Not too long ago, in a parallel universe, we were all familiar with, vehicles lived lives then passed on at about the 100,000-mile mark. Whether they passed privately or through a dealership, at some point, they pretty much moved on to an auction, a wholesaler, a parts recycling center, or, potentially, a Buy-Here-Pay-Here store. Used vehicle values plummet at the 100,000-mile mark for two reasons. First, franchise dealers see them unfit for retail, and second, lenders rarely finance them.

When a consumer comes in wanting to buy a new (or new to them) vehicle and has a trade with more than 100,000 miles, the usual dealership values the trade by how much a wholesaler would pay for it. Many dealerships have wholesalers they deal with frequently, so the sales (or used car) manager simply makes a phone call, gets a buy-bid, then presents the trade-in value to the customer. Those vehicles then either go to an auction, get sold to a used car lot, or a Buy-Here-Pay-Here for cheap.

In today’s seller’s market, however, low inventory levels for new and used car acquisition have caused many franchise dealers to rethink their previous "set-in-stone" rules. An article in Automotive News shares how some dealers no longer shy away from these 100,000-mile cars; but, rather, embrace them. Because of consumer demand, dealers are making a rather substantial profit. It appears that 200,000 miles is the new 100,000 miles, according to an executive editor at Autotrader. Consumers aren’t running for the hills, but quite the opposite - they are embracing it.

These days, with new vehicles often commanding pricing well over MSRP, consumers are increasingly interested in finding a quality pre-owned car -- even if it has more than 100,000 miles on it. Because lenders are buying deeper (worse credit) and willing to extend loans for these vehicles, some manufacturers have loosened qualifications for CPOs, so dealers are willing to retail them at higher costs. Dealers are also willing to ensure that the vehicle is mechanically sound and properly reconditioned before it hits the front line for the simple fact that they will now – for the time being – make a profit.

While it’s certainly good that franchise dealers are taking these steps, there are many more independent dealers across the country, and many of them don’t want to, or can’t, invest this reconditioning money into a vehicle pre-sale. Sure, they can make it look pretty; but many don’t even have their own service departments to perform repairs or even a proper safety inspection.

I’m not here to say that every vehicle sold – whether by a franchise or independent dealer – is inherently unsafe. BUT data confirms that there is a greater safety risk as that odometer creeps even higher.

Those premium prices that consumers are paying for these pre-owned vehicles may satisfy a need (or want) for a vehicle in the short term, but what happens when things go wrong with the vehicle (which everyone knows occurs with aging vehicles) There is typically not going to be any warranty on the vehicle for the consumer to lean on, the repairs may exceed what they can afford, and, in some cases, old vehicles are not even included in recalls. In this “perfect storm,” a customer could be left with 48+ months to go on their car payment with a vehicle that no longer works. It is a known fact that repossessions are currently rising.

In the end, it’s just as important for a consumer to know that a vehicle is unsafe and that there “may” be an inherent risk by buying a vehicle with such high mileage. Consumers must be cognizant of potential risks and consequences when making purchasing decisions. It’s not only recalls that make roads unsafe… ultimately, but unsafe cars as a whole do also. And nobody wants that.

A recent news story, published by Reuters, shares how Mexico is moving to allow unregistered used cars brought into Mexico illegally to be registered for a whopping $124. According to the article, Baja, California has as many as 500,000 unregistered vehicles alone. Many of these vehicles were brought into Mexico from the United States either to sell them illegally or for use in criminal activities. Overall, Mexico seems to want to use America as an inventory acquisition avenue. And this has fired up U.S. automakers.

According to the Washington Post, as many as 18 million vehicles have been illegally imported into Mexico since 1990, accounting for about a third of all vehicles in the country.

A used vehicle purchased in the U.S. doesn’t legally require that open recalls be repaired before sale. Hypothetically, a vehicle could be purchased in the United States, imported to Mexico, and, for USD 124, be legally registered in Mexico. At that point, it could be legally driven back into the United States. And on the roads, once again, threatening the safety of drivers and passengers.

