BILL ANALYSIS Ó
AB 1534
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1534 (Wieckowski) - As Amended: March 14, 2012
SUBJECT : VEHICLES: DEALERS: USED VEHICLE SALES: LABELING
REQUIREMENTS
KEY ISSUE : SHOULD AUTO DEALERS BE REQUIRED TO AFFIX A LABEL TO
EACH USED VEHICLE FOR SALE DISPLAYING THE REASONABLE MARKET
VALUE OF THAT VEHICLE, AS DETERMINED BY A NATIONALLY RECOGNIZED
PRICING GUIDE?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
Unlike new cars, which since 1958 have been required to display
a manufacturer's suggested retail price (MSRP) sticker, there is
no such requirement for used cars to display a retail price on a
window label or sticker. This disparity, the author contends,
allows some unscrupulous used car dealers in California to set
the price for a car based on information determined after
running the customer's credit report, or otherwise drastically
overprice a used vehicle for low-income consumers who cannot
afford a new car but are particularly compelled to obtain a car
for everyday needs. To protect consumers from unfair pricing,
this bill seeks to require that automobile dealers affix a label
to every used car for sale that states the reasonable market
value of the vehicle, as determined by a nationally recognized
pricing guide (e.g. Edmunds or Kelley Blue Book). The bill is
supported by a number of consumer advocate groups who contend
generally that the bill will strengthen transparency in the used
car industry and protect consumers from predatory pricing
practices. Car dealers who oppose this bill find this
requirement problematic because they contend a pricing-guide
valuation of the car is indicative of only the average retail
value of used cars of the same general category, not the actual
value of any specific vehicle, which may vary because of
legitimate differences in individual owner history and
condition. Opponents also contend that the scope of the bill is
unnecessarily broad to address problems caused only by a handful
of unscrupulous dealers and will increase administrative costs
of doing business.
AB 1534
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SUMMARY : Requires dealers to affix a label displaying the
reasonable market value of the vehicle on every used car for
sale. Specifically, this bill :
1)Requires an automobile dealer to affix a label on any used
vehicle being offered for sale that states the "reasonable
market value" of that vehicle, defined as the average retail
value based on the condition, mileage, year, make, and model
of the vehicle as determined within the last 30 days by a
nationally recognized pricing guide.
2)Requires the above label to meet all the following conditions:
a) Be in writing with a heading that reads "REASONABLE
MARKET VALUE OF THIS VEHICLE" in at least 16-point bold
type and text in at least 12-point type.
b) Be located adjacent to the window sticker identifying
the equipment provided with the vehicle, or if none,
located prominently and conspicuously on the vehicle.
c) Contain the information used to determine the reasonable
market value, including, but not limited to, use of a
nationally recognized pricing guide for used vehicles, and
the date the reasonable market value was determined.
3)Requires a dealer to provide to a prospective purchaser a copy
of any information obtained from a nationally recognized
pricing guide that the dealer used to determine the reasonable
market value of the vehicle.
4)Defines "nationally recognized pricing guide" as including,
but not limited to, the Kelley Blue Book, Edmunds, the Black
Book, or the National Automobile Dealers' Association (NADA)
Guide.
EXISTING LAW :
1)Requires all car dealers to provide a document indicating the
price of specified items purchased, (including, among other
things, any service contract, insurance product, debt
cancellation agreement, or theft deterrent device) and stating
the cost of the monthly installment payments with and without
the items listed. Further prohibits the dealer from adding
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charges to the contract without full disclosure to and consent
of the purchaser. (Civil Code Section 2982.2.)
2)Requires used car dealers, before offering a used vehicle for
sale to a consumer, to display a window sticker called the
"Buyers Guide" that must make several disclosures, including,
among other things:
a) A list of the fourteen major systems of an automobile
and defects that can occur in these systems.
b) A suggestion that consumers ask the dealer if a
pre-purchase inspection is permitted.
c) A warning against reliance on spoken promises that are
not confirmed in writing. (Title 16, Part 455.2 of the
Code of Federal Regulations.)
