New lawsuit could force used car dealers to repair recalled vehicles

February 8, 2017

Recalls have been making headlines for the past several years, but on used car lots, recalled vehicles aren't always easy to spot. That could change thanks to a new lawsuit filed against the U.S. Federal Trade Commission.

Recalls in the news

The recent crop of high-profile recalls began with General Motors' faulty ignition switches, which were ultimately linked to 124 deaths and 275 injuries. Takata's fatally flawed airbags have resulted in fewer deaths but, on the other hand, they've launched the largest automotive recall in U.S. history--one that isn't likely to wrap up for years. And of course, Volkswagen's Dieselgate fiasco has been causing headaches for Audi, Porsche, and VW owners since September 2015.

All of that attention on recalled vehicles has generated plenty of concerns among consumers and more than a few bills aimed at protecting the public from exploding airbags, fire hazards, and the like. One of those bills even became a law: in 2015, both houses of Congress passed the Surface Transportation Reauthorization & Reform Act of 2015.

Among the many regulations and updates included in the Act was one requiring rental companies to repair recalled vehicles before making them available to customers. Those companies had balked at such proposals for years, but the families of people who'd been injured or killed in recalled, unrepaired cars won the day.

However, the Surface Transportation Act contained at least one glaring omission: a requirement that used-car dealers repair vehicles with open recalls before selling them to the public. To this day, the practice is still perfectly legal.

Around the time that the Act was passed, massive retailer AutoNation saw the writing on the wall and announced big plans to repair all recalled vehicles before rolling them into showrooms. A year later, though, AutoNation abandoned that program: not only was repairing vehicles costing the company in lost sales, but CEO Mike Jackson also cited Donald Trump's win in the U.S. presidential election as a sign that legislative efforts to mandate repairs of used cars would stall.

Into the courts

And stall they have. As a result, consumer groups like Consumers for Auto Reliability and Safety, the Center for Auto Safety, and the U.S. Public Interest Research Group have filed a lawsuit against the FTC.

The angle of the case is a little interesting. The plaintiffs have focused their grievances on an agreement that the FTC reached with two dealership companies in January 2016. Per that agreement, dealerships can advertise vehicles as "certified pre-owned" even if those vehicles have outstanding recalls, so long as the dealerships disclose the existence and nature of those recalls before selling them to shoppers. 

Generally speaking, automakers forbid dealerships from advertising vehicles as "certified pre-owned" unless they've been through rigorous inspections and repaired for any safety problems. However, Ford recently told dealers that they can advertise vehicles as "certified", as long as (a) they don't include the word "safe" in their advertising, and (b) they have buyers sign waivers to indicate that they're aware the vehicle they're purchasing may be unsafe.

Ford's change in policy was sparked by the Takata recall and the parts shortages that have complicated it. Without replacement airbag inflators, dealers have been unable to advertise used vehicles as "certified", and so, Ford found a workaround.

To the plaintiffs in this case, that's a very slippery slope. They argue that consumers expect "certified pre-owned" vehicles to be free from defects. By that reasoning, labeling cars with open recalls as "certified pre-owned" is misleading, irresponsible, and potentially deadly.

Deirdre Cummings, the Legislative Director for the Massachusetts chapter of the U.S. Public Interest Research Group, puts it thusly: "The Federal Trade Commission is supposed to crack down on false and deceptive advertising. Instead, they are encouraging it. They should have protected consumers but chose to protect reckless car dealers."

Our take

Even in today's contentious political climate, when everything is spun for maximum effect, words still mean things. If a car is listed as "certified pre-owned", it implies certain benefits, certain things that consumers can take for granted. Shifting the definition of the phrase is potentially hazardous to consumers' health. On that argument alone, the plaintiffs would seem to have a strong case.

On the other hand, the courts have a long history of believing in the principle of "caveat emptor": buyer beware. The court could cite such precedents and side with the FTC.

We're not lawyers or judges, so we won't comment on the likelihood of one verdict versus another. But we'll do our best to keep you posted.

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