The problem then becomes three-fold:

1.    Recalls –No legislation currently requires the repair of recalls in used vehicles before sale. If the majority of the vehicles imported to Mexico are older cars, chances are many of them have outstanding recalls. This not only presents a danger to the citizens of Mexico when they are resold, but it also means that, due to the lack of manufacturer facilities to fix them, many will go unrepaired for an undefined amount of time. If they do get reintroduced into the United States and are once again driving alongside U.S. citizens, those vehicles present a danger to other drivers.

2.    Information and Identification – We already have issues identifying and notifying second and third generations of vehicle owners with open safety recalls. This new policy would further complicate the matter. A vehicle purchased in the U.S., imported into Mexico and registered, then reintroduced into the U.S. roadways would make it even harder to identify and notify the owners.

3.    Inventory Acquisition – Car sales is a business. We can all agree on that. If Mexican car dealers are finding that it’s more profitable to purchase vehicles in the United States through dealers, auctions, wholesalers, or other avenues, and then sell them in Mexico and make a heftier profit (which has already been happening but now would be legal) that only introduces another competitor for inventory.

I’m not arguing that this new Mexican legislation is right or wrong. I’m simply saying that it further complicates our mission of making the roads safer for everyone. We’ll definitely stay on top of this and further work to protect all drivers.

What consumer doesn’t love the internet? It has been especially transformative for the automotive industry. Not only can shoppers compare vehicles, options, pricing, and availability with a click of the mouse, but they can also purchase the vehicle and have it delivered to their driveway.

The market disruption is in full swing, evident in the revenue generated and the numbers of units sold by organizations that include Carvana, Vroom, Shift, to name a few.  A vast majority of franchise dealers have also adopted similar pick-up and drop-off processes. But these dealers haven’t faced scrutiny from state and local governments in the same way the major internet properties have. 

Franchise dealers have always felt the heavy hand of government regulations and navigate these familiar grounds by streamlining processes to balance compliance with sales objectives.  When it comes to national operations and moving cars across state lines, how do these modern-day, virtual dealerships remain in step with the multitude of legal requirements that span state and local governance?

As it turns out, there are a few cracks. 

During this pandemic, Carvana, Vroom, and Shift have seen a massive upswing in sales, simply because they make it so easy for a consumer to buy, finance, and then have the vehicle delivered right to their home. Consumers have found it so easy, and have embraced it so much, that according to an article published on Automotive News, on August 7, 2021, Carvana reported its first quarterly profit EVER!

Ironically, just five days later, the same industry news authority reported that Carvana has been suspended from selling cars in Wake County, NC (which includes the State Capital, Raleigh) for SIX MONTHS. This is due to many violations, including failure to deliver title work, issuing out-of-state temporary tags, and selling vehicles that had not passed the mandatory state safety inspection test!

Let’s look at what the North Carolina Safety Inspection test includes:

“A motor vehicle registered in North Carolina must pass an annual safety inspection before its registered owner can renew its vehicle registration. They can be conducted no more than 90 days before the license plate and registration expires. During a safety inspection, a licensed mechanic examines a vehicle's:

1. Headlights
   Accessory Lights
   Directional Signals
   Foot brake
   Parking Brake
   Steering
   Tires
   Horn
   Rearview Mirror
   Windshield wipers
   Exhaust System
   Tinted windows, if applicable

Failure to get a vehicle inspected by the due date will result in a vehicle's registration being blocked until the vehicle is inspected.”

Of course, they can’t deliver title work and issue out-of-state temporary tags because, while it is legal to sell used cars without safety recalls repaired, it is ILLEGAL to sell cars that haven’t passed the mandatory safety inspection and all that it entails.

It’s easy (and plain) to see that every one of the items included in that list of things inspected is important. Are headlights, brakes, steering, and blinkers important to a driver's safety? Absolutely.

