Dealers, OEMs oppose rental car safety bill

Jan. 1, 2020
  A rental car recall safety bill could have significant implications for dealer service departments, rental companies and auto repair and body shops that rent or loan cars.

The U.S. Senate transportation committee's consumer protection subcommittee held hearings in May on a rental car recall safety bill that could have significant implications for dealer service departments, rental companies and auto repair and body shops that rent or loan cars.

The bill (S. 921) would bar the rental or sale of cars that are "subject to safety recall," and authorizes the National Highway Traffic Safety Administration (NHTSA) to investigate and oversee rental car company procedures for recalls. The bill is named the Raechel and Jacqueline Houck Safe Rental Car Act of 2013, in memory of two sisters who died in a car crash in 2004 involving a rental car that had been recalled. The accident was attributed to a steering hose defect in the vehicle.

If passed as written, any company offering rental or loaner cars would have to ground any vehicles subject to a recall notice until the defect was repaired. The bill is co-sponsored by Senators Barbara Boxer (D-Calif.), Clair McCaskill (D-Mo.), Roy Blout (R-Mo.) and Chuck Schumer (D-N.Y.).

All recalls treated equally

The bill has gained reluctant support from the bulk of the rental car industry, although the American Car Rental Association (ACRA) has characterized the bill's scope as too broad. Last year, the four major rental car companies agreed to voluntarily follow the general principles of the bill.

Auto dealers, which often operate small fleets of rental or loaner cars, as well as an OEM trade association, testified in opposition. While both groups agree with the principle of the legislation, they were concerned about unintended consequences.

"I would like to make one thing perfectly clear: America’s franchised new car dealers support the purpose behind S. 921," said Peter Welch, president of the National Automobile Dealers Association (NADA) at the hearing. "Vehicles that are not mechanically sound or are unsafe to operate should never be rented to members of the public. Not only is it irresponsible, the legal liability for doing so is so severe that it would bankrupt most of our members."

However, Welch said that NADA was concerned that large fleet operators would use their economic clout to push themselves to the front of the line when it came to recall repair work, to the detriment of individual vehicle owners. Even if dealers and OEMs did not give rental fleet operators special treatment, they could conceivably clog the repair pipeline because all vehicles would need to be repaired simultaneously to avoid the fleet owner suffering significant economic losses.

"These businesses, which may have affected vehicles sitting unrented on their lots, should not be allowed to 'jump the line' ahead of individuals that rely on their vehicles every day," said Mitch Bainwol, CEO and president of the Alliance of Automobile Manufacturers. "Public policy that has the potential to bias compliance in favor of business over families ought to be reviewed very carefully, no matter how noble the intent."

Bainwol added that while the legislation would not require manufacturers to treat rental car companies differently explicitly, it would "incentivize prioritizing recall repairs on rental fleets to avoid economic harm in a way that simply doesn’t exist today."

NADA's Welch also suggested that the bill would subject dealers to new federal inspections, reporting requirements and penalties. He also worried that the small rental fleets typically operated by dealers were being treated the same as large, multi-national operators.

"Unlike large rental car companies that maintain a wide array of vehicle makes and models in their fleets, many dealers only maintain a single vehicle model in their loaner pools," Welch said. "[This bill] could cause an economic hardship for small dealers if a part necessary to fix a dealer’s only loaner vehicle model is unavailable. Large rental car companies have the model mix and wherewithal to avoid this problem; many dealers do not."

In some cases, repairs cannot be completed because parts are unavailable or, in others, because the replacement parts have not yet been designed by the OEMs. The bill addresses this issue by allowing rental car companies to use a temporary fix as long as the manufacturer includes in the recall notice a provision that "specifies actions to temporarily alter the vehicle that eliminate the safety risk posed by the defect or noncompliance."

Bainwol and Welch both pointed out that manufacturers are unlikely to include such a provision, because few if any of these measures would ever "eliminate" the safety risk. Bainwol added that repair costs could increase, because rental car companies could pursue "loss of use" damages against manufacturers.

They also emphasized that not all recalls are equal, and the majority of them do not direct drivers to stop using their vehicles. The current language of the bill, though, would require rental cars to be grounded regardless of the recall severity. Even minor issues like peeling safety stickers or faulty air conditioning knobs could ground hundreds of vehicles in a fleet. "[The bill] does not distinguish between serious recalls and minor recalls, and would require a vehicle to be grounded until the recall is addressed, no matter how minor," Welch said.

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