The MacNeil/Lehrer Report; Used Car Rule

ROBERT MacNEIL: Good evening. This year Americans will buy an estimated 35 million used cars -- about half of them from dealers, about half from individuals. Should the dealers have to tell the truth about the condition of the cars they sell? That's an issue now before the Congress. The Federal Trade Commission says that dealers have often misrepresented the mechanical condition of the cars they sold. The commissioners issued a rule requiring dealers to tell buyers the truth about mechanical defects. The rule will stand unless Congress vetoes it, but that's just what a lot of congressmen and senators are lining up to do. Consumer advocacy groups claim that many of the congressmen trying to veto the rule have been influenced by campaign contributions from the used car dealers. The National Automobile Dealers Association's political action committee contributed over a million dollars to congressional campaigns in 1980. Tonight, why shouldn't used car dealers have to tell the truth, and have they bought off the Congress? Jim Lehrer is off tonight; Charlayne Hunter-Gault is in Washington. Charlayne?

CHARLAYNE HUNTER-GAULT: Robin, the FTC proposal at issue is the result of a five-year investigation which uncovered wide abuses and deceptive practices in the used car industry. The rule would require dealers to inform the potential buyer of warranty rights as well as any major defects the dealer knows about. Dealers would not be required to inspect the vehicles, but they would have to post a window sticker on each car with a checklist of 52 items, ranging from shock absorbers to the transmission. The proposed regulation only applies to dealer sales, not to transactions between private individuals. Both consumers and the used car industry have a vested interest in this debate, but it is the FTC right now that is on the spot. If the legislative vetoes are upheld, it will be the first time in the history of that independent agency that one of its rules has been overturned by Congress. For some reaction to these points we have Federal Trade Commissioner Patricia Bailey, a Republican and a lawyer appointed to the agency in 1979. Commissioner Bailey, why is this regulation needed?

PATRICIA BAILEY: Well, we found, as you said, in our investigation over five years in the rule-making proceeding that there was widespread abuse of basically two kinds.One, oral misrepresentation of the car's mechanical condition at the time of sale, and, two, misrepresentation or misleading statements about the dealer's responsibility to repair anything that went wrong with the car immediately after sale. So the rule is basically designed to deal with those two problems.

HUNTER-GAULT: And you found them quite widespread?

Ms. BAILEY: Yes. It's one of our requirements in a rule-making proceeding with the Commission that there be a prevalence of the practice that we're addressing. Otherwise we shouldn't do an industry-wide rule; we should only sue individual people who may be causing a problem.

HUNTER-GAULT: Well, the dealers don't have to inspect the vehicles. Why is that?

Ms. BAILEY: Well, to require inspection might be costly -- costly for some dealers who do not already inspect, although of course many do. And, also, to require inspection you would also -- the whole point would be to then give the results of that inspection, to say a system was all right or not all right. And if you do that and require that, it would cause, when you checked a system "all right," an implied warranty to arise under state law, and the Commission is prohibited by law from mandating or requiring warranties, so we felt that that was really not the way to go. This is basically just an information disclosure, and I should -- let me emphasize something Robin said in the beginning -- to tell the truth about the car, to tell what's wrong with it. That's not the rule. The rule doesn't say you have to tell the buyer everything that might be wrong with the car. If that were the rule, then you would have to inspect. Otherwise, how would you know? It only says that you must share with the buyer [audio interrupted] that are defective.

HUNTER-GAULT: Well, if that's the case, how confident are you that the rules you're promulgating or attempting to promulgate will, in fact, correct the abuses you found in your investigation?

Ms. BAILEY: Well, we know from our investigation that the number-one item of most importance to a purchasing decision for a car buyer -- a used car buyer in particular -- is the mechanical condition of the car at the time of sale. And that oral misrepresentations of that condition are widespread. So we're only saying, "Don't misrepresent. If you know, tell the consumer." You have to write it on this form.And we have found in the past, with our trade regulations rules of one kind or another, particularly where information disclosure is all that is required, a very high degree of voluntary compliance, and we would expect that this time.

HUNTER-GAULT: Well, who would enforce this rule, and what kind of penalties would you urge for -- or penalties would you set for failure to comply?

