One of the first questions a customer will likely ask about a vehicle is whether it is new or used. While the question might seem basic, some perceive the answer not to be as straightforward. And most of us know that the wrong answer to this question in California could have dire consequences. During these times, dealers are facing stronger than expected demand for vehicles coupled with thinning inventories. As the saying goes, necessity breeds ingenuity, and dealers are finding creative ways of replenishing their stocks. However, this inventiveness can lead dealers to encounter and acquire certain vehicles that they may not have even considered in the past, or from sources that they may not have used before, which can potentially lead to confusion about whether a vehicle is new or used. For many of you reading this article, some, if not most, of the information should not be anything unfamiliar. However, the hope is that you will use this article as a reference and a guide when answering the “new v. used” question, especially given this current climate.
What is “New” and What is “Used” and Why Does This Matter?
Vehicle Code section 430 defines a “new vehicle” as a vehicle constructed entirely from new parts that has never been the subject of a retail sale, or registered with the DMV, or registered with the appropriate agency or authority of any other state, District of Columbia, territory or possession of the United States, or foreign state, province, or country.
Conversely, a “used vehicle” is a vehicle that has been sold, or has been registered with the DMV, or has been sold and operated upon the highways, or has been registered with the appropriate agency of authority, of any other state, District of Columbia, territory or possession of the United States or foreign state, province or country, or unregistered vehicles regularly used or operated as demonstrators in the sales work of a dealer or unregistered vehicles regularly used or operated by a manufacturer in the sales or distribution work of such manufacturer. [Vehicle Code § 665].
As you can see, essentially a used vehicle is any vehicle that does not fall under the definition of a “new vehicle.” Accordingly, if a vehicle has ever been sold, registered, or both, or has been a demonstrator or a manufacturer sales or distribution vehicle (for example, a brass hat), it is a used vehicle under the definition. Thus, chances are that if you must ask whether a vehicle is new or used, the vehicle will probably be a used vehicle under California law. But why is this distinction between new and used so important? Well for one, stating that a vehicle is new when it is really used can be construed as a misrepresentation. Moreover, there is a clear prohibition for doing so. Vehicle Code section 11713(d) instructs that it is forbidden for dealers to “advertise or represent a vehicle as a new vehicle if the vehicle is a used vehicle” (emphasis added).
Other Vehicles That Are Deemed Used by Law
There are also specific types of vehicles that are deemed to be used by law. You saw a bit of this above in the definition of “used vehicle,” which included demonstrators and manufacturer sales or distribution vehicles, but Vehicle Code section 11713(t) also provides that vehicles used by dealers as demonstrators (yes, the Vehicle Code doubles down on this), executive vehicles, service vehicles, rentals, loaners, or lease vehicles are automatically considered used.
Disclosure on Contract
California law prohibits dealers from entering into a retail sale contract for a vehicle unless the contract clearly and conspicuously discloses whether the vehicle is “new” or “used” in the red “New/Used” box. [Civil Code § 2982(q)]. The law does not allow anything other than “new” or “used” to be placed in the box. In this connection, you will want to routinely check that your DMS is properly programmed to correctly show “used” on the contract when required, especially for those other vehicles deemed to be used by law discussed above. Particularly regarding demonstrators, executive vehicles, and other unregistered vehicles, we have had reports of systems automatically classifying these as new vehicles at times because the system never detected that the vehicle was taken out of new vehicle inventory.
Dealers must also be aware that this new/used designation must be correct on all other documents in the deal file as well as in all communications with customers. The only exception to this is with DMV documentation for certain unregistered vehicles. For example, since a demonstrator has never been registered before with the DMV, it must be registered using a new vehicle report of sale. However, all other documents should avoid describing the demonstrator as a “new” vehicle. You can read more about demonstrators in our Demonstrator FAQ article.
Regarding leases, the California Vehicle Leasing Act does not contain any specific language mandating how this disclosure requirement applies to lease contracts. With that said, if your lease contract has a place for this disclosure, you must accurately and faithfully disclose the vehicle’s history in that box/section, as any inaccuracy can be construed as a misrepresentation.
Rollbacks and Unwinds
A rollback is when a customer takes delivery of the vehicle and operates it causing registration fees to be due, and the transaction is rescinded for whatever reason (many in the industry use the term “unwind” to describe this process even though the DMV identifies this as a “rollback”). A dealership can disclose a vehicle as new on the second contract (i.e., a “rewrite”) if the second contract is for the same vehicle and has the same purchaser(s). If a party is removed from a two-party contract (i.e. a co-buyer is removed), then the vehicle is still designated as new on the rewritten contract. However, if the second contract adds another party, or there is a new purchaser entirely, the second contract must designate the vehicle as used.
When a deal is unwound (many in the industry refer to this as a “void”), the customer never took possession of the vehicle, and the vehicle can still be designated as new on a subsequent contract.
For more on rollbacks and unwinds, refer to our Unwinds and Rollbacks. . . What’s the Difference? article.
This could be an entire article on its own but suffice it to say, false filing of RDRs is a bad idea and may be a violation of the Vehicle Code. [See Vehicle Code § 11713.1(u)]. With that said, when a dealer punches a unit as a demonstrator, the dealer should follow through with the normal procedures for a demonstrator, whether or not the vehicle was operated as such. Accordingly, we recommend punched vehicles to be described as “used.” Of course, circumstances surrounding these vehicles may differ, so dealers are encouraged to consult their own counsel in this regard.
We know that these times are hard, and everyone everywhere has been affected by this global pandemic. We are all in this together, and this too shall pass. Hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or [email protected]. We are here to answer any questions you may have.