December 2007

Federal Legislative ActivityThe Passenger Vehicle Loss Disclosure Act

S. 545, titled “The Passenger Vehicle Loss Disclosure Act” is similar to the Measures introduced at the end of the 109th Congress. The Bill would ensure that certain information regarding vehicles declared a total loss by an insurer or self-insurer are disclosed to the public in a commercially reasonable and electronically accessible manner. The information that would have to be disclosed includes the vehicle identification number of the vehicle, the date of declaration or determination of the total loss, the odometer reading on that date, a statement as to the primary reason for the declaration or determination of total loss, and a statement as to whether one or more airbags were deployed. Insurers oppose S. 545 because they claim it does not clearly define “total loss” and that it would be expensive to maintain a data base containing the required disclosures.  We support the Measure, but recognize that there are other issues, such as the carry forward title brands, that could be addressed. A brand carry-forward provision is unlikely, however, due to the uproar surrounding the Real ID ACT implementation and the consensus viewpoint concerning unfunded state mandates.

CAFÉ Legislation
House Speaker Nancy Pelosi would like to get a vote on energy legislation, including controversial new vehicle emissions standards. Although a formal conference committee was never appointed, House and Senate staffers have been meeting for several weeks to try to reconcile the Senate Energy Bill passed in June and a House Bill passed in August. The Senate Bill, which Pelosi supports, calls for a 40 percent increase in fuel economy by 2020 to a combined 35-mpg for both cars and trucks. CAFE standards were left out of the House Energy Bill because more than 160 members endorsed an alternative proposal called "Hill-Terry" backed by most of the industry. That proposal provides automakers with more time and flexibility to meet the requirements, which range between 32 mpg and 35 mpg by 2022.

Rent-To-Own Reform Act
The RENT-TO-OWN Reform Act of 2007 is a Bill to amend the Consumer Credit Protection Act, to protect consumers from inadequate disclosures and certain abusive practices in rent-to-own transactions, among other purposes. This is modeled after legislation that is in effect at the State level and should not pose a problem for the industry as drafted.

Arbitration Fairness Act
The Arbitration Fairness Act of 2007 would amend Chapter 1 of Title 9 of the United States Code, more commonly known as The Federal Arbitration Act. The Bill states that Mandatory arbitration undermines the development of public law and is a poor system for protecting civil and consumer rights. The Bill would prohibit a predispute arbitration agreement from being valid in a consumer dispute, that being where the subject of the transaction is for personal, family or household use.

Right To Repair Legislation Returns
Right to Repair legislation is back on the forefront after the House Energy and Commerce Chairman reintroduced a Bill (HR 2694) that would require automobile manufacturers to disclose to vehicle owners, repair facilities, and the Federal Trade Commission information necessary to diagnose, service or repair vehicles. Similar Legislation has been introduced three times since 2001 without success. This time, a provision that would have allowed lawsuits to be brought against manufacturers if sufficient information is not provided has been removed.

Federal Regulatory Developments

FTC Used Car Rule
The FTC is conducting a review of the Rule. We have worked with them providing information from our Market Report and other sources on the Industry to determine the time and financial burdens on dealerships to comply with the Rule. We have also spoken with them about possible ways to deal with “balance of manufacturer,” “third party” and “implied warranty” issues that exist in the industry.

IRC§263(A) – The UNICAP Rules
The UNICAP Rules have existed since section 263A was added to the Code in 1986. Among other things, section 263A and its implementing regulations require taxpayers with production activities to capitalize certain costs associated with their inventories. Congress added this provision to ensure that producers, who already were required to capitalize hard costs associated with their inventories, also capitalize associated indirect costs.

Prior to the recent audits, we are not aware of a single instance where the Service classified a dealer as a producer, despite completing thousands of dealer audits since the inception of the UNICAP Rules. In fact, the Service has approved hundreds of dealer applications for a change in accounting method (IRS Form 3115) authorizing dealers to be treated as retailers who can utilize special allocation and de minimis rules that do not require the capitalization of these costs. Against this backdrop, IRS field examiners nonetheless have begun classifying dealers as producers. They have latched on to the inclusion of the term “install” in the Code’s definition of “produce” to expand the producers’ provision to retail businesses that perform service work involving parts in their inventory.

