NEW OR USED CAR? THE POSTER CHILD FOR REGULATORY CONFUSION!
By: Keith E. Whann
When it comes to selling a car, one would assume that it is relatively
easy to determine whether it is new or used. Dealerships have new
and used car departments, newspapers have classifieds fro new and
used car categories, and service contract and finance programs
differ depending upon whether a vehicle is new or used. In reality,
however, this issue is one of the most complicated a motor vehicle
dealer has to deal with. There is a maze of Federal and State Laws
that impact whether a motor vehicle is characterized as new or
used, including the Automobile Information Disclosure Act (The
Monroney Law) and the Federal Trade Commission’s (FTC) Used Car
Rule, Federal and State Taxation Laws, State Unfair and Deceptive
Acts and Practices (UDAP) Statutes, and State Titling and Advertising
Laws. As strange as it may sound, there may even be times when
a motor vehicle is appropriately characterized as both new and
used at the same time depending on which Law you are applying.
The logical starting point in determining whether a vehicle is
new or used is the definition of a new motor vehicle under the
Automobile Information Disclosure Act. This Act defines a “new
automobile” as “an automobile the equitable or legal title to which
has never been transferred by a manufacturer, distributor or dealer
to an ultimate purchaser.” Many State Titling Laws use a similar
standard, differentiating between new and used motor vehicles on
the basis of whether a vehicle has been titled in the name of an
ultimate purchaser or end-user. While the application of these
standards seem straightforward, the analysis becomes more complicated
when mileage is put on a vehicle before it is sold to an ultimate
purchaser.
Consider this set of facts from a case that came before the Florida
New Motor Vehicle Dealer Administration Board. In Germain v. General
Motors Corporation, the manufacturer argued that a vehicle returned
by the consumer pursuant to Florida’s Lemon Law was not covered
under the Lemon Law because it was not a new or demonstrator vehicle.
The vehicle was used by an employee of the manufacturer as a “company
car” for approximately one year before it was sold at retail to
the consumer. At the time of sale, the Purchase Agreement, the
Used Vehicle Buyer’s Guide affixed to the window of the vehicle,
and the application for title submitted by the selling dealership
all identified the vehicle as “used,” which was the correct disclosure
under the FTC’s Used Car Rule. The FTC defines a “used vehicle”
as “any vehicle which has been driven more than the limited use
necessary in moving or road testing a new vehicle prior to delivery
to a consumer…” However, after considering Florida’s definition
of a used motor vehicle, the prior use of the vehicle, and the
fact that neither the manufacturer nor the dealer had transferred
title or possession of the vehicle to an ultimate purchaser prior
to its acquisition by the consumer, the Board declared that it
was “new” for purposes of Florida’s Lemon Law.
Federal and State Taxation Laws and State Advertising Laws may
produce yet a different result. For example, Federal Revenue Procedure
2001-23, which provides an alternative last-in, first-out (LIFO)
inventory computation method for taxpayers that sell used vehicles,
clarifies that the term “used vehicle” for purposes of the Used
Vehicle LIFO Method refers to previously titled vehicles and does
not include demonstrator vehicles. State Advertising Laws will
typically include another set of definitions for “new” and “used”
vehicles and “demonstrator,” “factory official,” and “executive”
vehicles as well. While one State may include demonstrator, factory
official and executive vehicles in the definition of “new” for
purposes of advertising disclosures, others may require dealers
to advertise such vehicles as “used.” In a few states there is
even a category of “new demonstrator.” In Ohio, for example, a
“demonstrator” means “a new motor vehicle of the current or previous
model year, for sale only by an authorized dealer of the same make
and model, which is available for demonstration purposes to prospective
purchasers whether operated by the dealer, its agents or employees,
a third party or prospective purchaser, and has been driven less
than six thousand miles.
Keep in mind that most State UDAP Statutes and Advertising Rules
require that any material statements be reduced to writing and
integrated into the Retail Purchase Agreement for the transaction.
If a Monroney Sticker is posted in the vehicle’s window together
with an FTC Buyer’s Guide and the Retail Purchase Agreement identifies
it as a new demonstrator vehicle, the dealer is well advised to
explain in writing whether the vehicle is new or used and under
which regulations. The actual disclosures made will depend upon
State Law. Whether a vehicle is new, used or a demonstrator may
also impact a number of other disclosures made in connection with
the sale, such as the warranty statement (i.e. whether or not the
vehicle may be sold “As-Is” under State Law), state inspection
disclosures, and the sales tax calculation.
As is often the case in the motor vehicle industry, something
that appears simple at first blush can turn out to be very complicated
given the maze of laws and regulations that govern the issue. And
this is even before taking into consideration vehicles returned
when financing cannot be obtained as contemplated with a spot delivery.
Considering the issues raised in this article, bringing up-to-date
your Retail Purchase Agreement and modifying your sales procedures
is the first step to eliminating this regulatory confusion.
The
information contained herein has been provided by Keith E. Whann
of the Law Firm Whann & Associates, LLC
and is for general information purposes only. You should contact
professional
counsel regarding specific application of the information.
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