Whether we like it or not, those in the automotive industry now live in the age of recalls. It’s a lingering thought in the minds of individuals on every end of the sales spectrum. And while recalls of any nature are anything but simple to manage on the front end, the waters tend to get muddier as time goes on and vehicle histories become more robust.
Perhaps one of the most complicated views you can take of recalls occurs while standing in the shoes of the wide variety of folks in the wholesale business, who deal with used cars whose characteristics can vary wildly.
So, in light of what is now the largest recall in our nation’s history, via the recall recently expanded by Takata for issues with its air bags, Auto Remarketing reached out to professionals in the field to see what they’re doing and what they think about the situation. Whose responsibility is it to fix these recalls? What happens when they’re detected during the auction process?
There is no blanket strategy to prevent recall penetration — the logistics, on every level, remain challenging. Despite the huge volumes of vehicles going through auction lanes on a daily basis, it seems perhaps the only way to handle these recalls, on the auction level, is on a case-by-case basis.
Unfortunate for everyone involved, at this stage in the game, it’s unclear just how much the expanded Takata recall will affect the auction industry. According to NADA Regulatory Affairs, with the current figure now being an estimated 33.8 million potentially affected vehicles across 11 vehicle manufacturers dating all the way back to the turn of the century, even Takata is still working toward figuring out which exact models and specific vehicles should be targeted.
Perhaps the biggest question for the auction business is who is responsible for fixing a recall? Does that responsibility typically fall on the shoulders of the consignors or the auction?
For Jim DesRochers, the vice president of Dealers Auto Auction of the Southwest and former NAAA president, that answer is everyone.
“I think it falls on everybody’s shoulders,” DesRochers said. “I think we have a tendency overall to do too much finger pointing. If you’re going to take those consignments and you understand that some of them are going to be recalls, you and your consigning partners actually have to work together, with the local dealerships, to try to get those done or accomplished, or work with your buyers to help them on the backside, if it’s still under warranty, to tell them what in fact you’re providing them.”
When it comes to deciding how to get a recall fixed, many in the industry do take on what DesRochers calls a “multipronged effort” to leverage relationships with local franchises to have repairs handled.
“We are lucky enough to be about three miles away from most major new-car store dealerships, so it wouldn’t be difficult to get the vehicles there fixed if we needed to,” said Britney Smith-Egbert, the fleet/lease manager at Dealers Auto Auction of Idaho.
Matt Arias, the co-chair of the NAAA Auction Standards Committee, shared with Auto Remarketing what the typical recall process looks like at the auction level.
“The typical flow would be that the auctions catch something and they flag it as something that would either require disclosure before the sale because it meets the disclosure requirement per NAAA Arbitration Policy or it’s caught after the sale by way of an auction’s post-sale inspection product or by the buyer themselves through their own detection methods,” Arias said. “And then that’s where the arbitration has to be verified. If the vehicle qualifies for arbitration then the auction will proceed with the arbitration with the buyer and the seller and hopefully work something out. If not, then the seller will get the car back.”
For some of the more severe recalls, one example being the one dealing with General Motors ignition switch issues, a manufacturer will issue a stop sale order for affected vehicles. And for the auction or consignor trying to sell them, those vehicles have to sit until they’re repaired.
But many open recalls don’t stop a vehicle from being sold at auction. According to Arias, some simply don’t have the ties to manufacturers, like franchises, that make it easier to be aware of recalls, whether it’s a wholesaler, independent consignor, bank repo or others. For many of these situations, the NAAA recommends the use of the SaferCar.gov website to get a better understanding, along with the other notification options provided by the NHTSA, including weekly reports and access to recall look-ups by make and model that list complaints, technical service bulletins, along with open and closed recalls.
“We’re stressing that because we want inspectors on the front end of the process to use that and also on the back end of the process, from an auction point-of-view, to use it as well, because we want to make sure that if a vehicle is in its inspection after the sale, the post-sale inspection, and they find a problem, that they categorize it properly,” Arias said. “Because it’s going to make a difference between the buyer and seller during the arbitration. If it’s something that can be covered by warranty then that’s awesome, nobody has to pay for it, except for the downtime.”
For many that find themselves in the situation where there’s an unexpected recall with a remedy that will take time to fix, this can kill the deal.
“What if he has a buyer for that vehicle right now and now he’s got to tell his retail customer, ‘I can’t sell it to you until the recall’s done.’ He may lose that customer,” Arias said. “That may influence his intent on keeping that vehicle.”
When asked if it was pretty typical of a recall situation to have a substantial wait time to receive parts and start repairs, DesRochers said that from his experience it’s been pretty challenging to get repairs done in a timely manner.
One specific example he shared hits close to home due to a repair delay with a vehicle he sold to a family member.
“And the reason I know this one, I’m personally involved,” DesRochers said. “I sold a car to my sister-in-law, so it’s very personal. And she has not been able to drive it for four months, and the parts aren’t due in for another two months. So there is a responsibility on our side to look at those recalls, and we’re starting to look at cars with recall issues on a one-on-one basis.”
According to DesRochers, many dealers know which vehicles are affected by recalls going into a sale and will avoid them so they don’t get caught up with a vehicle they can’t make a quick turnaround on.
“Buying dealers — they want to retail as quickly as possible,” DesRochers said. “They’re not going to buy into a market niche where they know that there’s air bag problems or starter switch problems or something with a backorder for the parts months away. They’re not going to tie up their capital. They may not be making it overtly known verbally but their buying habits, in fact, show that and reflect that.”
With many trends, though, there tend to be exceptions. According to Arias, he has seen dealers completely aware of a vehicle’s recall issues use the situation to their advantage.
“The auction buyers are very, very savvy,” Arias said. “In terms of relationships with the franchise dealers and the franchise dealers’ computers to see what’s going on. Absolutely that exists — there are some buyers that know that (there’s a recall) going into it. They may or may not admit it, depending on where the money is on that car. They might be able to get a better price knowing that and knowing that they’re at an advantage with the seller that just wants to get rid of it.”
Some auctions find it to be a safer practice to avoid the recalls altogether. Some smaller auctions, like the one DesRochers works at, will actually turn away a consignment if there’s too much there to fix. When asked if he were to be approached by a large consignment full of something like Takata-recalled vehicles, if he would consider working with the consignor to repair the vehicles for sale, he gave the following answer.
“No, I’d turn them away. The fact of the matter is I can do nothing about getting them fixed,” DesRochers said. “And believe me, if they could get them fixed quickly they would have already done it. And I’m not going to be part of the problem of putting out a defective product and hoisting it onto the next person down the line. It makes absolutely no sense for your professional credibility as an auction.”
There appear to be other options, though. According to Smith-Egbert, who operates in a state which she describes as having tough air bag laws, her business is considering taking a different approach.
“Right now we are trying to narrow down exactly what it is that is required of us by the state to make sure we cover all of our bases,” Smith-Egbert said. “One option that we are considering is adding a statement on our sale day bill of sale that says something to the effect that we aren’t obligated or responsible to disclose any open recalls.”
And all of these options seem reasonable and share their own merits. Whether or not you think it’s ethical to sell a used vehicle with an open recall, the consensus seems to be that it’s a good business practice to fix what you can and disclose what you can’t. And there’s certainly no shortage of resources to utilize to make sure your inventory is ready to go.
“We know most of the recall cars,” DesRochers said. “Most of the recall cars that you will see are rental cars or off-lease or whatever — the newer-type stuff. You get that in the pipeline pretty early. You don’t see that, historically, coming to the dealerships in trades. You pretty much have plenty of time to make decisions and plan.”