Ms. BAILEY: Well, the Federal Trade Commission alone has the authority to enforce this rule. Our act does not confer a private right of action, so that if you were a car buyer, you could not undertake to sue a dealer by using our rule. That's not possible. What we will do, and what we always do with our trade regulation rules is after a significant period of industry and consumer education to explain what the rule is about and what people's responsibilities are, we would then only pursue an investigation of a dealer if it came to our attention, either through state law enforcement agencies or consumer agencies, state attorneys general, or through mailed-to-us complaints that a pattern of abuse appeared to be developing with respect to or involving one dealer, and then we would investigate. Now, the law technically allows us to request a federal court, through the Justice Department, to fine anyone $10,000 for every violation, but that is not what we do in practice. What we would do is investigate. If we didn't settle the matter or didn't straighten it out or close the investigation because it wasn't warranted, we would recommend to the Justice Department that they take it to court, and then it would be up to a federal judge in a court proceeding to decide what kind of penalty was appropriate for a violation.

HUNTER-GAULT: All right, we'll come back. Robin?

MacNEIL: Now the views of the National Automobile Dealers Association, which represents some 20,000 franchised dealers in new and used cars. The trade group's newly elected president is George Lyles. For the past 30 years Mr. Lyles has owned and operated a Chevrolet dealership at Hyde Point, North Carolina. He also sells Rolls Royces. Mr. Lyles, you don't like this rule. Could you tell us why?

GEORGE LYLES: Yes. To start with, the National Auto Dealers Association has no objection to part of the rule that has been sent down to us. This part, as far as warranty disclosure, we found no fault with that. And of course we find no fault in misrepresentation or prohibiting misrepresentation of a used car. The part that we find fault with is that it's not as simple as a one-sheet or a two-page document. As a matter of fact, as far as the regulation is concerned, it's over 300 pages, 300 typewritten pages, and in this it, regardless of what is said, it will have to have an inspection -- an inspection will be required in order to protect the dealer.

MacNEIL: Would you explain that? Why?

Mr. LYLES: Well, there's two words in there. There's -- it's knowledge. In the first place, if the dealer has knowledge of any defects -- the used cars of course have been driven. The average mileage might be 25-to 30,000 miles, and you know that there are items that need attention. We can take anything with 20,000 miles on it and have certain items that wear -- tires, for instance. You have a minimum standard for a tire which you have to report that it's a defect unless it has 2/32nds of an inch. And there are -- there are other items that require to further inspection, like 1/4 inch brake pad. If the brake pad is less than 1/4, then it's defective. So a car that's been driven any amount -- 20, 30, 40 -- you don't know whether the brake pads are below that or not, but you suspect -- you have a reason to believe that there is a possibility of a defective brake, so you don't only take the wheel off, you have to take the drum off.So in this case there's disassembly. And then when you disassemble, you spend money, which means that the cost of inspecting this are determining whether your knowledge is correct or not. It increases the cost of the car to the dealer and therefore to the consumer. And it's been indicated, it's between $150 and $200 a car that has to be inspected.

MacNEIL: Do you mean because the regulations are so precise, they would force you to inspect to measure and to meet them?

Mr. LYLES: This is the way we interpret, and the interpretations have -- we have had assistance from attorneys, and so forth, and it's real difficult, but to protect ourselves, we can be subjected. Now, I know the Commissioner says that you have to be a pretty severe violator before you get a $10,000 fine, but this doesn't mean that the courts in the country aren't going to use this when an individual sues a dealer because he indicated on his used car guide that there was no --

MacNEIL: Well, Mr. Lyles, you just heard the Commissioner say that they found widespread, prevalent oral misrepresentation. Oral misrepresentation is a kind of bureaucratic circumlocution for lying, isn't it? I mean, that's what it means. It means lying. How would you, as a dealer yourself, how do you stop many American used car dealers from lying about things they know are wrong with the car if you don't require something like this?

Mr. LYLES: Well, I don't think that anybody indicates that the National Automobile Dealers Association would condone anybody lying. That's not -- we don't condone that. That's perfectly all right. We don't mind putting the sticker on the car, and put on there what the warranty is. And also indicate that the representation would stand for the warranty -- stand behind the warranty.

MacNEIL: I see. Well, thank you. Charlayne?