It would be difficult to overstate the detrimental economic impact that this change may cause for dealers and other industries. A dealer can be determined to be a producer or a retailer with production activities. We are working to determine if there are exemptions (dealing either with the activities engaged in or size) that could apply to independent dealers.

Real ID Act Implementation Remains Controversial
On May 11, 2005, Congress passed the Real ID Act thereby creating national standards for the issuance of state driver's licenses and/or identification cards that had to be in place by May 11, 2008. According to an analysis that was prepared based upon findings from a survey conducted by the National Governors Association, the National Conference of State Legislatures and the American Association of Motor Vehicle Administrators, implementation of the Real ID Act could cost states more than $11 billion over five years. As a result, the States asked that the mandatory implementation date be extended and that the Government provide the funds and electronic systems necessary for States to comply.

In response to the States request, the U.S. Department of Homeland Security issued a temporary reprieve to the states allowing them to delay implementation of the strict requirements until December 31, 2009. The Administration still expects States to begin issuing compliant ID’s in May of 2008, but will be expected to replace all 245 million licenses held by Americans on a “reasonably prompt basis” over five years. States that can justify a request for more time could also be granted additional waivers.

The REAL ID Act remains in the news and has become controversial due to concerns about privacy issues and funding. Nationwide costs of complying with the Act are estimated at 11 to 25 billion dollars over 10 years, and concern has been raised that state DMV offices will be forced to pull resources from other areas, such as title processing and registrations, to comply. To date, Congress has appropriated only 40 million dollars for REAL ID programs. In July, a proposal to provide 300 million dollars in federal funds to help states implement the Act was defeated in the Senate. The failure of Congress to provide significant financial assistance for states to comply with Real ID Act will likely increase the call by states to either further delay or dismantle the federal program.

New “MPG” Ratings May Apply to Older Model Vehicles
Beginning with model year 2008 vehicles, the EPA is mandating the use of a newly designed fuel-economy label similar to that found on the Monroney Sticker for light-duty vehicles. The EPA’s goal is to ensure that the information on the labels more accurately reflect real-world driving conditions. The EPA adopted the new method last December to give more weight to driving factors like higher speeds, harder acceleration and greater use of accessories like air conditioning. It recently has indicated that it will apply the new method to older cars and trucks as well. Revised ratings for older model vehicles may help Dealers because they will make comparisons with new vehicles more valid. Dealers should be prepared to advise consumers that their actual mileage will still vary depending on how they drive and maintain their vehicles and to caution them when comparing newer and older model vehicles. 

New Air Bag Regulations On The Way
As of September 1, 2007 all automakers must place frontal and side crash test and roll over rating information on vehicle window stickers. Additionally, in one of the most significant safety regulations in recent decades, automakers will have to equip all vehicles with side curtain air bags that provide head and torso protection in dangerous side-impact crashes by 2013.  While side-impact crashes account for only 9 percent of crashes, they account for more than 20 percent of auto fatalities. For the first time, NHTSA will require automakers to provide head protection for rear seat passengers.

Agencies Issue Final Rules on Identity Theft Red Flags
The Federal Trade Commission and the federal financial institution regulatory agencies have published final rules on identity theft “red flags” and address discrepancies. The Final Rules implement sections 114 and 315 of the Fair and Accurate Credit Transactions Act of 2003.

The Final Rules require each financial institution and creditor that holds any consumer account, or other account for which there is a reasonably foreseeable risk of identity theft, to develop and implement an Identity Theft Prevention Program (Program) for combating identity theft in connection with new and existing accounts. The Program must include reasonable policies and procedures for detecting, preventing, and mitigating identity theft and enable a financial institution or creditor to:

1. Identify relevant patterns, practices, and specific forms of activity that are “red flags” signaling possible identity theft and incorporate those red flags into the Program;
2. Detect red flags that have been incorporated into the Program;
3. Respond appropriately to any red flags that are detected to prevent and mitigate identity   theft; and
4. Ensure the Program is updated periodically to reflect changes in risks from identity theft.

The agencies also issued guidelines to assist financial institutions and creditors in developing and implementing a Program, including a supplement that provides examples of red flags. The Final Rules require users of consumer reports to develop reasonable policies and procedures to apply when they receive a notice of address discrepancy from a consumer-reporting agency.

The final rulemaking was issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision. The Final Rules are effective on January 1, 2008. Covered financial institutions and creditors must comply with the Rules by November 1, 2008.

