Over the last 18-months, we have entered what could be deemed the era of the recall. NHTSA reports that 2014 was a record breaking year for recalls, with more than 800 recalls, effecting nearly 64 million vehicles. These numbers are not slowing in 2015.
2015 finds NHTSA cracking down on manufacturers who fail to timely issue recalls. In May 2014, NHTSA announced it was levying record fines against manufacturers for recall violations. This trend continued into 2015. In July, NHTSA fined Fiat Chrysler a record-breaking $105 million and ordered the manufacturer to repair or repurchase thousands of recalled vehicles. In doing so, NHTSA sent a strong statement to manufacturers: put consumer safety first, or be forced to pay the price. Manufacturers are taking heed, continuing to recall vehicles at a record breaking pace, and issuing mandatory “Stop Sale” orders for many new and used recalled vehicles.
The increase in manufacturer recalls creates both benefits and burdens for dealerships. In some instances, the increase in the number of recalls may strengthen the dealership’s bottom line. Recall work provides a steady stream of service and repair work funded by the manufacturer. When an owner comes into the dealership, your sales personnel are able to provide repairs and replacement parts at no cost to the customer. This “free” service helps to foster goodwill, and hopefully repeat business, from your customer.
Problems occur when the parts affected by the recall are back-ordered or unavailable. In these cases, dealerships are faced with angry customers who may blame the dealership for the lack of available parts. Not only is this bad for business, but it can affect a dealership’s CSI. This becomes particularly problematic when your dealership’s pricing and bonus programs are linked to your CSI.
Of greater concern to a dealership, however, is the issuance of a “Stop Sale” order from your manufacturer, directing you to suspend the sale of certain recalled new and used vehicles. These “Stop Sale” orders are somewhat common when it comes to new vehicles. The Federal Motor Vehicle Safety Act has long prohibited the sale of certain new vehicles that contain safety defects. However, dealerships have always been protected from the financial pitfalls of “Stop Sale” orders of new cars: under the FMVSA, dealerships are entitled to reimbursement for down time, and in some cases the Act may require the manufacturer to buy back the vehicle.
Recently however, manufacturers have begun to issue “Stop Sale” orders for used vehicles containing safety defects, and questions have arisen regarding what obligations, if any, dealerships have to comply with these orders. Many dealers may not want to side line a used vehicle in inventory, particularly when the part necessary to repair the recall is back-ordered or unavailable. Are dealers required to comply with the manufacturer’s demand to set aside the vehicle until a replacement part becomes available?
The answer is far from clear. Unlike new vehicles, federal law does not prohibit the sale of recalled used vehicles. However, ignoring a “Stop Sale” order on a used vehicle could be disastrous for a dealership. The manufacturer may consider it a breach of your dealer agreement to ignore their order. Moreover, continuing to sell a recalled vehicle after receiving a “Stop Sale” order could subject you to liability from a customer who suffers an accident as a result of a defect in a recalled vehicle. Further, by ignoring a “Stop Sale” order, you may be giving the manufacturer just the ammunition it needs to deny your dealership indemnification for the defect.
So, what should your dealership do when faced with mounting recalls? Be proactive when dealing with recalls. Check the recall status of all used vehicles before accepting a trade-in, and continue to check the status while the vehicle remains on your lot. If you find an open recall on a vehicle, fix it and demand prompt, full reimbursement from your manufacturer. Do not ignore the manufacturers “Stop Sale” order. Instead, use the recall as an opportunity to increase your service and repair work, thereby making your dealership more money. And finally, make sure you know how to seek reimbursement from your manufacturer for down time as a result of a vehicle recall.