My Congressional Testimony On The Used And Subprime Market

Oral Testimony of Keith Whann

On Behalf of Himself and The NIADA

On “Consumer Protection in the Used and Subprime Car Market”

Before the Commerce, Trade and Consumer Protection Subcommittee

Of the House Committee on Energy and Commerce

March 5, 2009

 

Mr. Chairman, members of the Subcommittee, it is my pleasure to offer testimony on behalf of myself and in my capacity as General Counsel for the National Independent Automobile Dealers Association regarding “Consumer Protection in the Used and Subprime Car Market.”

My career in the motor vehicle industry has spanned the last 25 years, while NIADA has represented independent, non-franchised, motor vehicle dealers for over 60 years.  The NIADA and its State Affiliate Associations represent more than 20,000 dealers located across the United States.

We recognize how vitally important the motor vehicle industry is and the impact the used motor vehicle segment of the industry has on our economy.  There are currently about 249 million motor vehicles on the road, the median age of which is approximately 8.5 years. There are approximately 40 million retail used motor vehicle transactions per year roughly split between franchised dealers, independent dealers and private individuals. 

Used motor vehicles, because of what they are, carry a history of use and condition. During the process of trade among these vehicles, consumers and dealers alike need access to accurate, timely information about the history and condition of the vehicles. This information affects how much either will pay for a vehicle. This is particularly important to consumers because, outside of housing, it often represents the largest single purchase that they make.    In a dealer’s case, his ability to pass on timely and accurate information to his customer means the difference between developing a customer that will refer new business to him and having a consumer full of ill will who, at minimum, drives business away from him. 

It should be no secret that the motor vehicle industry is one of the most heavily regulated in the country, with a maze of overlapping and sometimes conflicting federal and state legislation and implementing regulations.  Unfortunately, the good intentions that inspired these efforts have, in large part, contributed to an increase in the cost of motor vehicles and in many instances, led to confusion on the part of the consumer and frustration for dealers.   Nevertheless, tens of thousands of businesses have developed practices and procedures that allow them to carry on commerce within the confines of those restrictions.  Therefore, we do not advocate comprehensive, overnight change in this area.  But gradual change is needed for the benefit of both the consumer and the dealer.  I will be happy, Mr. Chairman, to work, on behalf of NIADA, with those responsible for making the changes, if that should be your desire.

My entire professional career has focused on motor vehicles, consumer protection issues and the motor vehicle industry as a whole.  In considering my written testimony, I realized I could discuss dozens of issues affecting consumers and the used motor vehicle industry including everything from advertising issues and car buyers’ Bills of Rights to spot deliveries and the Finance and Insurance process as a whole, all of which would have merit. However, I elected to comment upon four issues that are currently at the forefront of the motor vehicle industry at the national level: warranties, including what they are and how they are created and disclosed; the FTC Used Car Rule, including the content of the form itself, and complications that arise from its completion; financing of motor vehicle transactions; and the tax treatment of a buy here-pay here transaction.

Touching on this last issue, in these uncertain economic times, it has become increasingly difficult for capital to flow from lenders to credit-impaired consumers for the purchase of a used motor vehicle.  A person’s credit can become impaired for various reasons, often as a result of some event over which they have no control, such as loss of a job, health related issues or other family circumstances.  Likewise, new families just starting out may not have established credit and may have difficulty obtaining financing.  For all of these people, a car is not a luxury, but a necessity.  Because of these considerations, I am suggesting that a mechanism needs to be implemented as soon as possible to incentivize sales of used motor vehicles. 

An easy and inexpensive way to accomplish this is to permit used motor vehicle dealers, like similarly sized businesses, to utilize a modified cash or installment sale method of accounting for transactions which the dealers themselves finance for their customers. Permitting such modification would provide customers with impaired credit or no credit access to additional financing sources for their motor vehicle purchases, thus helping to break the log jam in this sector of the business.

While preparing for this hearing, I could not help but reflect on instances where, at least upon first impression, cooperative resolution of competing issues might not have seemed possible.  Working with the National Highway Traffic Safety Administration on the implementation of the Anti-Car Theft Act of 1992, with representatives of the IRS to develop an audit technique guide for the used motor vehicle industry and with representatives of the FTC in interpreting the FTC Used Car Rule and publication of a Dealer’s Guide to the Used Car Rule, come to mind.  In each circumstance, work by dedicated people with differing points of view yielded an effective result. 

Mr. Chairman, thank you for the opportunity to participate today.  If there are any questions, I will be pleased to respond as time permits.