Wow, can anyone else believe that it’s December already? This year really has seemed to fly by. I find that towards the end of every year, I tend to reflect on what happened during the past year. Reflection, I believe, is an important part of growth, and ultimately, success. In reflecting on this past year about the issues our auditors have spotted during their deal jacket audits, one of the most frequent discussions that came up was about dealer warranty coverage. Specifically, dealers who were providing their own warranties were not providing customers with a separate warranty document. Accordingly, in this spirit of reflection, this article will remind everyone what obligations a dealer has when it provides its own warranty on a used vehicle.
Now, we all know that dealers must place a Buyers Guide on all used vehicles for sale. So, there is no surprise that when offering a dealer warranty on a used vehicle, you have to display a Buyers Guide that properly discloses that the dealer is offering a warranty (typically, your Buyers Guide will indicate that the warranty is “limited” because I have generally not heard of a dealer offering a full warranty, nor have I heard of any dealer warranty meeting the requirements necessary to be deemed “full”), the percentage of costs the warranty covers, the systems the warranty covers, and the duration of the coverage.
However, when a dealer offers a warranty, the dealer must comply with the Magnuson-Moss Warranty Act and other FTC rules, including the Warranty Disclosure and Pre-Sale Availability Rules. Under the Warranty Disclosure Rule, the dealer must disclose in a single, clearly worded document the warranty coverage offered by the dealer’s warranty and the consumer’s rights. Remember, the Buyers Guide itself is not your written warranty, and it alone does not satisfy your obligations under the rule. The warranty must be a separate document from the Buyers Guide.
Under the Pre-Sale Availability Rule, the dealer, as the “warrantor,” must make the text of the warranty readily available to prospective purchasers. What this means is that the dealer must either display its written warranty in close proximity to the vehicle or place prominent signs advising prospective buyers of the availability of the written warranty to be furnished upon request.
So, what are some things that your warranty needs to have? Below is a list of guidelines for your warranty.
- State whether the warranty is “full” or “limited.” Remember, in order for your warranty to be “full” it must meet a variety of different requirements. These include free warranty service to anyone (even future owners), allowing a customer to choose either a replacement vehicle or a refund if the vehicle cannot be repaired after a reasonable number of attempts, allowing the consumer to merely give notice that a service is needed, and not limiting the length of implied warranties. Essentially, if your warranty does not meet any one of these conditions, it is a “limited” warranty. And in my experience, I have not seen too many dealers out there who offer a “full” warranty. Click here for more information from the FTC on full vs. limited warranties.
- Identify and have a clear description of the systems, parts, components, etc. that are included and that are excluded under the warranty (i.e., “battery not covered under warranty”).
- Indicate how long the warranty coverage lasts for each system, part, component, etc. that is covered under the warranty, and indicate when the warranty starts (i.e., when the vehicle is purchased).
- Include a statement of what the dealer will do in the event of a defect, failure, or malfunction of a covered system, part, component, etc. to conform to its warranty. Also include the percentage of repair costs covered by the dealer.
- Have an explanation of how a customer gets warranty service. This means, that at a minimum, you should include the name, address, and telephone number of the person/entity to call concerning warranty service.
- Indicate who is covered by the warranty. For example, “warranty covers only the original purchaser” or “commercial use excluded.”
- Include the following disclosure: “This warranty gives you specific legal rights, and you may also have other rights which vary from state to state.”
- Disclose any obligations that the consumer has, if any, as a condition to receiving warranty service (i.e., all warranty work must be performed at the dealership).
- If you wish to limit the duration of implied warranties, include: “Some states do not allow limitations on how long an implied warranty lasts, so the above limitation may not apply to you.” Remember, under California’s Song-Beverly Consumer Warranty Act, if an express dealer warranty is offered on a used vehicle, then the implied warranties of “fitness for intended purpose” and “merchantability” run concurrently for the duration of the dealer warranty, but in no circumstance will the implied warranties run for less than 30 days or more than three months (regardless of the length of the dealer warranty). Even though the duration of the implied warranties is set by California law, some dealers still insert a sentence in their warranty document, such as: “Any implied warranty is limited to the minimum period permitted by federal and/or state law.” If your warranty documents include such language, you must then quote the precise wording mentioned above.
- If you wish to exclude/limit consequential or incidental damages, you must include the following disclosure: “Some states do not allow the exclusion or limitation of incidental or consequential damages, so the above limitation may not apply to you.” From my experience, all dealers generally want to limit incidental and consequential damages, and so this statement is a must in your warranty document.
Below are some additional helpful links to review when crafting your dealer warranty. Remember, these guidelines are by no means all-inclusive, and we highly recommend dealers have their warranties reviewed by competent legal counsel.
If you have any questions regarding this, or any other situation that may arise in your sales or service departments, hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or firstname.lastname@example.org.