3)Requires the Buyers Guide to disclose whether any warranty is
offered and the basic terms of any warranty, and if no express
warranty is provided, then the Buyers Guide must indicate that
the vehicle is being offered for sale "as is" (with no express
or implied warranties), or with only the applicable "implied
warranties" required by state law. Further requires the
dealer, at the time of sale, to give the buyer the original
Buyers Guide displayed on the vehicle or an accurate copy that
in either case contains all of the required disclosures and
reflects the final warranty terms agreed on between the buyer
and seller. (Title 16, Part 455.3 of the Code of Federal
Regulations.)
4)Requires manufacturers of new automobiles, prior to the
delivery of any new automobile to any dealer, to securely
affix to the vehicle a label that discloses specified
information, including the following:
a) the retail price of such automobile suggested by the
manufacturer (MSRP).
b) the retail delivered price suggested by the manufacturer
for each accessory or item of optional equipment,
physically attached to such automobile at the time of its
delivery to such dealer, which is not already included
within the MSRP stated.
c) the amount charged, if any, to such dealer for the
transportation of such automobile to the location at which
it is delivered to such dealer. (15 United States Code §
1232.)
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COMMENTS : The author explains that the bill is needed to
protect consumers from predatory sales practices reportedly
employed by unscrupulous used car dealers, particularly those of
the so-called "buy here, pay here" variety. Unlike new cars,
which since 1958 have been required to display a manufacturer's
suggested retail price (MSRP) sticker, there is no such
requirement for used cars. This disparity, the author contends,
allows dealers to set the price for a car based on information
determined after running the customer's credit report, or
otherwise drastically overprice a used vehicle for low-income
consumers who cannot afford a new car but are particularly
compelled to obtain a car for everyday needs. To protect
consumers from unfair pricing, this bill seeks to require that
automobile dealers affix a label to every used car for sale that
states the reasonable market value of the vehicle, as determined
by a nationally recognized pricing guide (e.g. Edmunds or Kelley
Blue Book).
Determining reasonable market value for used cars. The concept
of "reasonable market value" as it applies to used cars is a
source of contention between supporters and opponents of this
bill. Opponents of this bill contend that unlike new cars
(which by definition are all in brand new condition and have no
prior owner history), used cars of the same make, model, and
year may still vary in value because of differences in their
individual history and condition. These opponents find
problematic the bill's requirement that every used car be
labeled with a "reasonable market value" representing the
average retail value according to a pricing guide such as the
Kelley Blue Book, because they contend such a valuation of the
car is not indicative of the actual value of any specific
vehicle.
For example, the California New Car Dealers Association (CNCDA)
explains why, in its view, an individual inspection can be
crucial to an accurate appraisal, stating "When determining the
price at which to sell a specific used vehicle, a dealer
performs an extensive inspection of the vehicle, including
emissions equipment, tire wear, brake pad levels, interior
condition, etc. Depending upon the result of the inspection . .
. the appraisal may vary by thousands of dollars." CNCDA
expresses concern that the individual history and condition of a
vehicle offered for sale will be overshadowed by the reasonable
market value required to be posted on the vehicle under this
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bill, stating: "Any price above the posted 'reasonable market
value' will be presumed unreasonable by the consuming public,
while any price at or below this artificial price will be
presumed reasonable. A dealer selling a vehicle in
below-average condition will now be armed with a third-party
valuation sticker providing the average price paid for the
vehicle." CarMax Auto Superstores, also in opposition to the
bill, writes: "As a vehicle sits on a dealer's lot, it
depreciates. Thus the 'reasonable market value' on the sticker
will likely be superficially higher than the actual value of the
vehicle as the 30-day time frame provided in the bill accrues.
Instead of helping consumers, the label required by this bill
will mislead them."
