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What’s Hot on the Hotline? Total Recall(s)

Robert Ebin /
row of cars

Based on the title of the article, some of you may think this will be about the 1990 classic sci-fi action-adventure movie starring Arnold Schwarzenegger and Sharon Stone (I refuse to acknowledge the remake from 2012). Although the movie Total Recall gave us classic one-liners like “Consider that a divorce!” and “Give those people air!” (sadly) this article will not about 90s cinema nostalgia. Instead, as perhaps many of you expected, this article centers on the world of automotive recalls. Although we have touched on this subject a few times in the past, judging by the sheer number of calls we have been receiving on the Hotline about recalls, the topic is as relevant as ever. Accordingly, here are the most frequently asked questions we have received recently on the Hotline regarding recalls.

Can I sell a new vehicle with an open recall?

No. The Federal Motor Vehicle Safety Act prohibits dealers from selling new vehicles that are subject to open recalls issued either by NHTSA or the manufacturer. [See 49 USC § 30120(i)(1)]. Accordingly, if a new vehicle has an outstanding safety recall, the recall must be completed before the vehicle can be sold. If there is no current remedy/fix available or, as we have been hearing lately, the parts are on backorder, you must not offer the vehicle for sale. Remember, the contrary is also true—if the recall has been completed, you can offer the vehicle for sale.

Can I at least advertise the new vehicle with an open recall to line up buyers?

No. California law prohibits advertising vehicles that are not actually for sale and requires that an advertisement must be withdrawn with 48 hours of withdrawing a vehicle from sale.  Since a dealer is prohibited from selling a new vehicle with an open recall, so too is the dealer prohibited from advertising that vehicle in California. [Vehicle Code §§11713(b); 11713(c); 11713(i)].

I have a lot of new vehicles in inventory with unactionable recalls, is there any recourse I have against the manufacturer?

Federal law does require automakers to provide compensation to dealers for new vehicle inventory that cannot be sold due to an open recall in a couple of different ways.  [49 U.S.C. § 30116(a), (b)]. Franchise documents or communications with the manufacturer may set forth a process for applying for recall compensation. If not, dealers should inquire with their factory reps about the procedures they have in place for filing recall compensation claims. A manufacturer who fails to comply with the statute can be sued by a dealer for damages, court costs, and reasonable attorney’s fees. [49 U.S.C. § 30116(c)].

What about selling a used vehicle with an open recall?

The federal Motor Vehicle Safety Act does not apply to used vehicles.  Also, there is no California equivalent law that directly prohibits selling a used vehicle with an open recall.  With that said, this should not give dealers carte blanche to sell used vehicles with open recalls, and in fact, dealers should proceed with caution.  There are many things a dealer must consider when deciding whether to offer for sale a used vehicle with an open recall.

What do dealers have to consider when deciding whether to sell a used vehicle with an open recall?

The first thing that a dealer must do is to determine whether there is an open recall on the vehicle and whether the open recall is actionable.  Dealers can determine this in a couple of different ways.  If the vehicle is the same make as your franchise, likely you will have access to factory communications or a repair history database that will notify you about the open recall and whether a fix or parts are available.  Another tool in the toolbox is for the dealer to enter the vehicle’s VIN at https://vinrcl.safercar.gov/vin/ and https://www.nhtsa.gov/recalls. If the vehicle is off-brand, you may also want to reach out to a dealer with the vehicle’s franchise to obtain any additional information about the recall status. If the recall is actionable, meaning that there is a fix and the parts are available, the decision is relatively easy for the dealer, as the recall should be completed prior to offering the vehicle for sale. 

If a recall is determined to be unactionable, meaning that there is no remedy/fix or the parts are unavailable, the calculus becomes a bit more complicated for the dealer.  You will first want to determine whether your dealership’s policy allows for selling used vehicles with open recalls (some dealers have a conservative blanket policy of not selling at retail used vehicles with open recalls). 

Next, you will want to determine what, if any, obligations your dealer has regarding its franchise agreement and/or other ancillary automaker contracts related to selling such a vehicle. For example, if your automaker issues a “Stop Sale Order” on a vehicle, an agreement with the automaker may require you to treat such a vehicle differently, or even prevent you from selling it.

Even if your automaker agreements do not prohibit you from selling such a used vehicle, the fact that a “Stop Sale Order” was issued generally means that the recall involves a higher degree of safety concerns.  This leads to my next point—California law generally prohibits the sale of a vehicle that fails to comply with Federal Motor Vehicle Safety Standards as well as the safety and equipment requirements of Division 12 of the Vehicle Code (commencing with section 24000). [Vehicle Code § 24007]. Since a recall may very well involve state or federal safety standards, that recall could indirectly implicate a used vehicle in your inventory. This is where common sense and communication with your service department come into play. If the unactionable recall pertains to an issue your service department confirms is a relative “non-safety” issue, such as a labeling concern, then it may ok to retail the used vehicle as long as the open recall is disclosed properly (more on this below). However, you should think twice if the recall poses a significant safety issue, especially if it can result in injury to the vehicle’s occupants. Prior to selling any vehicles with open recalls, we recommend collaborating with competent counsel to create policies and procedures on disclosing the recall and determining whether the vehicle is able to be retailed.

So, will disclosing an open recall to the customer fully protect my dealership from future liability regarding the recall?

Disclosing that the used vehicle has an open safety recall without a potential fix, and having the customer sign something acknowledging this, can potentially protect you from claims of misrepresentation or unfair or deceptive acts and practices.

However, the acknowledgment likely cannot be used to disclaim away allegations of product liability. This means that if the customer gets into a motor vehicle accident because of an issue directly (or even indirectly) related to the recall, the dealer can still be held liable even though the customer knew that the recall existed when the customer purchased the vehicle. Additionally, this acknowledgment would not protect the dealer from any potential third-party claims if there were third parties involved in the motor vehicle accident. Again, this is why we recommend collaborating with competent counsel to develop policies should you decide to sell used vehicles with open recalls.

Questions?

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 [email protected].

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