Used car dealers didn’t want to fix deadly defects, so they wrote a law to avoid it

Introduction

Carlos Solis never knew he was driving with a “shrapnel bomb” inside his steering wheel.

The 35-year-old father of two was waiting to make a left turn on a suburban road outside Houston when another car struck the front end of his Honda Accord, triggering its airbags.

Instead of protecting Solis, the defective airbags shot a piece of metal into his neck and severed his carotid artery, killing him within minutes.

Solis knew nothing about the danger: A used-car dealer sold him the car without fixing the airbags or warning him that Honda had recalled the vehicle three years earlier, according to a lawsuit filed by his family.

By the time Solis was killed in 2015, similar accidents were piling up across the country amid an unprecedented series of recalls for an array of dangerous defects — from shrapnel-flinging airbags to ignition switches that shut off engines.

For auto dealers, the string of accidents was a warning sign of what was to come: a barrage of lawsuits filed against them for selling recalled used cars without fixing them first.

Auto dealers came up with a plan to pre-empt the problem.

They crafted what’s known as “model legislation” that would allow them to continue selling recalled used cars, so long as they disclosed open recalls to customers — somewhere in a stack of sales documents. They then turned to their army of lobbyists — more than 600 on call in 43 states — to help get the measure passed, one state at a time.

The effort is paying off.

During the past five years, versions of auto dealers’ copycat bill have been introduced in at least 11 states — California, Illinois, Maryland, Massachusetts, Missouri, New Jersey, New York, Oregon, Pennsylvania, Tennessee and Virginia. So far, only Tennessee and Pennsylvania have adopted them, but Massachusetts, Missouri, New Jersey and New York still have measures under consideration.

The success of auto dealers’ effort is a case study in how special interest groups with deep pockets go from state to state with model legislation — copy-and-paste measures that can be handed to friendly lawmakers in any state — to get the policies they want, often with little public scrutiny and sometimes with tragic consequences.

During a two-year investigation, the Center for Public Integrity, USA TODAY and The Arizona Republic found thousands of similar pieces of legislation and retraced a number of them to their root. Many were written by corporations or special interest groups that stood to benefit directly. Some are pitched as public-service measures. Their true intentions, however, are often difficult, if not impossible, for the public to understand.

That’s what’s been happening with auto dealers’ recall disclosure bill.

Lawmakers have been touting the bill as a consumer-safety measure. But it was written by Automotive Trade Association Executives, an industry group in Washington, D.C., that represents more than 100 executives from regional auto dealer associations.

Consumer advocates say the bill is a cynical ploy: It requires the bare minimum of responsible behavior on the part of auto dealers — to disclose open recalls to customers — while leaving out any requirement for them to actually fix the defects that led to the recalls.

The bill also gives auto dealers a potent new legal argument when trying to fend off lawsuits — by implying that, with recall disclosure, it’s legal to sell recalled used cars.

Yet the bill has allowed lawmakers to say they were addressing a high-profile problem.

In California, the bill was called the Consumer Automotive Recall Safety Act. In a statement announcing his 2015 measure, then-Assemblyman Rich Gordon, a Democrat, promoted it this way: “California already has the strongest car buyer protection laws in the nation, but we need to enhance those laws to improve the information provided to consumers.”

In the face of opposition, Gordon’s bill was eventually amended, and the final version that passed doesn’t address the sale of recalled used cars.

In Tennessee, the bill that passed, the Motor Vehicle Recall and Disclosure Law, replaced a far more aggressive measure championed by Jay and Gerri Gass, who lost their daughter in a crash caused by a faulty ignition switch. Instead of “Lara’s Law” in honor of their daughter, the Gasses ended up with something they felt they couldn’t support — a law that mandates only recall disclosure, not a sales ban.

“Lawmakers were more influenced by lobbyists than they were by citizens trying to do the right thing,” Jay Gass said.

Jim Appleton, a New Jersey-based lobbyist who once chaired Automotive Trade Association Executives, said there’s nothing questionable about auto dealers’ push for their bill. The measure, he said, simply clarifies that they should disclose open recalls to customers while avoiding more stringent requirements that could devastate their businesses by sidelining much of their inventory for months on end until recall repairs are completed.

“We think that’s a good, positive step,” Appleton said.

But Rosemary Shahan, president of Consumers for Auto Reliability and Safety, a California-based consumer advocacy group, said auto dealers are only interested in protecting their bottom lines, not the safety of customers.

“If the dealers can get the bill passed, they will be able to say the only duty they have is to ‘disclose’ that there is a safety recall, which can be hidden in a stack of documents and presented to the consumer only after they have already test-driven several cars, chosen a car, negotiated the price, applied for credit, and signed a purchase or lease contract,” Shahan said. “Too late to be effective or meaningful as a form of disclosure.”

Protecting the used-car loophole

Under federal law, it’s illegal for auto dealers to rent, loan or sell new cars with open recalls. But this ban doesn’t apply to most used cars — whether sold by owners, used-car dealers or new-car dealers stocking traded-in vehicles.

