Our Auto Recall System is Broken. Here’s How Not to Fix It

Originally published in The American Prospect on May 28th, 2015.

n October 2004, 24-year-old Raechel Houck rented a Chrysler PT Cruiser from Enterprise Rent-A-Car in Capitola, California, 75 miles south of San Francisco. Driving north along Highway 101 later that same day, Raechel and her sister Jacqueline were killed when the car hit an 18-wheeler and burst into flames. Unbeknownst to Raechel or her sister, 435,000 PT Cruisers, including the one they had just rented, had been recalled the previous month. The recall notice cited a leaky power steering hose, which could cause a fire.

A year later their parents, Cally and Charles Houck filed a wrongful death lawsuit against Enterprise Rent-A-Car of San Francisco. After a long legal battle, a jury awarded the Houcks $15 million in 2010 and got the nation’s largest rental car company to admit that their negligence “was the sole proximate cause of the fatal injuries.” Since then the Houcks have joined other safety advocates to push for federal legislation that would more tightly regulate the safety recall process. But with federal efforts stalled, a pair of state-level bills in California and New Jersey could actually make it harder for victims to hold manufacturers and dealers accountable for cars that have been recalled but not repaired.

The nation’s safety recall system is broken. Nearly 64 million vehicles were recalled in 2014—a new record—and Carfax, a company that provides vehicle history reports, estimated that 46 million cars with unfixed safety recalls were still on the road. While it has long been against federal law for new cars to be sold with safety recalls, there is no similar legislation to protect individuals who drive used or rental cars. Reformers want to change this, and make it illegal to sell or lease all recalled vehicles until they have been repaired.

However, despite some promising bills introduced in Congress, and despite the Obama administration coming out in support of recall reformers’ efforts—an unprecedented move from any White House administration—the federal legislation, opposed by auto dealers, has failed to gain traction. In the meantime, auto dealers have shifted their attention to state legislatures, where lawmakers in California and New Jersey are now considering bills that would require car dealers to disclose whether a used car has an open safety recall at the time of purchase. While car dealers insist this would mark a positive step forward, consumer groups, civil rights groups, and labor groups, are all fighting back—arguing that these bills would not only deter more substantial reforms in the future, but actually rollback existing consumer protections.

Testifying in Sacramento this past spring, Cally Houck said, “If this bill before you today had been in effect in 2004, it would not have saved my daughters.” She insisted that her girls, 20 and 24 years old, “with no engineering or mechanical experience, skills or knowledge, and no awareness of other fatalities associated with that defect” would not have been able to appropriately assess the risks involved. She called on elected officials to oppose the “terrible” legislation that serves the interest of car dealers, not consumers.

Better Than Nothing, or is it Actually Worse?

After the extraordinarily high number of recalls issued in 2014, many more people are recognizing the urgent need to get recalled cars off the road. Currently, no law requires that recalled vehicles must get repaired—a key challenge which I explore in the fall issue of The American Prospect.  Given this reality, would California and New Jersey’s recall disclosure bills actually be a productive step towards fixing unsafe cars? Or would they just shift the legal liability onto consumers who may not understand the risks?

Rosemary Shahan, president of Consumers for Auto Reliability and Safety (CARS), does not believe the state-level bills will help keep the most dangerous recalled cars off the road. California’s disclosure bill, for instance, would only bar dealers from selling recalled vehicles when manufacturers issue “Do Not Drive” warnings or when a recalled used car is the same make as the new car dealer’s franchise. According to Auto Alliance data submitted to the National Highway Traffic Safety Administration (NHTSA), between 2000 and 2013, auto manufacturers issued “Do Not Drive” warnings for a mere 1 percent of all safety recalls, and those were not even for the most unsafe defects. The Chrysler PT Cruiser that killed the Houck sisters, for instance, had not been issued a “Do Not Drive” warning. 

Other consumer advocates worry that the New Jersey and California bills will make it harder to pass more serious reforms later on. “Our feeling is that a half-measure is worse than nothing,” Elisa Odabashian, the West Coast director of Consumers Union, the advocacy arm of Consumer Reports, told Automotive News. “It means you can’t go back and try to get a bill that tries to actually protect people. The legislators would say: ‘We already did that. We fixed it.'”

Even though it’s been difficult to pass legislation in Congress, Shahan says they’re still committed to sticking with a Congressional approach, because having clear and consistent federal regulations, like those that exist for new cars, is better than a patchwork of state laws that could leave some consumers at great risk.

On the other hand, Brian Maas, president of the California New Car Dealers Association (CNCDA), believes the disclosure bill would be better than the status quo. (CNCDA is sponsoring California’s bill). “I think everyone would prefer to see more recalled cars repaired; the question is understanding where the law is [now],” Maas told me. “There is no regulation of recalled used cars today, there’s no obligation to tell consumers about anything, so how do we incrementally make it better tomorrow than it is today?”

When I asked Maas how he feels about the fact that all other consumer advocates working on recalls oppose his bill, he noted that the federal government is unlikely to move forward on this issue in the near future. And since CNCDA thinks it’s unreasonable to ground all recalled vehicles until they’re repaired, Maas said they’re trying to “forge a path in the middle. Stop some of the most serious recalls, and use disclosures for everything else.”

Though Maas says no laws currently exist to protect consumers who buy recalled used vehicles, some attorneys and activists emphatically dispute this fact.

