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The Business Council of New York State, the state’s leading statewide business and industry association, opposes this legislation that would force automobile manufacturers to make unwarranted payments to auto dealers involving used vehicles subject to a recall.
This bill has the potential to negatively impact manufacturers, consumers and ultimately New York State, and does not address any legitimate public policy issue.
Auto manufacturers voluntarily support their dealers in a number of ways to ensure that customers have the best sales and service experience. However, this bill is based on the incorrect notion that a state law is needed to compel payments to dealers or else they will suffer grave financial harm – a notion that is not supported by historical facts in the industry and has not been substantiated by any actual current data.
It is difficult to find a rational justification for this bill as automobile dealers have continued to make profits over the past decade. In fact, dealer profits have continued even in the midst of a recent nation-wide airbag recall which is the largest recall in history – affecting over 40 million vehicles in the US. It would be bad public policy for state government to enter into this one particular aspect of one select segment of the economy in an effort to intercede in what is essentially a contract issue.
In reality, the situation is much different than presented in this legislation. Consumers are most at risk under this scenario since dealers shift the risk of loss to the consumer by offering less than market value on a trade-in that is subject to a recall without readily available parts. The dealer then sells the car at profit or waits until parts are available to sell the car at a larger profit. Therefore, this bill simply will add more profit to the dealers. However, the extra profit gained by the dealers will be paid for by the automaker - and ultimately by the consumer - as automakers will be forced to pass the cost along in the form of higher prices.
Worse yet, this bill discourages automaker policies that prohibit their dealers from selling unsafe used vehicles to the public thereby potentially affecting New Yorkers’ safety in the process.
Further, this legislation would mandate that manufacturers compensate dealers at a monthly rate of 1.75% (an annualized rate of 21%) of the value of a used motor vehicle as determined by the average “trade-in” value for a similar used vehicle, for as long as the dealer is unable to sell, offer to sell, or repair such vehicle due to the inability to satisfy any recall issues. Again, it is bad public policy for state law to interfere with contracts entered into by two private businesses. Based on consumer demand and technological advances, the automobile industry is ever-changing and should not be obstructed by protectionist state laws that ultimately harm consumers.
For these reasons, The Business Council opposes adoption of S.5365-A / A.1380-A.