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What a dealer should do about recalled vehicles

July 1, 2016
By Dennis O’Keefe, CATA General Counsel
Dealers are asking, "How can I retail vehicles under recall and still protect myself?" The answer probably is not what we want to hear.
First of all, most dealers understand that they are prohibited by federal law from retailing new vehicles that are subject to recall. But how about used vehicles? 
Is a notice of the recall to my customer sufficient? What if I have my customer execute a Hold Harmless Agreement? How do recalls affect certified pre-owned vehicles? What are my obligations to notify customers in the service lane? And what are my concerns if I rent vehicles to customers?
As an example of a notice of an air bag deficiency, Carfax uses the following language: 
"Specifically, in some vehicles, the driver’s front airbag inflators could produce excessive internal pressure upon deployment. If an affected airbag deploys, the increased internal pressure may cause the inflators to rupture (break apart) and deploy abnormally. In the event of an inflator rupture, metal fragments could pass through the airbag cushion material possibly causing serious injury or fatality to you or others in the vehicle. Past ruptures like this have killed and injured vehicle drivers." 
Certainly, such language might dissuade a customer from purchasing this vehicle. But will it protect you, the seller, from possibly being sued and being held liable? Hardly! 
To the contrary, what such language accomplishes is to show that you, the dealer, had actual knowledge of a potential injury-causing condition and sold the vehicle notwithstanding — a recipe for a lawsuit.
Some manufacturers are suggesting notice language for possible future air bag recalls. Again, such notice, while valuable to the customer, would hardly protect you, as again you now have knowledge of a potential injury-causing condition.
What about having your customer sign a Hold Harmless Agreement? While such an agreement MIGHT protect you from a personal injury claim by your customer, it would not protect you from a claim from a passenger or third party who sustained injury due to a faulty air bag deployment or other recall defect. Again, a recipe for a lawsuit.
So it appears the only way to protect against potential personal injury liability is to not retail the vehicle until it is fixed. This means potentially a lot of vehicles sitting on you lot and depreciating — not a pretty picture, but vastly superior to a multi-million dollar lawsuit.
What does this mean for CPO, "warranted" or "guaranteed" vehicles with open recalls? Back in January, as a result of investigations concerning this issue, the Federal Trade Commission entered into a consent decree with General Motors and several dealers which prohibits dealers from claiming their used vehicles are safe or have been subject to a rigorous inspection (CPO) unless they are free of unrepaired safety recalls or unless the companies clearly disclose the recalls in close proximity to the inspection claims. This standard would apply to all.
The so-called FAST Act (Fixing America’s Surface Transportation Act) of 2015 provides that a dealership can lose its federal statutory entitlement to be fairly reimbursed for performing safety recall repairs if it fails to notify an "in-brand" service customer of any unremedied safety recalls applicable to their vehicles, if their franchise, operating, or any other agreement with their manufacturer requires such a service lane notice.
With regard to rental vehicles, as of June 1, 2016, federal law prohibits any company or dealer with fleets greater than 35 vehicles to rent unrepaired recalled vehicles.
Because of all of the above, dealers might want to consult with their own counsel. However, the CATA urges all dealers to log on to the website on a regular basis, as it is frequently updated, to check the VIN numbers of all used vehicles in inventory prior to sale. The website apparently can retain the information as to who logged in to check a particular VIN, so use this feature to your advantage, not your disadvantage. Don’t let your employees make a mistake that will cost you! 
In the service lane, make sure you are notifying customers about in-brand service recalls, and obtain an acknowledgement from those customers stating either that they authorize recall work to be done, they are declining the recall work, or they will return to have the work done when the remedy becomes available.