Is this lack of detail (failing to have a mandatory safety inspection) simply an aberration? Or does it extend to other counties and states where these organizations are selling cars to consumers? Franchise dealers are selling cars faster than they can acquire them. So, it would stand to reason that Carvana, Vroom, and Shift are as well. Carvana even launched a partnership program so they can add (and sell) dealerships' inventories to have more vehicles available for consumers on their digital retailing platform. And you thought it was hard for dealerships to get cars to sell!

The fact of the matter is that if unsafe vehicles are being sold to consumers because they failed to do mandatory safety inspections, there is little likelihood that open safety recalls are being attended to. That’s not good for consumers and a potential public relations travesty for the industry.

And by no means should you even speculate that this is a “North Carolina” thing. According to the Times of San Diego, just this month Carvana settled a lawsuit for $850,000 with California for selling cars for 4 years without a dealers’ license, transporting cars without a transporter’s license, and… surprise… didn't provide the inspection reports as required by California law!

Most dealers are compliant with state licensing requirements and adhere to the laws of the state where they sell cars. While buying a car from Carvana, Vroom or Shift is easy, it seems they may want to take a closer look at potentially unsafe vehicle sales that could damage their brands and degrade consumer confidence in all internet vehicle sales.   

During the pandemic, we’ve seen a dramatic decrease in the number of cars on the road as working from home has become commonplace. In fact, according to several sources, working from home may be here to stay. It decreases company expenses and, some researchers say, employees are actually more productive.

However, while driving dramatically decreased in 2020, there is a rather interesting anomaly in this situation. The NHTSA recently published a report detailing statistics on how vehicle crash fatalities fared in 2020. One would think that if there were less cars on the road that crash fatalities – or any other vehicle related issues – would decrease. According to the NHTSA, that would be wrong.

According to the published findings, 38,680 people died in vehicle crashes during 2020, an increase over 2019 despite a 13.2 % decrease in mileage driven.  Even with a decrease in driving due to the pandemic, vehicle related incidents and fatalities have increased.

Safety is everything. Sometimes it’s not just one thing that contributes to a fatality or accident, but rather a multitude of things. Perhaps with COVID, consumers are driving distracted or are not taking the time to maintain their vehicles.

I sincerely hope that this trend alters course and trends downwards. As consumers work from home, their vehicles may not be as top of mind as they should be. This is the perfect time for dealers to connect with these consumers and gain that service revenue while, perhaps, gaining a customer. Eventually, things will get back to normal and more vehicles will be on the road once again. And that could increase the dangers even more.

An insightful article in Forbes details the rise – and expected fall – for used car values. Interestingly enough, the article chose the wording for the headline to include “crash” and “brace for impact.” There is no doubt that the used car market could follow the real estate bubble explosion of a not-so-decade-ago. Dealers are buying at high (sometimes over MSRP) prices, inventory is scarce (both new and used), buyers are leaning towards used (to avoid depreciation and lack of new vehicles) and lenders are buying deep to keep funding loans.

According to the article, this bubble is about to burst. That will leave both dealers (who are in too deep on vehicles financially) and consumers (who bought too high) experiencing hits in deprecation as manufacturers ramp up production and used car values settle down. Definitely not something the automotive retail market wants -- whether you are the seller or the buyer.

The concerns that I have are that these used cars are being flipped so fast that dealers cannot afford to invest the time to get safety recalls fixed before selling them. Dealers are scrambling to get the inventory just as fast as the consumers are gobbling it up. Eventually, however, dealers may end up with a bunch of unsold used inventory on which they are upside down, with consumers even more so. 

Regardless of when it happens, chances are that many consumers are going to end up with vehicles that have open safety recalls… and franchise dealer’s service departments will be even more inundated with service work than they are now. And this doesn’t even include parts availability. Sound like a familiar situation? We STILL haven’t replaced all of the Takata airbags.

