Used cars with open recalls can lead to trouble or wrecks - Image of car with hood open

Selling Used Cars with Open Recalls: Is your inventory a ticking time bomb?

Selling used cars with open recalls is technically legal, but when things go wrong it can often lead to problems. There have been numerous lawsuits– including one brought against the FTC for not having stricter regulations– and thanks in part to massive recalls on Takata airbags and GM vehicles, there is discussion of instituting a national ban on selling cars with open recalls. Some states have considered bills or even adopted legislation that requires used car dealers to inform buyers if a vehicle has an open recall, but consumer advocate groups say that is not enough, and these measures are often met with negative public reactions. Many feel that used car dealers should do more, but that’s not as simple as it sounds. The problem is that the parts necessary to fix recalls can be difficult to obtain and wait times to have recalled vehicles repaired by the manufacturer can stretch into months or even years. While solutions are still being discussed, there is still no agreement in sight. The result is a sticky situation for used car dealerships. However, there are some measures that can be taken. As a BHPH dealership owner or GM, what can you do at the dealership level to ensure the vehicles you sell are safe?

While new car dealers are required to fix recalls on new vehicles, the same is not true for used vehicles, and make no mistake, there are huge numbers of used cars with open recalls on the market right now. In fact, NBC Bay Area found that out of 1,008 used vehicles shopped by an undercover correspondent, 115 had open recalls on them. If these numbers are roughly the same across the U.S., we can assume that around 11 percent of used vehicles on the market have an open recall. That’s less than the 18 percent of used cars with open recalls estimated by Carfax to be on U.S. roads in 2015, but it’s still a significant number.

Given these numbers, it’s possible for BHPH dealerships to accept trade-ins before realizing there is an open recall on the vehicle, and it may happen more than you think. They are then left with a choice: sell the car “as is,” or wait for recall repairs. Although manufacturers are legally obligated to fix recalls for free, the long wait times can still spell trouble. If a BHPH dealership finds they have numerous used cars with open recalls on their lot, they could see their inventories and profits significantly reduced for months, sometimes with catastrophic effects. However, if a vehicle is sold with an open recall, and someone is hurt or killed as a result, the dealership and not the previous owner is still the one facing a possible lawsuit and negative public opinion. Even if that weren’t the case, it’s safe to say that given a choice, most of us would never want to be responsible for someone’s injury. But that doesn’t stop tragedy from striking.

Over 2.7 million vehicles were recalled by General Motors in 2014 due to faulty ignition switches, which were responsible for at least 120 deaths, including that of 27 year old Lara Gass, whose parents afterward became advocates. The following year saw Takata Inc.’s first of several recalls on airbags that could fling deadly shrapnel when deployed. These airbags have injured hundreds and killed at least 23, including 35 year old Carlos Solis, a father of two, who became one of the proverbial “poster children” of regulation reform connected with the sale of recalled vehicles. And these recalls aren’t the only ones. Just this year, Subaru recalled 1.3 million vehicles due to a break light failure. A Fremont, CA man named Anthony Santos was shocked when his used pickup truck burst into flames while sitting in his driveway. The sudden fire was due to an open recall that he wasn’t even aware was on the truck.

“I’m extremely grateful that I was not in the car with my granddaughter,” he told a local news channel.

Even older vehicles are not always exempt. The Subaru recall involves certain vehicles with model years ranging from 2008 to 2017 and Honda vehicles as old as 2001 are involved in the latest Takata airbag recall. This increases the likelihood that many BHPH dealers could have vehicles with open recalls on their lots right now.

This leaves BHPH dealers in a truly complex situation. Consumer advocates want a complete ban on selling used cars with open recalls, but dealerships are finding it hard to get recalls serviced. In 2015 AutoNation announced it would not sell any used cars with open recalls. The chain received accolades from the public for the move, but about two years later they were forced to rethink their stance because the shortage of replacement parts for Takata airbags made it impossible for all of the vehicles to be repaired. The NIADA made mention of the same problem, stating that in some cases it is literally not possible to have used cars with open recalls repaired due to shortages. New Jersey Democrat Paul Moriarty ran into a similar problem when proposing a complete ban on selling used cars with open recalls. He quickly realized that the limited number of parts and manufacturer-authorized repair facilities meant that used car dealerships could possibly wait months or even years for recalls to be fixed. That could easily push many mom and pop BHPH dealerships into bankruptcy, reducing the number of small, local businesses and leaving only large used car dealerships able to weather the storm.