HUNTER-GAULT: The controversy over the proposed FTC rule involves still another set of players. When the regulation was originally submitted to Congress last session, 216 members of the House and 45 senators cosponsored legislation to kill it. After it was disclosed that many of those lawmakers received political contributions from car dealers, questions were raised about influence, campaign contributions, and Congress's right to veto a rule created by an independent agency. One senator among the questioners was John Danforth, a Republican of Missouri, and a staunch defender of the used car rule. Senator Danforth is a member of the Senate Commerce and Transportation Committee. Senator, why do you support this rule?

Sen. JOHN DANFORTH: Well, I think the basic question is a very simple one and that is, if a car dealer has knowledge of a major defect in a used car that he is selling, should he disclose that defect to the purchaser or should he hide the defect from the purchaser? I think it's just as simple as that.

HUNTER-GAULT: Where do you come out on this oral misrepresentation, of lying? I mean, do you see this as a bill that is aimed at curbing widespread lying?

Sen. DANFORTH: No, I think what it's aimed at doing is to make information available to the purchaser of an automobile so that the purchaser will have as much information at his disposal as the seller has at his disposal. I think that's only fair.

HUNTER-GAULT: Right. You don't see it as a punitive thing against the car --

Sen. DANFORTH: It's not punitive at all. It's simply a protection of the marketplace. It's allowing an informed consumer to make an informed judgment as to a very major purchase in that consumer's life.

HUNTER-GAULT: Do you believe that the votes to kill the rule were the result of campaign contributions from auto dealers?

Sen. DANFORTH: Let me just say this. I don't think that that's quite as bad as you've made it sound. I don't think that people are on the take in Congress. That would be the -- I think the wild exception rather than the rule. I think that the situation in Congress instead is that the squeaky wheel gets the grease; that if a particular group is very sensitive on a particular issue, it makes that sensitivity known; People in Congress are responsive to their constituents; they hear the squeaky wheel. I believe that the legislative veto, which is the method that is being used to try to kill this rule, is a mistake. I think that the nature of the legislative veto is to put members of Congress on a hair-trigger for various interest groups, not just to hear the normal voice of interest groups, which is fine, but to really be on a hair-trigger.And for that reason, for example, in the Senate I think there were something like 44 or 45 cosponsors for the legislative veto before there were even hearings on the subject.

HUNTER-GAULT: Well, in other words, are you saying that you don't think that Congress has a role to play in this at all because you don't feel that the FTC has overstepped its authority?

Sen. DANFORTH: I think that the role of Congress is to, by law, set the parameters for administrative agencies, not to act as a kind of court of review of every detail of every form of every window sticker that the agency puts out. I think that the legislative veto is a perversion of the role of Congress because it puts us in the position of being a kind of a court of review and a court of review which is extremely sensitive to the squeaky wheel.

HUNTER-GAULT: What dangers do you see ahead if this rule is killed by the Congress this time around?

Sen. DANFORTH: Well, this is really the first test, at least in the Commerce Committee, of the legislative veto. The Consumer Products Safety Commission has just put out rules with respect to insulation -- certain kinds of insulation -- claiming that they are carcinogenic. I am confident that that will be tested by a legislative veto resolution. And it seems to me that the nature of Congress should be tight drafting of legislation -- telling administrative agencies what to do in the first place, but not acting as a kind of a super administrative agency itself.

HUNTER-GAULT: Which is what you think it's doing in the case of this used car --

Sen. DANFORTH: I think it's what it's doing, and I think that it's an overload of the system of the Congress. I do not think that the Congress which -- for example, last night we were in session until 20 minutes after one. We have major problems with the economy that we have to resolve, and I just think it would be an overload of the Congress if we are supposed to go through every form, every issue of the Federal Register with the idea of trying to satisfy the complaints about each and every regulation issued by whatever interest groups affected.

HUNTER-GAULT: All right. Thank you. Robin?

MacNEIL: The efforts to kill the FTC rule in Congress have been spearheaded in the House by New York Republican Gary Lee and in the Senate by Republican Larry Pressler of South Dakota. Senator, why do you want to veto the rule?

