Re­called cars cre­ate a costly prob­lem for US auto deal­ers

The Pak Banker - - BUSINESS -

NEW YORK: Honda Mo­tor Co's (7267.T) or­der that its U.S. deal­ers stop sell­ing some 2.2 mil­lion of the au­tomak­ers' most pop­u­lar mod­els is com­pound­ing fi­nan­cial and reg­u­la­tory headaches for car deal­ers stuck with mil­lions of ve­hi­cles that have po­ten­tially haz­ardous air bags or other safety de­fects. With the re­calls af­fect­ing Honda ve­hi­cles dat­ing back sev­eral years, used-car deal­ers are fac­ing in­creased pres­sure. It is le­gal un­der fed­eral law to sell used cars with un­re­paired safety de­fects that are sub­ject to re­call, but deal­ers that op­er­ate un­der fran­chises with man­u­fac­tur­ers could be vi­o­lat­ing those agree­ments. It is il­le­gal to sell new cars that are sub­ject to a re­call un­der fed­eral law.

Be­cause some used-car deal­ers op­er­ate in­de­pen­dently of any man­u­fac­turer, the grow­ing num­ber of used cars that need safety re­pairs is cre­at­ing divi­sions among deal­ers. The Na­tional High­way Traf­fic Safety Ad­min­is­tra­tion says this dif­fer­ence creates a "safety loop­hole." John Isaac­son, a Honda dealer in Auburn, Maine, said he was hit by three re­calls the same day, but would re­spect Honda's ban. "If peo­ple are sell­ing th­ese with open re­calls, cus­tomers get mad," Isaac­son told Reuters.

"Over time, it's not good for busi­ness." Reg­u­la­tors have taken steps to ad­dress sales of used cars sub­ject to safety re­calls. In a set­tle­ment last month with Gen­eral Mo­tors Co (GM.N) and two dealer groups, the Fed­eral Trade Com­mis­sion warned au­tomak­ers and deal­ers not to claim that used ve­hi­cles sold as "cer­ti­fied pre-owned" cars had un­der­gone com­pre­hen­sive in­spec­tions if re­pairs re­quired un­der a re­call had not been done.

"Com­pa­nies tout­ing the com­pre­hen­sive­ness of their ve­hi­cle in­spec­tions need to be straight with con­sumers about safety-re­lated re­calls," Jes­sica Rich, di­rec­tor of the FTC's Bureau of Con­sumer Pro­tec­tion, said in a state­ment. As in Honda's case, man­u­fac­tur­ers some­times is­sue a "stop sale" on mod­els sub­ject to re­call and can pe­nal­ize their fran­chise deal­ers if they sell such cars. The head of the Cal­i­for­nia New Car Deal­ers As­so­ci­a­tion, Brian Maas, said one of his mem­bers had 15 per­cent of his in­ven­tory af­fected by the Honda re­call.

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