While it stands to reason that a more precise and objective
valuation of a particular car can be determined from a more
thorough and individualized inspection, it should be noted that
used car dealers are not currently required to reflect any such
information in the asking price of the car. There is a
distinction between a relatively objective valuation of a car's
worth, based on condition, mileage, and other factors, and the
subjective asking price of a used car that reflects the seller's
desired profit margin. While fair dealing between an honest
dealer and a rational purchaser would presumably result in
bargaining of a reasonable final price somewhere between the two
amounts, the intent of this bill is apparently to address those
situations where the asking price for the car is grossly
incongruent with any reasonable or objective valuation of the
car. In support of the bill, Consumer Action reports that it
"receives numerous complaints from car buyers who needlessly
overpay by thousands of dollars because they trust the verbal
promises of car salesmen who assure the buyer that the vehicle
is fairly priced. Only after the sale do they learn that the
dealer's pricing was far higher than the vehicle's genuine
value."
In short, bill proponents do not contend that the reasonable
market value for a car as determined by a pricing guide
necessarily represents a more accurate value of that particular
car than can be determined by the closer scrutiny of a more
detailed appraisal. They do note however that: (1) pricing
guides like Kelley Blue Book typically reflect general
differences in vehicle condition in determining fair market
value; (2) the bill specifically provides that vehicle condition
is one of the bases for determining "reasonable market value";
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and (3) the bill already takes the transparent approach of
requiring the dealer to provide the prospective buyer with a
copy of the information obtained from the pricing guide that the
dealer used to determine the reasonable market value of the car.
In any case, proponents contend, this bill offers a reasonable
solution to help protect consumers against abusive pricing
practices, especially in situations where the consumer has no
third-party information to compare to an asking price
represented by the dealer to be fair. Even if, as opponents
contend, the amount cited from a pricing guide happens to exceed
the more "accurate" value of the vehicle as determined by the
dealer because of either adjustment for condition or
depreciation within 30 days, under this bill consumers would
still be protected from agreeing to an asking price that far
exceeds the average sale price for a similar year, make and
model.
ARGUMENTS IN SUPPORT : Consumers for Auto Reliability and Safety
(CARS) contend that this bill is especially needed to protect
consumers who have poor credit or no history of credit,
including students, recent immigrants, and enlisted military
personnel and their families. With respect to the latter, CARS
cites a Los Angeles Times article stating "Military men and
women are singled out near bases all over the country for
fraudulent car repairs and unfair lending practices, according
to consumer groups and military assistance organizations.
Operating outside the gates of major bases, some car repair
shops and dealerships prey on military families, particularly
when a husband has been shipped out of the country."
ARGUMENTS IN OPPOSITION : CarMax also expresses concerns that by
adding yet another sticker to be displayed on all used cars for
sale, this bill increases the cost of doing business and creates
unnecessary waste. CarMax states that it already places two
large stickers in the window of every car they sell, namely the
current window pricing sticker and the federally-mandated
Buyer's Guide. They explain that "if these stickers are not
removed (before test drives), the vehicle may not be safe to
drive due to drastically reduced visibility, and this results in
unnecessary waste because . . . new stickers have to be
re-affixed thereafter."
The Independent Automobile Dealers Association of California
(IADAC) contends that the bill is unnecessarily broad to address
problems caused only by a handful of unscrupulous dealers. They
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state, "The used car industry is highly regulated by the DMV and
each new and used car dealer pays $40 per year to fund DMV
investigations to go after bad dealers and put them out of
business. In fact, last year with approximately 4 million new
and used cars sold in California, the DMV only received 9,280
complaints (of which) DMV took action against 453 dealers
including suspension and revocation of their licenses."
Pending Related Legislation: AB 1447 (Feuer) seeks to require
"buy-here, pay-here" car dealers to provide a minimum warranty
and other consumer protections to buyers or lessees. AB 1447 is
scheduled for hearing by the Assembly Judiciary Committee on the
same date as this bill.
SB 956 (Lieu) seeks to require "buy-here, pay-here" car dealers
to obtain a finance lender license and subject them to
regulation under the California Finance Lenders Law, among other
things. SB 956 is also scheduled for hearing in Senate
Judiciary on April 24th.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumers for Auto Reliability and Safety (CARS)
Consumer Action
Consumer Federation of California
Opposition
California New Car Dealers Association (CNCDA)
CarMax Auto Superstores, Inc.
Independent Automobile Dealers Association of California (IADAC)
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334