Sen. LARRY PRESSLER: Well, let me make it very clear that there are three parts to this rule, and both the House leading sponsors and the Senate sponsors have made a statement that we are not at all objecting to the first part of the rule, which prohibits any dealer from misrepresenting. We're certainly -- we would certainly accept that part of the rule. Second of all, the rule requires dealers to make available to the consumer clear and concise information about the car, and we're for that. The problem is the third part of the rule, which makes it a lawyer's paradise, and it creates paperwork beyond all belief. And that is where, without inspecting, the dealer is to list 52 listed defects.And this is not just a little sticker, it's a long, drawn-out thing.There are over 300 pages of regulations. And the other day I had three lawyers in my office, and we couldn't figure out what this rule means -- how a layman could possibly interpret it. So first of all it's going to hurt consumers because it's very confusing rule, and it's going to increase costs to consumers. It's going to increase lawyers' fees, and it's going to increase taxpayers' because of the increased number of suits in federal court.

MacNEIL: Well, let's take an example, Senator. Suppose I go to buy a used car, and the dealer -- if this rule were in force -- says to me, "I have to tell you that the transmission is shot on this car." Now, and I say, "Okay, in that case, I don't want to buy that car," or "How much would it cost to fix it?" What's wrong from the dealer's point of view or mine --

Sen. PRESSLER: Let there be no mistake about it, we support that. We would support the dealer -- we would support such a rule.Our objection is to the third part of this rule, which requires the 1 to 52 defects being listed. For example, without inspection the dealer is supposed to say whether the ball-joint seals are damaged. That's impossible without an inspection, and it's just a lawyer's dream. There's no way that you can possibly interpret this. So we do support the revealing of known defects. We will accept such a rule. The House sponsor and I have both made statements to that effect. And I think that a lot of the sweeping statements that have been made here misrepresent our position. But this would create paperwork -- for each car sold it would require not just a sticker, but a two-page legal document. The buyer would have to get one; the seller would have to retain one, plus there are over 42 pages of regulations which are contradictory. For example, in this one sentence here -- I'll just give you an example of the type of contradictions -- I mean, this is a poorly drafted rule. "You are not required to inspect, but you are required to disclose any defects." Well, how can you possibly disclose without inspecting?

MacNEIL: Well, don't most used car dealers give a car some kind of inspection when they buy it?

Sen. PRESSLER: Yes, I'm sure they do, and let me say that in my state of South Dakota our car dealers are in a very difficult situation, and to put more paperwork on them would be something that would break some of their backs. Now, I'd be for it if it would solve the problem. If there is a problem, and I think there may well be, we would support a rule that would require disclosure. But we will not support this rule that puts so much additional paperwork on, and that doesn't solve the problem at all. It's a typical, Washington, bureaucratic approach to having Washington get involved in every used car sale with more paperwork, with over 300 pages of federal regulations at a time we're supposed to be cutting back on federal paperwork, and it's my stong feeling that if the states want to do something like this, they're very welcome to do it.

MacNEIL: Senator, you were one of the senators who received money from the car dealers' association. You received $1,000, I understand, yourself, as a campaign contribution --

Sen. PRESSLER: Yes, but in fact my opponents have received more in contributions than I have over the years, and I think I'm a bad example to use as one who's -- if anything, my opponents over the years have received more contributions than I. And in any event, I don't believe that I or most of my colleagues in my view respond to campaign contributions that way. I think in my Senate campaign, we raised close to $800,000, and if there was a small percentage of that from them, I'm proud to take it.

MacNEIL: How about Senator Danforth's point, although he doesn't impute to any congressman the idea of being bought by an interest group, but that at least it makes your ears acutely sensitive to the squeaky wheel, as he put it? [silence] Did you hear me? He said -- Senator Danforth just said that while he doesn't charge that congressmen have their votes bought by interest groups like this, that it makes you very sensitive to the squeaky wheel when this amount of money is spread around.

Sen. PRESSLER: Well, first of all, in my own campaigns, I've just given my own example, and I think just the contrary is true. Second of all, the American consumers are tired of paperwork, are tired of higher prices, and this paperwork won't make cars any safer. So I think that the biggest squeaky wheel here are American consumers, and also the desire to have less paperwork and red tape. We're supposed to be cutting back on red tape and federal involvement. Here we have over 300 pages of federal regulations, we're putting additional paperwork burdens on small businessmen, and we're not solving the problem. There is no way that lawyers can even figure out this document. It contradicts itself throughout, here, and I could go into several contradictions --

MacNEIL: Well, perhaps we'll have a chance to pursue those in the discussion. Thank you. Charlayne?

