IS IT A NEW OR USED VEHICLE? THE ANSWER MAY SURPRISE YOU!
By: Keith E. Whann
Whann & Associates, LLC
When it comes to selling a car, nothing seems easier than determining
whether it is new or used. In reality, nothing is further from
the truth. 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 Maroney 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.
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 these standards seem straight
forward, 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.”
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 Maroney Sticker is posted in the vehicle’s window together
with a 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 standards. The disclosure may 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 usual, something that appears simple at first blush can be pretty
complicated given the maze of regulatory and legal issues that
must be considered. Having an up-to-date Retail Purchase Agreement
and related sales documents is the first step. Understanding the
issues raised in this article and the accompanying thought process
will help to ensure that you complete them appropriately.
The information
contained herein has been provided by Keith E. Whann of the law
firm Whann & Associates and is for general
information purposes only. You should contact professional counsel
regarding specific application of the information. |