Unlikely Allies Challenge NHTSA Tire Rules
Public Citizen, a consumer-advocacy group, and several tire manufacturers have joined together to challenge new rules adopted by the National Highway Traffic Safety Administration (NHTSA) mandating driver alerts for under-inflated tires. The mandatory tire-pressure monitors are required pursuant to a Law adopted in 2000 in the wake of the recall of more than 6 million Bridgestone/Firestone tires. The 2nd U.S. Circuit Court of Appeals in New York subsequently threw out an initial regulation, upholding a challenge from the Public Citizen Group claiming that the proposed new rules were not strict enough. The latest version of the rule adopted by NHTSA in 2005 would require that new vehicles include dashboard lights indicating when tires are 25 percent under-inflated, but it only applies to original-equipment tires, not replacements.  The Public Citizen Group and manufacturers maintain that the 25 percent standard could result in tire failures without the driver ever seeing a warning light. 

Emissions Rules
The Bush administration is moving ahead on emissions rules to regulate tailpipe emissions as an air pollutant under the Clean Air Act. The EPA is currently writing broad new rules to limit fuel consumption as a result of President Bush’s so-called “20-in-10” plan to reduce gasoline consumption by 20 percent in 10 years.

California Sues Federal EPA Over Auto Emissions
The State of California sued the federal government to force a decision about whether the state can impose the nation's first greenhouse gas emission standards for cars and light trucks. The central issue in the state's lawsuit against the Environmental Protection Agency is California's nearly two-year-old request for a waiver under the federal Clean Air Act to allow it to implement a 2002 state anti-pollution law regulating greenhouse gases. The EPA indicated last summer that it would make a decision by the end of this year; however, California’s position is that the longer it takes to reduce these emissions, the more costly and harmful the impact will be on California. Automakers, and the industry as a whole, oppose California's effort or any other scenario in which emissions regulations vary from state to state.

Other Activity Of Interest

Battle Over Tailpipe Emissions Takes Center Stage
The automobile industry’s battle to overturn California’s Greenhouse Gas Emissions Rule on cars and trucks shifted to a new venue this year - a Vermont courtroom. The Automobile Industry began its Federal lawsuit challenging the adoption of strict limits on vehicle emissions of carbon dioxide, a main greenhouse gas. Vermont is one of nine states that followed California’s lead in mandating that automakers meet tailpipe emissions limits beginning in 2009 that increase annually to cut emissions up to 40 percent by 2016. The central issue in this case is whether states have the power to regulate carbon dioxide emissions in motor vehicles or whether they can only be regulated on a federal level. US District Court Judge William Sessions ruled in September that federal regulations did not preempt state laws that require reductions in carbon emissions. Various auto manufacturers recently appealed the decision.

Hybrid Sales On The Rise  
Sales of new hybrid vehicles in the United States are on the rise, up 49 percent in the first seven months of this year, due largely to a boom in sales in the Midwest, which rose 57 percent. Recent predictions indicate total U.S. new hybrid sales will exceed 300,000 this year, comprising just over 2 percent of all sales. U.S. consumers bought 254,545 hybrids in 2006.

Alternative Energy Sources for Vehicles
There are currently 10.5 million alternative fuel vehicles on the road today compared to 9 million in 2006. These vehicles vary by the alternative fuel source that powers them. The most popular being hybrid electric technology, ethanol-blended fuels and biodiesel. Hybrid car sales alone are up 86 percent nationally.  For flex-fuel vehicles to be a viable alternative there must be sufficient distribution and availability of E85. At present, however, only 1,100 of the nations 170,000 fueling stations offer E85.  Ethanol production has been on the rise, however, and the Energy Department’s recent announcement that it plans to spend 385 million dollars on six biorefineries that will produce cellulosic ethanol from biomass sources indicates that ethanol may become more widely available. While production of ethanol, the nation’s No. 1 alternative fuel, has exceeded expectations, it also has hit a roadblock, conveyance. Many feel the need to lay pipelines dedicated exclusively to ethanol is key to reducing U.S. oil dependency.

2008 Fuel Economy Guides Available
The U.S. Department of Energy and the Environmental Protection Agency has begun distributing the 2008 model year Fuel Economy Guide providing consumers with information about fuel economy and the benefits of using more fuel-efficient vehicles. This year’s guide contains fuel economy estimates based on updated EPA calculation methods.

2008 Fuel Economy Guide