This is the PERFECT time to scour DMV registration databases to get information about new buyers in your PMA that have open safety recalls. These consumers may not have any idea that their vehicle has one, and your dealership could be the first to reach out and inform them. That effort could easily translate into a long-term service customer. In addition, you will have a “heads-up” on what safety recalls in your area need servicing, which gives your dealership an advantage for acquiring parts before your competition.

Inevitably, these consumers will be contacted by your competitors attempting to gain this service business. If, however, your dealership is prepared with parts and shop capacity, you can win that business. Imagine being the dealership that can tell the customer “Yes, we have the parts, and we can fix it,” versus being the competitor that says, “We can fix it, but we have to order the parts.” Translating that into sales, that’s like a dealership saying yes, we have the car versus no we don’t.

Who knows? Some of those recalls could turn into service-to-sales opportunities. Either way, it’s a win-win for your dealership to get ahead of the game. In one way, you could easily gain a service customer, and, in another, you might even gain sales through either taking a customer out of service into sales or through referrals.

Being first to the game and having all of the equipment will give you an edge that may translate into a ton of revenue

When it comes to vehicle recalls, I have always believed that safety comes first. One major challenge is the millions of vehicles on the road with open safety recalls and, with many vehicles changing hands privately, it is a monumental effort to identify those owners and notify them about an open safety recall and the risk to them, their families, and fellow drivers.

And then consider owners who never transfer a title or registration and continue to drive the vehicle on the original owner’s plates. Legislation is already being passed in at least one state which gives vehicle owners more time to transfer registration due to COVID. If the registered owner of the vehicle no longer “owns” it, they will probably simply trash the recall notice -- if they get one at all.

So, what can be done to identify those drivers and their vehicles?

Well, there has been quite a bit of buzz recently about technology such as tracking smartphones, CCTV cameras, facial recognition technology, and license plate readers -- to name a few. The problem, according to law enforcement, has always been that, while they have all this data, it is not connected in any way. Not anymore. Technology now exists which combines multiple data sources into one. Something that would take observers or investigators hours or even days to combine and analyze can now be done in seconds via this software. The military has been using it for a while and even a few municipalities in our country. Sounds scary, right? The makers of this software agree, but it exists, and Pandora’s box has been opened.

There are no current laws that prohibit this exchange of data. Should this become the standard -- the ability to track any individuals while they travel on public roads? There are even more invasive aspects of this technology. However, it’s possible to also use this same technology and data to save lives at risk of a dangerous recall.

Combining the license plate readers with facial recognition could match up who is driving a vehicle versus who it is registered to. Through those datasets, the government, services like ours, and even dealerships could reach out and notify the right person – that 2nd and 3rd generation owner, along with those who haven’t registered or transferred title to a vehicle.

I’m not advocating this specific solution or that the lines of individual privacy aren’t blurred here, but it is an intriguing conversation to have. In the name of public safety, I wouldn’t rule out developing technology. This may sound dystopian or something out of George Orwell’s book “Big Brother,” but it exists right now and is already being used. Absent a legal challenge, more states, cities, counties, and the Federal government will continue to adopt and install these systems. If we know that the technology exists and that it is already in use, it’s possible that NHTSA would deploy this strategy to instantly connect the dots and increase safety recall repair completion rates.

Do you think the use of this technology to keep the roads and drivers safe is warranted? Or is too intrusive when it comes to an individual’s privacy? I value your opinions on this topic!

With vehicle inventory low, many dealers have to place a heavier focus on used cars to stay in business. In the current market, dealers are frequently outbid by other dealers for decent used vehicles or, more likely, are forced to pay thousands over retail value to acquire inventory. Add into that cost any auction fees, transportation, recon, and detailing, and … well you get the picture.

Some larger pre-owned companies such as Carvana bid against themselves to acquire a vehicle. Insane! 

