The question is, how should they handle it?
Recalls have become a major concern for dealers as the number of recalled vehicles has soared, setting records each of the past three years. In 2014, that number jumped from around 20 million the previous year to more than 50 million, and it has continued to climb since, reaching the current record of 53.2 million vehicles last year.
The issue made national headlines when news broke of the massive Takata air bag recalls and Volkswagen’s admission of installing devices on diesel vehicles to cheat emissions tests, which made 2015 “the Year of the Recall,” said Karyn Wrye, senior director legislative affairs for Cox Automotive and a member of the National Auto Auction Association’s editorial committee.
The result was greater scrutiny of auto manufacturers and an increase in recalls ordered by the federal government. “I was co-chair of NAAA’s Legislative Committee in 2015,” Wrye said. “In addition to a lot of recalls, that was the year the federal government came out with the www.safercar.gov website. That was a big deal.”
It was important, Wrye said, because for the first time, the website created by the National Highway Traffic Safety Administration gave everybody – consumers, car dealers and whole- salers – access to the list of all vehicles currently under recalls, searchable by a vehicle’s VIN.
After the website was launched, NAAA for the first time issued a statement advising car sellers on how to describe the material facts of a vehicle they were trying to sell.
The statement pointed out the VIN lookup tool at www.safercar.gov provides open recall status on vehicles and urged buyers and sellers to use it and to disclose any open recalls found.
“A seller will build credibility in its product and a buyer will have more confidence in its purchase decisions when there is disclosure and/or awareness of all material facts about a vehicle being offered for sale/considered for purchase,” the statement read.
“As such, NAAA recommends sellers use NHTSA’s VIN lookup tool on each vehicle registered for sale and provide disclosure to buyers of such information in the event an open recall exists on any particular vehicles, and that buyers use NHTSA’s VIN lookup tool on each vehicle being considered for purchase to ensure awareness of all ma- terial facts prior to bidding on vehicles.”
Wrye said NAAA’s statment showed just how much of a game-changer the NHTSA website and lookup tool was for the retail car business. “It’s something dealers shouldn’t ignore,” she said.
Attorney Jason McCarter, a partner with the firm Eversheds-Sutherland U.S., has written and spoken frequently at industry events on how dealers should handle recalls.
While independent dealers are not specifically required by federal law to inform consumers that a vehicle the dealer has for sale is under an open recall, that doesn’t mean a dealer can’t get into legal difficulties if he or she fails to disclose that information.
“In the past,” McCarter said, “the Federal Trade Commission and state attorneys general have alleged independent dealers not disclosing that a vehicle they are trying to sell is under open recall could be considered a deceptive sales practice.”
McCarter cited a recent case involving the sale of certified pre-owned cars in which the dealer got into trouble because of an unrepaired recall on the vehicle.
While that’s a special case because CPO vehicles are advertised as meeting certain quality standards and having undergone inspection procedures, McCarter said it should be taken as a warning by dealers.
“There’s a lot of ambiguity out there,” he said. “There are a lot of deceptive trade practices laws that a smart plaintiff's attorney might use in a lawsuit against a dealer.
“The takeaway is that dealers should really get ahead of any potential problem by making sure a car in their inventory under open recall gets the repair work done before it’s sold. Or at the very least, that they inform any potential buyers of the recall.”
It’s possible a buyer might know a car is under a recall, and when not informed of that fact by a dealer could decide to take the dealer to court.
“I’m not aware of any cases like that out there,” McCarter said, “but why take the chance? Even if a dealer wins in court, it will cost him or her a lot of time and money.”
And because vehicles under open recall are listed on www.safercar.gov, a free and easily accessible website, and industry organizations from NIADA to NAAA to NADA are encouraging dealers to be transparent, it could be argued that a dealer who does not disclose recall information doesn’t meet the “reasonable” dealer standard in court
And that’s never good.
Shaun Petersen, an attorney and NIADA’s senior vice president of legal and government affairs, said he agrees “100 percent with the notion that dealers should be transparent concerning informing potential buyers of recalls.”
If they are not, he said, they potentially open themselves up to claims of common law fraud and other similar legal precedents or arguments asserted by plaintiffs' attorneys.
“The theory is that if you have information material to the transaction and don’t disclose it, that’s fraud,” Petersen explained. “If you don’t
tell a customer about a recall, he could argue that you intentionally withheld material information about the vehicle that you knew or should have known. The argument is recall status is material information, and if you fail to disclose you’re withholding material information.”
And whether those arguments are successful or not, just the fact they are brought can have a negative impact on your business.
“Lawyers cost money,” Petersen said. “And consumer attorneys will bring every kind of claim they can. Don’t put any arrows in their quiver, because they'll fire them at you."
Those attorneys, Petersen said, are not picky. In the case of airbags, for example, he said lawyers sued automakers, the air bag manufacturer – “anybody who was a kind of touch point with the vehicle in question.”