“They could have their entire lot taken up by cars that are under safety recall,” Moriarty told USA Today. “They wouldn’t be able to sell them. And they’d be out of business.”

Auto dealer associations and groups have proposed their own solution: legislation requiring dealerships to inform customers about used cars with open recalls. Although some states, including Tennessee and Pennsylvania have adopted these measures as a first step, many advocates such as the president of Consumers for Auto Reliability and Safety, Rosemary Shahan, are against these bills contending that such disclosures are too little, too late.

“If the dealers can get the bill passed, they will be able to say the only duty they have is to ‘disclose’ that there is a safety recall, which can be hidden in a stack of documents and presented to the consumer only after they have already test-driven several cars, chosen a car, negotiated the price, applied for credit and signed a purchase or lease contract,” Shahan informed USA Today.

The only thing that remains certain is that selling used cars with open recalls casts dealerships in an unfavorable light, hurts public relations, and in most states can lead to lawsuits. The best thing a BHPH dealership can do is to avoid the situation altogether.

The trick is to remain vigilant when purchasing stock or accepting trade-ins. There are several resources available to consumers to for check used cars with open recalls, and it would be wise for BHPH dealers to utilize those resources as well. By making recall checks a normal part of inventory stocking, BHPH dealerships can avoid trouble before it starts. In fact, that is exactly what the NIADA encourages used car dealers to do.

Manufacturers are required to contact vehicle owners and inform them of used cars with open recalls. However, if a vehicle is traded in, a customer never receives or opens the recall letter, or if the manufacturer is not forthcoming about a recall or delays taking action, communication could come too late for dealerships. It’s far better to check before agreeing to take in a trade or buy a vehicle at auction. Some manufacturers such as Subaru offer information on their own websites where consumers and dealers can check the recall status of vehicles. For others, there are government funded websites to look up recall statuses. These include the NHTSA’s Vehicle Detail Search, and SaferCar.gov. All of the above require only the VIN to look up recall information, making it easy for BHPH dealerships to ensure they are not adding used cars with open recalls into their inventories. If a vehicle has an open recall, the best advice for BHPH dealerships is the same as that Rosemary Shahan gave consumers: don’t haggle for a better price (what she calls a “death trap discount”), but simply walk away from the vehicle. In the case of BHPH dealers, this applies to trade ins as well. Unless you know that you can get the recall fixed quickly, have the months to wait until it is done, or plan to accept whatever scrap value you can  for the vehicle, it’s best not to accept the trade at all.

Concerning used cars with open recalls that are already on your lot, there are two recommendations. The first is suggested by advocates: fix the vehicles before they are sold – although some recalls such as those on Takata airbags involve long wait times, others do not. As much as possible, ensure recall repairs are completed before used cars leave the lot. Check existing vehicles for recalls as well. If for example you have three pre-owned Honda sedans on your lot and two have already been repaired, it  would be wise to sell the two that are ready and put the third on the waiting list for recall repairs. If that’s not possible, NIADA recommends that you inform potential buyers of open recalls, whether it is required in your state or not. Best practice is to tell buyers about any recalls well before finalizing the deal. This also provides the opportunity to show customers other vehicle options with no open recalls while creating a positive rapport. Keep in mind the power of a customer review in today’s digital age. A customer who realizes that there is an open recall only after they have nearly finalized the deal is likely to not only to walk away from your dealership entirely, but also to post negative feedback on consumer ratings sites and social media. That can affect your online reputation as well as other consumer’s decision to buy from you.

Although the current situation involving pre-owned vehicles with open recalls has many BHPH dealerships caught in something of a catch 22, the above information can help minimize potential problems along with the tragedies and legal troubles that sometimes follow. Until the debate about legislation can be settled, BHPH dealers would do best to avoid accepting trades, purchasing or selling used cars with open recalls.

Sources:
Kim Kamando
Lawyers.com
NBC – Used Cars with Open Recalls
NBC – Honda Recalls on Older Vehicles
NBC – Subaru Recalls
USA Today

Related Posts

FTC Safeguards Rule changes may affect many dealerships - Image of law books, globe, and lady justice statue on desk
FTC Safeguards Rule Changes and What They Mean for BHPH Dealerships
dealership sales team - white and black man shake hands over table
Building a Dealership Sales Team: Who to Hire and Who to Avoid
BHPH Marketplace Invites Dealers to the Cut to the Chase Conference November 15-17th

Leave a Comment or Review. All reviews will be verified.