plus side, federal law does require automakers to provide compensation to dealers for new vehicle inventory that cannot be sold due to a recall. The law provides that compensa- tion may be provided in one of two ways: 1. Manufacturers may repurchase the affected vehicle at the price paid by the dealership, plus reimbursement for transportation charges, plus one percent of the vehicle’s cost per month the date of the recall); or 2. Manufacturers may provide the dealership with the parts or equipment to fix the defect, plus reimbursement for the costs of installation, plus one percent of the manu- facturer’s selling price of the vehicle per month (prorated from the date of the recall). Given the scope of recent recalls, the amount of compensa- tion could be significant. Franchise documents or communica- tions may set forth a process for applying for recall compensa- tion. If not, dealers should inquire with their automakers about the procedures they have in place for filing recall compensation claims. A manufacturer that fails to comply with this law can be sued for damages, court costs, and attorneys’ fees, subject to a three-year statute of limitations. And while manufacturers have traditionally discouraged dealers from applying for compensa- tion (taking a “c’mon, we’re all in this together” approach), re- cent efforts by the National Automobile Dealers Association are starting to yield positive results in this area—meaning dealers may want to make another attempt to seek the compensation to which they’re entitled. [Reference: 49 U.S.C. § 30116] Used Vehicles The federal Motor Vehicle Safety Act does not apply to used vehicles, nor (currently) does any state law equivalent. This means that dealers may sell and deliver used vehicles subject to recall without violating federal recall laws; it does not mean, however, that doing so is a good idea. First, selling a used vehicle subject to an open safety recall without disclosing that fact has been chal- lenged by trial lawyer as constituting fraud by concealment of a material fact. Second, dealers who sell used vehicles that they are subject to a safety recall may face product liability actions if an accident occurs related to that recall—even if you do disclose the recall. Third, some state laws, such as those in California, generally prohibit the sale of a vehicle that fails to comply with state safety standards, as well as applicable Federal Motor Vehicle Safety Standards. Since non-adherence to Federal Motor Vehicle Safety Standards can trigger a recall, such recalls could indirectly implicate your used vehicle inventory. [Reference: California Vehicle Code §§ 24007 and 24011] Unlike with new vehicles, automakers currently have no legal obligation under federal or California law to compensate dealers for carrying costs relating to used vehicles subject to recall—even if a “Stop Sale Order” applies that, pursuant to your agreement with the automaker, renders a vehicle unsalable. [Reference: 49 U.S.C. § 30112] n The Rocky Recall Road — continued on page 16