Dealers now have to turn inventory faster to avoid additional costs. And therein lies a problem. Dealers can miss out on acquiring used vehicles because of price. And, with fewer new vehicle models to entice customers to trade, dealers have also lost the best way to acquire front-line used vehicles via service or trade-ins.

As a result, once again recall completion rates fall as used inventory needs to be turned as fast as possible. So many dealers don’t complete the recall work before selling on to a customer, as it is not currently required by law.

Well, that might be about to change. A recent article by the Detroit Bureau discusses these challenges and upcoming legislation that will require by law that recalls are fixed for used cars before being sold to a new customer. According to the article, 40% of used vehicles sold at retail have at least one unrepaired recall. Legislation is being pushed in Congress to put the recall law into place, spearheaded by Sen. Blumenthal, with support from Senators Edward Markey and Elizabeth Warren, (who both co-sponsored the bill). Considering the current political balance of power, this bill has a far stronger chance of passing into law than in the past.

The National Automobile Association argues against this legislation, feeling it would be harmful to dealers by essentially creating a “trade-in tax” that would devalue used vehicles. Consumer advocates don’t agree with NADA. One stated, “I doubt many drivers would consider door latches that might fail, airbags that might not deploy, seat belts that might not work, engines and brakes that might fail, and other serious safety defects our investigation routinely revealed as ‘minor’ problems.”

What a conundrum! I am all for dealerships making money and understand these are tough times. Dealers are paying more for used cars than ever and are being forced to turn cars quicker.

But the bottom line is that any vehicle sold should be safe for the consumer buying it. So, what is a dealer to do? I would love to hear some thoughts on this subject.

When discussing recalls, I have always emphasized the importance of recall repair compliance. It makes the roads safer for vehicle owners, their passengers, and drivers sharing the road. NHTSA has stressed the importance of (and put a lot of effort into) notifying these vehicle owners of open safety recalls with the goal of reaching 100% safety recall compliance in coordination with franchised dealers. The partnership between the government and vehicle manufacturers is part of an effort to create more transparency and alert consumers about the inherent risk of recalls. Dealers also play a key role.

Dealers want the extra service revenue, of course, but often place customer pay in front of recalls. However, in 48 states, laws regarding recalls mandate that the OEM reimburse the dealer at retail rates for both parts and labor. Dealerships simply need to navigate a few of the challenges that make receiving full retail warranty reimbursement possible.

Another major hole I find in the current recall system which is keeping completion numbers down is that NHTSA, OEMs, and consumer groups are mainly focusing on first-generation owners. With consumer privacy laws, obtaining current contact information and tying it to the affected VIN is an almost-impossible task. However, ultimately, if 2nd, 3rd, and 4th generation owners are not notified, and do not complete the recall repair work, that 100% safety recall repair percentage is erroneous. There could easily be more vehicles in need of safety recall repairs than just the 1st generation owners who are currently being targeted.

OEMs are only mandated to reach out to original owners. But vehicles are lasting longer and changing hands more rapidly, especially in the current climate with a shortage of new vehicle inventory. Dealers are being forced to pay more for used vehicles at auction, sometimes thousands of dollars more than the vehicle is worth. They then need to flip the vehicles as fast as possible, in many cases not bothering to identify whether the vehicle has a recall, much less do any needed recall work. This means a lot more dangerous vehicles on the road in the hands of consumers who do not even realize their vehicle needs recall repairs. Dealerships are not required to tell a consumer if one exists on a used car sale, so many dealers do not offer more than a simple disclosure at the time of sale, buried in the paperwork. We can do better.

It is crucial that the current climate changes and that the industry makes a concerted effort to find these next-generation vehicle owners. I keep seeing reports that there are one in five vehicles on the road with an open recall. The actual statistics are even more gruesome because the truth is that it is more than one in four if you count all of the vehicles that have been passed on to other owners. The quantity of unsafe vehicles still on the road is more staggering than anyone can calculate.

