The Beltway
An occasional column by Gabe Nelson, Automotive News' D.C. correspondent, analyzing the auto industry's relationship with Washington.
GABE NELSON

GM recall blitz spotlights used-car sales loophole

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Gabe Nelson is a staff reporter for Automotive News
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WASHINGTON -- Right now, for less than $10,000, an unsuspecting used-car buyer could easily drive off the lot in a Chevrolet Cobalt or Saturn Ion equipped with General Motors' defective "switch from hell."

Used-car retail giant CarMax has dozens of Cobalts and Ions listed for sale that haven't had their switches replaced, GM's online VIN database shows.

And this is perfectly legal. New cars cannot be sold in the United States if so much as an airbag sticker is missing, but used-car sales go by a different rule: caveat emptor.

This is understandable. Washington has an easier time regulating a few dozen car companies than thousands of small used-car lots. And CarMax, which holds no GM franchises, doesn't have permission from the automaker to do its recall work.

But the GM recall crisis has highlighted for lawmakers the risk of a buyer-beware policy -- and it looks increasingly likely that Congress will try to bar dealers from selling recalled used cars without certain precautions.

Last week, Sen. Jay Rockefeller, D-W.Va., introduced a bill that would make it illegal to sell a used car with a pending recall, without fixing the defect or making the consumer aware of it.

That came after a coalition of consumer groups, joined by Sen. Chuck Schumer, D-N.Y., filed a complaint with the Federal Trade Commission, challenging CarMax for marketing a "rigorous 125-point" inspection that doesn't include a recall check.

"Car dealers selling new cars are not permitted to sell recalled vehicles without first fixing the safety defects," Schumer's letter said. "Dealers selling used cars should be held to the same standard."

Some dealers already follow that standard, such as Ben Catanese, dealer principal at Volkswagen of Salem County in Monroeville, N.J. A state law requires that used-car buyers receive a vehicle history report, so he goes the extra mile and gets recall work done.

"It should be a slam dunk," David Friedman, acting chief of the National Highway Traffic Safety Administration, told The New York Times last month. "To me it is hard to oppose ensuring that people who buy a car, whether it is new or used, or whether you are renting a vehicle, can have the confidence that it is safe."

But getting the repairs done can be a hassle, says Rob Smith, vice president of Fitzgerald Auto Mall near Washington, which runs recall checks as part of a 138-point inspection for used-car sales.

"If it's a brand we sell, it's a no-brainer," he said. "If it's a brand we don't sell, we have to deal with our neighbors down the street, and we end up at the back of the line."

This is why retailers are wary of a used-car sale restriction. "They're effectively stop-sale orders," said Brian Maas, president of the California New Car Dealers Association. "If you acquire a car today and the part's not going to arrive until October, your capital is stuck."

CarMax helps customers check whether a used car has any open recalls, a CarMax spokesman wrote in an e-mail. CarMax would support Schumer's position, the spokesman wrote, as long as used-car retailers get the same access to tools and parts that franchised dealers have.

Franchised dealers would probably balk at that. But there are other ways to give buyers more assurance that their cars are safe.

Federal rules taking effect on Aug. 14 require automakers to have an online VIN database for recalls. If there's an open recall, Smith said, then used-car dealers could be required to tell customers to go to a franchised dealer for repairs. Or state DMVs could check whenever someone applies for a registration, he said.

The outcome is unclear. But there's clearly room for improvement, and compromise. Only about 70 percent of recalled cars get fixed on average, and GM's blitz of recalls has given automakers, dealers and policymakers more than enough motivation to try to tighten up the used-car loophole.

"We get it: It's an important issue," Maas said. "We want to be part of the solution."

Arlena Sawyers contributed to this column.

You can reach Gabe Nelson at gnelson@crain.com.


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