Overbroad Bills Hurt Reduce Buyers' Trade-Ins by an Average of $1,210
Last Congress, Sen. Richard Blumenthal (D-Conn.) and
Rep. Jan Schakowsky (D-Ill.) introduced bills that would prohibit dealers from
selling or wholesaling a used vehicle under open recall. These bills were
overly broad because most vehicle recalls do not require the drastic step of
grounding the vehicle. Additionally, these bills would create a “trade-in tax”
by instantly devaluing millions of car buyers’ trade-in vehicles by grounding
vehicles for such minor matters as a peeling sticker. The bills would push
recalled vehicles into the unregulated private market, making it even less
likely the recall repair is completed.
Franchised auto dealers play a vital role in ensuring that
recalled vehicles are fixed, but dealers cannot repair vehicles until the
manufacturer provides the required remedy and parts. From 2010 to 2014, the average
delay for parts to fix a recalled vehicle was 60 days.
S. 900/H.R. 1181, introduced by Sen. Blumenthal and Rep.
Schakowsky last Congress would have grounded all used vehicles under open
recall sold at dealerships (but not private sales). A 2015 study by J.D. Power
found that enactment of these bills would result in an average “trade-in tax”
of $1,210, and some consumers’ trade-ins would incur devaluations of $4,000 to
$5,000. These bills would prevent car buyers from purchasing recalled vehicles
for such minor matters as an incorrect phone number in the owner’s manual.
Proponents of these bills have offered no supporting safety analysis, despite
the estimated $1.1 billion cost to consumers if these measures were enacted.
bills would make it difficult for car buyers to
trade in vehicles with open recalls and harder for consumers to afford a newer,
safer vehicle. Because of a shortage
of auto parts, it can take months for recalled vehicles to be repaired. As a
used vehicle depreciates on average 2 percent a month sitting idle on a
dealer’s lot, this bill would force dealerships to pay consumers significantly
less for trade-ins with open recalls, or not accept them at all.
National Highway Traffic Safety Administration
admits that not every recall warrants the vehicle’s immediate grounding, yet these proposals would diminish a recalled
vehicle’s trade-in value by an average of $1,210. Many car
buyers rely on the value of their trade-in as part of their down payment for
their new vehicle.
vehicles will be pushed into the unregulated
private market. By devaluing trade-ins, vehicle owners may
decide to sell their vehicles in the private market, making it even less likely
that recall work will be done in a timely manner, if at all.
The Senate Commerce, Science, and Transportation
Committee rejected S. 900 when it was offered as an amendment to the 2015
highway reauthorization bill. Sen. Blumenthal plans to reintroduce similar
legislation this Congress. Congress should focus on legislation that increases
recall completion rates, and oppose proposals that create a “trade-in tax” on
millions of customer trade-ins while not guaranteeing that a single recalled
vehicle gets fixed.
Download this brief
March 8, 2017