Oppose Overbroad Recall Legislation That Creates a “Trade-in Tax” for Consumers (S. 1835)
ISSUE
Sen.
Richard Blumenthal (D-Conn.) has introduced legislation that would cripple the
used-vehicle market by halting a dealer’s sale of
used vehicles under any open recall. The bill, S. 1835,
is overbroad because most
recalls do not require
the drastic step of grounding. Additionally, the bill would create a “trade-in
tax” that would instantly devalue a car buyer’s trade-in
by grounding recalled vehicles for minor matters, such as a peeling sticker.
Finally, S. 1835 would
push recalled vehicles into the unregulated private market, making it more
difficult to complete recall repairs. Congress should oppose overbroad recall
legislation and instead support initiatives that improve consumer response
to vehicle recall notices and increase recall completion rates.
BACKGROUND
Dealers
support a 100% recall completion rate. Franchised auto and truck dealers play a
vital role in ensuring that recalled vehicles
are fixed, since they are authorized to complete manufacturer recall repairs. However,
dealers cannot repair vehicles until the manufacturer
provides the remedy and parts. Often the manufacturer fix is subject to delays. For example, from 2010 to 2014, the
average delay for parts to fix a recalled passenger vehicle was 60 days. Even after the
parts become available, vehicle owners must respond to recall notices
to complete the recall work.
Additionally,
S. 1835 would devalue many consumer trade-ins, making it more difficult for a
car buyer to purchase a newer,
safer, cleaner vehicle. The bill would also mandate the extreme step of
grounding vehicles for such minor matters
as an incorrect phone number in the owner’s manual. Rep. Jan Schakowsky
(D-Ill.) introduced similar legislation
in the 115th Congress. A study by J.D. Power found that enactment of
legislation that was nearly identical to
S. 1835 would result in an average “trade-in tax” of $1,210, with some consumer
trade-ins suffering devaluations of
up to $5,000. By devaluing trade-ins and not regulating private sales, vehicle
owners would be incentivized to sell their vehicles
in the private market, where
almost no safety or consumer
protections exist. This legislation would make it
less likely that recalled vehicles
get fixed, and the bill’s
proponents have offered
no supporting safety
analysis – despite an estimated $1.1 billion cost to consumers.
KEY POINTS
- Overbroad
recall legislation, like S. 1835, would make it more challenging for consumers
to both trade-in their recalled
vehicle and afford a newer, safer vehicle. Due to a lack of replacement
parts, it can take months for
recalled vehicles to be repaired. Since a used vehicle historically depreciates
by an average of 2% per month while
sitting idle on a dealer’s lot, this bill would force dealerships to either pay
consumers significantly less for trade-ins with open recalls
or not accept trade-ins at all.
- During
the Obama administration, the National Highway Traffic Safety Administration
took the position that not every
recall warrants the vehicle’s immediate grounding. By grounding all
recalled vehicles irrespective of the nature
of the recall, S. 1835 would diminish
a recalled vehicle’s trade-in value by an average
of $1,210. This
would harm many car buyers who rely on their trade-in
to make a down
payment on a newer vehicle.
- Unrepaired
vehicles will be pushed into the unregulated private market. S. 1835
incentivizes vehicle owners with
devalued trade-ins to sell their vehicles in the private market, making it less
likely that recall work will be done
in a timely manner, if at all.
STATUS
S. 1835 was referred to the
Senate Commerce, Science, and Transportation Committee, and may be offered in committee
as an amendment to the highway
bill in June. In 2015, the committee rejected
an amendment similar to S. 1835. Congress
should oppose bills that create a “trade-in tax” on millions of consumer
trade-ins without even guaranteeing that a
single additional recalled vehicle gets fixed.
Download this brief
June 1, 2021