But, Petersen said, independent dealers can avoid being a touch point if they are smart. "Independent dealers can't fix a vehicle under recall," he explained. “That vehicle has to be repaired by a franchise dealer’s service department. So if an independent dealer has a car that comes under recall, that dealer can protect himself by taking it to a franchise dealership and getting the recall taken care of before selling it.”
Sometimes the parts needed to complete recall repairs aren’t available until some time after the recall is announced, and dealers don’t want to let the vehicle sit and depreciate while they wait. So they sell it.
It that’s the case, Petersen advised, tell the buyer about the recall.
Justin Osburn, moderator for NIADA’s Retail 20 Groups, said that scenario is actually an opportunity for dealers to build trust with customers by disclosing the information up front and advising them on how to get the recall fixed.
“Recalls are common,” Osburn said. “I’ve seen situations where 20 percent of a dealer’s used inventory comes under an open recall and parts weren’t available to to get the cars fixed.
“That can create a crisis atmosphere in a dealership. So if the dealer decides to sell the cars, he can minimize exposure by informing the buyer of the recall.”
Osburn said dealers can protect themselves by having procedures in place to check vehicles when they are bought and when they are sold. When a customer is handed the sales file containing all the paperwork, that file should contain any recall notices.
By checking recall status automatically as part of the sales paperwork process, the dealer is able to show the customer he or she is on the ball and is being open and honest.
Have your purchaser run a check when the car is acquired. Have the salespeople do a check when it’s sold.
If you have a service department, have them check the recall status during reconditioning.
Double- and triple-checking won’t take much time, and while any one department might let something slip through the cracks at times, the odds of three departments making that same mistake are very slim in a well-run dealership.
Even if your dealership is small and there aren’t a lot of people dedicated to paperwork, Osburn said, it’s worth making the effort.
When vehicles go through auction lanes, it can take time to check every
VIN on the safercar.gov website. But it doesn’t have to be a lengthy process – there are tools available from a number of vendors to make checking vehicles’ recall status easy.
“We help dealers do a couple things,” said Keith Crerar, vice president of sales and operations for TradeRev, an online dealer-to-dealer vehicle marketplace.
“By scanning a VIN using our app, TradeRev checks public records to determine if a vehicle has been damaged in some sort of incident or is under open recall.”
Buyers should have all the information they need about a car before they purchase it, Crerar said. And car dealers are car buyers.
“This is a competitive business,” Crerar said. “Inventories depreciate and dealers like tight turn cycles. Knowing a car is under open recall before purchasing it at auction or from a wholesaler gives dealers the information they need to make an informed decision on whether or not to buy that vehicle.”
A good car salesperson is a prepared car salesperson, Crerar said.
“Dealers shouldn’t be afraid of the possibility of an open recall on a car they want to buy or sell,” Crerar said. “Just check first before buying. And check your inventory when preparing a sale.”
That way, Crerar said, dealers can get a recall taken care of before putting a vehicle on the lot. And if a vehicle is placed under recall while on the lot, customers can be easily informed.
“While a dealer is under no obligation to get a car under recall fixed before selling, any safety recall issue should be taken care of before the sale,” Crerar said. “These sorts of things demand attention.
“Remember www.safercar.gov is open to anyone. We live in an era when people walk around with smartphones that can access the Internet. If customers feel they were treated badly because they weren’t informed of any recall issues, they can use those smartphones to post negative reviews on all sorts of sites. “We live in a digital marketplace. This is about trying to do things the right way, right away.”
Carfax public relations manager Chris Basso said dealers should remember one important thing when handling recalls – they are in place to keep the public safe.
“Recalls protect consumers and make roads and driving safer,” Basso said. "This is for the benefit of everyone. “And they can be a revenue source
for dealers. They can be a way to strengthen bonds with customers.”
Carfax offers an app that allows consumers to check the recall status and history of their cars, Basso said. Which means there’s a good chance a car shopper already knows if a vehicle on your lot is under an open recall.
"We have five million people who use this app,” Basso said. “Learning about a car’s condition from a dealer is much better for that dealer than if the customer learns about it from a service provider like Carfax.”
Sandra Moss, a partner with Moss Motor Co. in Dillwyn, Va., said the sooner dealers accept the fact that recalls will be a part of their lives, the better it will be for them.
“Recalls should always be addressed as soon as possible,” she said.
Moss said her state IADA in Virginia has a member benefit arrangement with website provider JTZ Enterprise that includes recall notification.
“Those of us who put inventory online are automatically informed if that inventory comes under recall,” she said. “That allows us to know about and handle the issue up front.”
If parts aren’t available, dealers get another chance to interact with customers by contacting them and telling them when the parts are in, Moss said.
She said dealers can arrange to have cars repaired with franchise dealerships with which they have good relations.
Moss, who has been in business for 33 years, said the recall issue is an example of why it’s important for dealers to join their state and national dealers association.
“The business has gotten a lot more complicated,” she said. “I tell people interested in getting into the used car business to be aware of the problems they’ll face.
“That’s why it’s important to belong to your state association. They can help dealers have processes in place to handle issues like open recalls. So
many people don’t have a clue of what to do and state associations can guide them to be the best dealers they can be.”