HUNTER-GAULT: Commissioner Bailey, both of these gentlemen have said that they have no problem with the part of the regulation that calls for no oral misrepresentation, but Mr. Lyles said that there is no way that they can comply with your regulation without inspection. Now, you said that you didn't require the inspection because it would be too costly, but he says that it's not possible --

Ms. BAILEY: That's right. Well, I think what both Mr. Lyles and Senator Pressler are saying is somewhat misleading. If the Senator had read the rest of the sentence that he started to read -- Section 455.6 -- that he was reading from in The Federal Register, it says you are not required to inspect, but you are required to disclose certain defects if known. That's the rest of the sentence. This sticker limits the liability of a dealer. I mean, there are nearly 15,000 parts in a car, probably. More. So we're not talking about trying to disclose everything that's wrong with a car or even everything that might be wrong with it -- only these. All of these are safety defects developed by the Department of Transportation and used by 40 states as safety inspection requirements.

HUNTER-GAULT: And that you don't have -- you were saying that you don't have to go into the car and disassemble it as Mr. Lyles says?

Ms. BAILEY: No. The difference between what we're saying is, they are suggesting that because this list is here, you have to disclose if these things are wrong. That is not the rule. The rule requires that you write down here any of these defects which exist if you know they do. That's all.

Sen. PRESSLER: Well, then the dealer could merely say that he didn't know, so this rule --

Ms. BAILEY: That's correct, and as I understood you, you said that you didn't object to a rule that required disclosure of known defects, which is all that it does. I didn't understand that.

Sen. PRESSLER: No, that's not quite right. This would actually protect a dealer more in the sense that he could look at a car and -- for example, here is one of the criteria -- "too much free play in the steering wheel." Without inspecting that car he would have no way of knowing that. And you've just got a lawyer's paradise here. You would in many cases protect a dealer who had a good lawyer more than you would the consumers. The consumers would get hurt under this thing because the consumer would be paying more but the dealer would be completely protected. That's my point.

HUNTER-GAULT: Do you agree with that, Mr. Lyles?

Mr. LYLES:Yes, absolutely. As a matter of fact, in the rule it has to meet the standards by the test procedure, which means you have to test it, so it does require -- it does require inspection, and we cannot relieve ourselves from the liability we'd be subjected to, whether it's a $10,000 liability or whether it would be from the general public that all of a sudden takes this regulation into court to indicate that we didn't disclose.

HUNTER-GAULT: How do you see that, Senator Danforth?

Sen. DANFORTH: I hardly think it's a lawyer's paradise. I mean, the clear terms of The Federal Register and the clear terms of the very simple window sticker -- I mean it is not a complicated operation.

HUNTER-GAULT: In other words, you also agree that a dealer could certify on this form, without having inspected the car?

Sen. DANFORTH: Absolutely. It is crystal clear in the regulation itself. The regulation expressly says -- expressly says -- there is no obligation of the dealer to inspect. The dealer can check a box saying he is selling the car on an as-is basis. All this does is provide a method for the dealer to tell the purchaser any defects that the dealer knows of -- has actual knowledge of. And I see the converse of that. The converse of that is to say that if a dealer knows the defect, he doesn't have to disclose it, and I think that that is just an inappropriate way to operate.

HUNTER-GAULT: What about, Ms. Bailey, the point that this invites lawsuits and so on if the dealer says that he didn't know about the defect and then the buyer buys the car and there is a defect in it and it opens him up to a liability?

Ms. BAILEY: Well, there is, I think, a fairly simple answer to that. In the beginning, I hope I said that buyers do not have a right to enforce this rule. The only person who can enforce this rule is the Federal Trade Commission.That is, we will decide when to enforce the rule. Buyers can't do it. But now under state law in 49 states, and in perhaps the case law of the other state, if you buy a car and you want to allege that a defect has existed and was not disclosed to you, you may do that -- you have a right to do that now. This does not create any rights in a buyer or any liabilities in a dealer that do not already exist under state law.

HUNTER-GAULT: I'm sorry, but we have to leave it there. Robin?

MacNEIL: Ms. Bailey, Mr. Lyles, Senator Danforth, Senator Pressler, thank you all for joining us. Good night, Charlayne.

HUNTER-GAULT: Good night, Robin.

MacNEIL: That's all for tonight. We will be back tomorrow night. I'm Robert MacNeil. Good night.