Bernard Brown, a founding member of the National Association of Consumer Advocates, a consumer attorney organization that opposes New Jersey and California’s bills, feels it is misleading to argue that these disclosure bills are better than the status quo. “The reason for these bills is to effectively make it legal to sell recalled cars,” Brown said. While there may not be a specific statute around the sale of recalled used vehicles, Brown continued, there is anti-fraud, misrepresentation, negligence, or other laws in every state that consumers can sue under if a dealer knowingly sells a car with an undisclosed and unperformed safety recall defect that causes injury or death. “These [disclosure] bills would greatly undermine existing protections. On its face it may seem like they’re better, but they’re not,” said Brown. “They’re decidedly worse.”

“These laws are effectively ‘Get Out of Jail Free’ cars for dealers,” concurred Taras Rudnitsky, a former car safety engineer who now works as a lawyer for victims of vehicle defects. Under current negligence law, dealers have to demonstrate that they have acted in a reasonable and prudent way—which victims can argue includes selling safe vehicles to consumers. Introducing disclosure notices, Rudnitsky believes, could become the new legal burden a prudent dealer must meet in court.

Had Enterprise Rent-A-Car of San Francisco issued Raechel and Jacqueline a disclosure form, Cally and Charles Houck might not have been able to get Enterprise to admit they were negligent. I asked Brian Maas how the Houck parents could have received $15 million in damages if there were no existing laws to protect consumers. He responded:

I haven’t read the lawsuit, but my understanding is that the Houck family was able to prevail because Enterprise knew it had a recalled vehicle, it owned the car, had the opportunity to repair it, and put it in commerce. They got a civil recovery for engaging in behavior the jury felt was inappropriate, that doesn’t mean it’s illegal.

“Brian Maas may as well have said it’s ‘not illegal’ for a pilot to fly his passenger-carrying airliner into a mountain,” Brown said in an email, about Maas’ explanation. “Well, in a very stretched sense he could squirm around and disingenuously say it’s ‘not illegal’ because there presumably isn’t any statute specifically saying a pilot can’t fly his plane into a mountain. But you can rest assured it’s very ‘illegal’, as in violation of a number of more general laws and legally-enforceable duties.”

Business Concerns and Real Information Gaps

Aside from liability questions in the courtroom, the recall disclosure bills would certainly help car dealers and rental car companies stay in business in the event of unexpected recall announcements. Assemblyman Paul D. Moriarty, a primary sponsor of New Jersey’s disclosure bill, told The Record that he had originally planned to prohibit the sale of used cars with open recalls, but he changed his mind after realizing that used car dealers could lose a lot of money. “Theoretically, you could wake up one morning and have half of your inventory unsalable,” he said. “If they’ve got 100 cars that need to be fixed by Honda, how fast do you think the Honda dealer is going to take care of those cars when [Honda has its] own customers to take care of?”

“What good is a used car if you can’t sell it?” Alex Fitzgerald, the founder of Fitzgerald Auto Malls, which sells used and new cars at nine locations, asked me.

Brown acknowledges that banning the sale of recalled cars could be economically catastrophic for some businesses. “I hope that as more and more information comes out, at some point we’ll get to a place where manufacturers will have far fewer recalls, and society will have much better legal provisions,” Brown says. “But right now there is a great big transitional problem with massive consequences.”

For Fitzgerald, focusing on car dealerships ignores the larger problems related to manufacturer malpractice. And he’s right when he says that reforming manufacturer behavior is a necessary component in any comprehensive plan to address our recalled-but-not-repaired crisis. That means figuring out how to force manufacturers to come clean about safety defects far earlier than they do now.

Under federal law, a manufacturer must pay the full recall repair cost for vehicles that are less than ten years old on the date the defect is determined. (Reformers are trying to get rid of this 10-year limit, which they deem arbitrary, especially since the average car is on the road for 11.4 years.) Research has shown that the newer a vehicle is when a recall is announced, the more likely a driver is to take it in to get repaired. This system can incentivize a manufacturer to put off making recall announcements for years, in order to keep down repair costs.

The government has recently started to crack down on manufacturers that wait around to announce recalls. In March 2014, the Department of Justice fined Toyota $1.2 billion for hiding known safety defects from the public—the largest criminal penalty ever imposed on a carmaker. In January 2015, NHTSA fined Honda $70 million for failing to report death and injury data in a timely way—the largest civil penalty ever levied against an carmaker—and the Justice Department may also launch a criminal investigation into Honda’s behavior. And just last week, the New York Times reported that the Justice Department has identified criminal wrongdoing in General Motors’ failure to disclose information about its failed ignition switch and will impose a penalty that is expected to be even higher than the $1.2 billion Toyota paid. This comes on top of billions of dollars already paid by GM related to their recall scandal. Whether these hefty penalties will impact manufacturers’ future behavior remains to be seen.

“It’s a disgrace,” said Fitzgerald, in reference to manufacturers not promptly reporting safety issues to NHTSA. “I really believed they were taking care of the issues, but in reality, they weren’t doing that at all.”

It will be several months before the outcome of either New Jersey or California’s recall disclosure bill is final. “We’re in full battle mode,” Shahan told me. Needless to say, if the legislation passes, other states are likely to follow suit and introduce similar bills. “Pretty soon you could have millions and millions of consumers with little defense against negligent dealers,” Rudnitsky warned. And as these fights rage on, the federal bills remain stuck in Congress, without a vote.



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