A recent study commissioned by the National Automobile Dealers Association reveals that vehicle trade-in values could decline by an average of $1,210 if legislation were to pass that forbade dealers from selling used-vehicles with open recalls.

The J.D. Power study, which NADA commissioned, is titled “An Economic Assessment of Trade-In Value Reduction Caused by Preventing Auto Dealers from Selling Passenger Vehicles with any Open Recall.”  

It estimates that the value of some vehicles could decline by as much as $5,713.

The report was commissioned in response to proposed legislation earlier this year from Sen. Richard Blumenthal, D-Conn., titled as the “Used Car Safety Recall Repair Act,” that would ground used-vehicles with open recalls from being sold or leased until a remedy has been enacted. The act was voted down during a U.S. Senate Committee on Commerce, Science, & Transportation markup hearing this summer.

Jonathan Banks, the author of the report and the executive analyst at the Used Car Guide division of J.D. Power, says, among other issues, that the unknown amount of time to reach each individual remedy really throws a wrench in the pricing and remarketing process.

"Assuming a repair delay that is shorter than the actual repair delay is a risky proposition for a dealer, and thus they are more likely to act as if they believe the range of repair delays will be on the high end of the range of repair delays observed in the past for recalls of similar scale and complexity," Banks explained. "In a hypothetical scenario, a lack of clear information could reduce the trade-in value offered to a consumer by hundreds of dollars if a trade-in manager were to overestimate a 30-day recall delay by an additional 30 days."

The report reached that $1,210 average price decline by weighing the average based on both in-brand trade-ins and out-of-brand trade-ins, the latter of which has to factor in the additional costs incurred from holding a vehicle until the repair can be made by transporting the vehicle to an in-brand dealer.

If you’d like to download the full report, click here.