On the plus side, a lot of dealers would love to find these 2nd, 3rd, and 4th generation owners and gain the additional service revenue from the recall repair, while also having the opportunity to make these vehicle owners repeat and loyal servicers at the dealership.

You might be amazed to learn that approximately 52% of recall customers will continue servicing their vehicle with your dealership over the next 12 months. And, when they are ready to buy their next vehicle, your dealership will have created a relationship with the customer and have the first opportunity to sell it to them.

I urge you to make a concerted effort to find these next-gen vehicle owners. Take the time to search for these vehicle owners through 3rd party data and ensure that every vehicle in your service department or on the lot is checked for an existing recall and repaired as needed. The upside is phenomenal. Not only will you make your OEMs happy, but you will also increase revenue and customer acquisition.

These days, more channels are open for consumers to buy vehicles without leaving their homes. Whether that occurs through dealerships, independents, or online services, it is of concern, from a safety standpoint, that consumers know that their chosen vehicle is safe.

No consumer wants to spend thousands of dollars on a “lemon,” nor a vehicle that requires a lot of mechanical work to get it running properly. This is why most prefer to buy their vehicles from established sellers, rather than a private party. Consumers looking for inexpensive vehicles, which may be cost-prohibitive for a dealership to sell outside of a buy-here, pay-here lot, search through classifieds and marketplaces to find these vehicles. They are rolling the dice -- hoping they can trust the seller when it comes to the vehicle’s condition. Or, if they can afford it, can get the vehicle thoroughly inspected and any mechanical or safety issues repaired.

The “big” two online used car buying platforms are Carvana and Vroom. But another platform, Shift, has been getting some attention lately. According to an article in Automotive News, as it prepares to join its big brothers in the space, Shift has chosen to carve out a niche in that market… namely older and less expensive vehicles. The article states that 75% of Shift’s vehicle listings are 4 years or older and 16% are priced at less than $10,000 (compared to 1% for Carvana and ZERO for Vroom.)

Here’s the problem – most older vehicles have a higher likelihood of having outstanding recalls. These vehicles tend to have third or fourth-generation owners and have passed hands many times. Most franchised car dealerships do not have many of these sub-$10,000 vehicles -- for a reason.

But let’s back up for a moment.

Plenty of consumers need less expensive vehicles, perhaps due to finances or for other reasons. In general, most consumers would rather buy a vehicle from an established dealer than from “Joe on Craigslist,” as it most likely conveys a sense of security and safety in the transaction. EVERY dealer – on or offline – will tell you that they inspect the vehicles. And most do. The reason that many of these less expensive vehicles do not end up on dealer lots is the costs involved in repairing the items found in that inspection.

If you investigate further, you will find that Shift makes it clear that a vehicle any consumer purchases from them may still be under warranty (which is normal). HOWEVER, the buyer not only agrees to but….

DISCLAIMS ALL LIABILITY FOR MANUFACTURER’S RECALLS. (Terms, Section 6)

Is that on any of the friendly “why buy from us” value propositions? No.

Will you have a good buying experience? My guess is that you will.

Will you be able to have a good buying experience and get an inexpensive vehicle that is more likely to be reliable than the one you would buy from “Joe on Craigslist?” Maybe.

Will you have a good buying experience, get an inexpensive vehicle that is more likely to be reliable AND safe to drive? Roll the dice.

The message to consumers is haunting - be careful what you wish for. Be careful of the promises spoken and the disclaimers that are hidden and always remember, buyer, beware. Caveat Emptor.  Inexpensive vehicles should not place the unsuspecting consumer in danger.  The process to clear open recalls can easily fall on the buyer, but full disclosure is necessary.  Sliding a printed disclosure isn’t enough. In fact, in a product liability lawsuit, a written disclosure can serve as evidence that a dealer sold the vehicle with full knowledge that it had a dangerous recall.  That act, my dear friends, isn’t good business for anyone.