In the first five months of 2014 auto manufacturers recalled nearly 23 million vehicles in the United States.  With that many vehicles subject to recalls dealers need to be aware of their legal obligations and responsibilities to avoid fines, penalties and litigation.   

 

1. SALE OF NEW VEHICLES

 

     It is a violation of federal law to sell a new motor vehicle while the vehicle is still subject to an unrepaired recall. The National Highway Transportation Safety Administration (NHTSA) has made it clear that dealers must not deliver a vehicle to a customer and promise to repair it later.  If you have a vehicle on your lot that is subject to a recall remove it from your available for sale inventory as quickly as possible.  Once the recall repairs are complete you can once again offer that vehicle for sale.    

 

2. PARTS

 

     Replacement motor vehicle parts in a dealer's inventory which are the subject of a manufacturer's recall are under the same rule as the sale of new vehicles.  A dealer must not sell recalled parts until the repairs are completed.

 

3. USED VEHICLES

 

     Used vehicles subject to recall are a tricky issue for dealers.  Federal law does not specifically prohibit or penalize the sale of a used vehicle subject to a recall. However, a dealer who sells new units of a particular brand, who also sells a used vehicle of that same brand having an unrepaired recall defect, runs the risk of significant liability.  If there is an accident related to the unrepaired defect, the dealership is likely to see a lawsuit claiming negligence for selling a vehicle with a defect it knew, or should have known, was subject to recall. 

 

SOUND BUSINESS PRACTICES

 

     In the event of a recall, dealers must establish procedures for the proper handling of all vehicles and parts which are subject to the recall.  The procedures should include:

1. Forwarding of all recall notification material to their sales department, parts department, and service department managers for immediate review and processing.
2. Immediate review of all vehicle inventories to determine whether the dealership has any vehicles in their inventory which are subject to the recall and to take immediate action to have those vehicles repaired.  Remember; if the repairs cannot be made prior to delivering the vehicle to the customer it cannot be sold. 
3. In the parts department, management should determine whether parts subject to the recall are in inventory.  If so, those parts cannot be sold until they can be repaired or until replacements arrive.  Dealers should order any parts needed for recall repairs at expected demand levels.
4. The service department must implement procedures to carefully and appropriately handle customer requests for recall repairs and to handle recall repairs for units in inventory.  It is likely that call volume and service appointment requests from customers will be heavy so allocate appropriate levels of  additional personnel to handle the additional calls and service appointments.

 

     At any given time a dealer may receive a letter from their manufacturer implying or directly stating that the dealership is in breach of its franchise agreement and may be subject to termination.  Some of the letters are simple boilerplate forms from the manufacturer's legal department that have the alleged deficiencies plugged in while many others contain the alleged deficiencies buried within routine correspondence from the local zone office.  Either way it is an attempt by the manufacturer to build a file against the dealer to justify a possible future termination.  

      While New York State franchise laws protect dealers from unwarranted termination by requiring a manufacturer to substantiate "good cause" for the dealership's termination, it is imperative that dealers respond in writing to any letter from a manufacturer which in any way implies or directly states that the dealership is in breach of its franchise agreement.  These response letters help to build up the dealer's own "opposition" file and can serve as the basis for defeating a manufacturer's "good cause" termination claim.

 

     Some of the more common deficiencies noted in letters from manufacturers include, but are not limited to:

 

            1.  Insufficient capitalization;

            2.  Insufficient floorplan line;

            3.  CSI below state/regional averages;

            4.  Sales below state/regional averages;

            5.  Need for facility renovations/improvements/relocation;

            6.  Changes in ownership/dealership control;

            7.  Dualling/undualling.

 

     There can be many compelling reasons why a dealer has not complied with the manufacturer's requirements.  That is why it is so important to inform the manufacturer, in writing, as to why their requirements or demands are unreasonable, excessive or based upon faulty or inaccurate data.  Even if the requirements are reasonable there are times when the deadlines imposed for such requirements are unrealistic or unobtainable.  Documenting your objections to the manufacturer's requirements or demands is the first step in avoiding franchise termination.

 

      If you receive a letter from your manufacturer alleging any deficiencies and want to discuss a response strategy call Stevan LaBonte at 516-280-8580.