Pub. 6 2016 Issue 3

16 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com Franchise Agreements In addition to state and federal laws that may create legal ob- ligations relating to recalled vehicles, your franchise agreement and other automaker contracts may create obligations on how you must handle recalls. This may range from a vague state- ment that you will assist the automaker in carrying out a recall or performing recall repairs, to very specific requirements. Be sure to consult your franchise agreement and other ancillary automaker contracts in deciding how you will deal with recalls. Be sure to pay close attention to limitations on the ability to sell vehicles as certified when subject to an open safety recall. The FTC has focused on such sales in enforcement activity. Also be sure to pay special attention to recalls for which the automaker provides a “Stop Sale Order.” An agreement with your automaker may require you to treat such vehicles differently. Even if the franchise agreement does not specifically provide a contractual prohibition from selling such used vehicles, these recalls generally involve a higher degree of safety concern. Furthermore, the issu- ance of such instructions could be construed by a court (of law or public opinion) as increasing individual dealer responsibility if the defect for which the vehicle was recalled causes damage or injury. Establishing a Dealership Recall Policy If notified by a franchised automaker of a recall covering a used vehicle currently offered for sale (or otherwise learning of a recall affecting used vehicle inventory), dealers must determine whether to withdraw that vehicle from sale. Since not all safety recalls are created equal (they range from true “Stop Sale Orders” to recalls for labelling concerns), dealers are advised to establish a policy, in consultation with counsel, on how to make this le- gal and practical determination. Two simple example policies would be: “the dealership will not sell any used vehicle subject to recall” or “when notified of a recall, the dealership will work with counsel and the service department to determine whether to offer the vehicle for sale, and disclose all recalls for vehicles we do decide to sell.” Dealers may also want to expand upon this policy to establish procedures to identify recalled vehicles prior to acquiring vehicles at auction or in trade—similar to the standard practice of check- ing the NMVTIS database, obtaining commercially available vehicle history reports, and running a KSR prior to acquisition. While this is yet another procedure to heap on to your used car department, doing so will give dealers insight into proper vehicle valuation, and can be helpful in deciding whether to acquire the vehicle in the first place. This will be particularly important if the dealership policy will be to avoid offering recalled used vehicles for sale. Since automakers are not obligated to pay compensa- tion to dealers for used vehicle inventory subject to recall, and many recent recalls involve backlogged parts orders that may take months to resolve, a lot full of recalled vehicles can quickly become a burden on your flooring line. Dealers who decide to implement recall policies that in- volve checking vehicle recall histories and selling certain used vehicles subject to recall should properly disclose known recalls to consumers in writing (and obtain a customer’s signed acknowl- edgement of this disclosure in the deal jacket) in order to avoid potential accusations of misrepresentation. (See “Disclosing Recall Status” discussion, below). As discussed below, an employee with an internet-connected computer, iPad or smartphone handy prior to intake or retail sale may help successfully navigate this brave new world. How to Tell Whether a Specific Vehicle is Subject to an Unfulfilled Recall Unless franchised to sell the specific line-make, dealers have traditionally had limited options for finding whether a vehicle is subject to a recall, or (even harder) whether an outstanding recall issue had been remedied for a particular vehicle. Some automak- ers had long placed VIN-searchable portals on their websites, but the timeliness of their updates was in question. Others had phone numbers to call, but the phones never seemed to be answered (at least when we tried calling). Non-franchised dealers could call the local franchised dealership, but would be uncertain as to whether they were given the correct answer. In an effort to resolve such difficulties, the 2012 federal highway bill included language requiring NHTSA to make recall information available to the public online, searchable by VIN, including information about unremedied recalls on that vehicle. NHTSA’s regulations, which took effect in 2014 required large automakers (with annual US sales of at least 25,000 vehicles) to make VIN-specific recall information on used vehicles avail- able to non-brand dealers and the public via their websites, free of charge. The regulations require the manufacturer to update their databases at least weekly. Concurrently, NHSTA launched its own publically-accessible, VIN-searchable portal on its web- site at https://vinrcl.safercar.gov/vin/. NHTSA’s portal allows consumers and dealers to enter any VIN, and the results will be retrieved from the appropriate automaker’s database. n The Rocky Recall Road — continued from page 15 n The Rocky Recall Road — continued on page 18