This explains why the sale of recalled used cars is so pervasive in the used-car market, which sells about 40 million vehicles each year, more than twice the number sold in the new-car market.

In theory, by selling recalled used cars, auto dealers still risk running afoul of broader state laws — including “lemon laws” in all 50 states — that protect consumers from deceptive sales practices and unsafe products.

But having laws on the books and having them enforced are, in this case, two entirely different things. Shahan of Consumers for Auto Reliability and Safety said that’s because state attorneys general are reluctant to pursue cases against auto dealers, who are “known for being very active and aggressive politically.”

This began to change about five years ago, when a series of recalls, the likes of which the U.S. had never seen, sent shock waves through the auto industry.

The following year, Takata Corp. admitted that the parts inside its airbags could turn into deadly shrapnel — like the one that killed Solis in Texas — and began the biggest auto recall in U.S. history.

By the end of 2015, the pace of recalls was so frantic that about 18 percent of cars on U.S. roads had been subject to them, according to an estimate by CARFAX, which compiles vehicle history reports.

As recalls piled up, auto dealers found themselves under increasing scrutiny.

First, General Motors recalled more than 2.7 million cars in 2014 for faulty ignition switches, which have caused more than 120 deaths and 250 injuries in the U.S.

The Federal Trade Commission, for instance, began investigating auto dealers who were selling recalled used cars as “certified pre-owned” or claiming that they had gone through a “rigorous” inspection.

In California, Bakersfield resident Tammy Gutierrez sued CarMax for selling her a recalled used car. The landmark case was initially dismissed by the court, but an appeals court reinstated it last year, ruling that Gutierrez had a valid claim under state laws.

As the pressure grew, auto dealers launched their lobbying campaign for the recall disclosure bill.

The first bill surfaced in New Jersey in September 2014, when Assembly Deputy Speaker Paul Moriarty introduced a measure that included a $20,000 fine for failing to disclose open recalls to customers.

Moriarty, a Democrat who chairs the consumer affairs committee, said his initial inclination was to propose a ban on the sale of recalled used cars — until he realized that auto dealers often face a lengthy delay for recall repairs, which can only be completed by a manufacturer-authorized facility.

The delay can sometimes take months, even years, when critical parts are in short supply or when manufacturers haven’t figured out a fix for the defects.

“You could have some small dealer that has 20 cars on his lot — there’s a lot of those people — and they could have their entire lot taken up by cars that are under safety recall,” Moriarty said. “They wouldn’t be able to sell them. And they’d be out of business.”

Behind the push for Moriarty’s bill was Appleton, the lobbyist who heads the New Jersey Coalition of Automotive Retailers, an influential Trenton lobbying group whose political action committee has given more than $1.6 million to state legislative candidates — including $14,400 to Moriarty — since 2000.

Appleton said a sales ban would be “an exceptionally bad idea” because it would force auto dealers to shoulder the financial burden for manufacturers’ mistakes.

“If automakers were to fairly compensate us for holding recalled vehicles, then we’d gladly hold the vehicle and wait until the fix is made available,” Appleton said. “But the fact that they aren’t paying us means they’re in no rush to find a fix. So placing the burden on the dealers is wrong-headed.”

Driving for a state-by-state solution

As Moriarty’s bill made its way through the legislative process, Appleton was helping craft model legislation at Automotive Trade Association Executives.

What Appleton and his colleagues came up with has two parts: one requiring manufacturers to fairly compensate auto dealers for holding onto used cars awaiting recall repairs; the other requiring auto dealers to disclose open recalls to customers — but not to actually fix the defects that led to the recalls.

Jennifer Colman, president of the Automotive Trade Association Executives, said the model legislation was never intended to be a copy-and-paste exercise. The measure, she said, is better described as “suggested language.”

Indeed, architects of the recall disclosure bill in some states did craft their own language, with the assistance of regional auto dealer associations.

In Virginia, Anne Gambardella, chief counsel of the Virginia Automobile Dealers Association, said she was aware of the model legislation but worked independently to craft a bill with then-Delegate Greg Habeeb, a Republican who raised $30,000 from auto dealers in his seven years as a delegate.

“We draft our laws here,” Gambardella said.

Still, Habeeb’s bill ended up aligning closely with the model legislation, having both fair-compensation and recall disclosure provisions. The measure was eventually stripped of the recall disclosure provision before then-Gov. Terry McAuliffe, a Democrat, signed it into law in 2016.

In other states, the model legislation played a more prominent role.

In Pennsylvania, then-Rep James Santora worked closely with the Pennsylvania Automotive Association to craft his 2017 bill using the model legislation as a starting point. The measure went on to win unanimous approval in the Pennsylvania General Assembly the following year and was signed into law by Democratic Gov. Tom Wolf.

Tennessee two-step

In May 2017, Tennessee became the first state to pass the recall disclosure bill.

The winding path that led to the bill’s passage dates back to 2014, when Lara Gass, 27, died in a crash caused by a faulty ignition switch in her Saturn Ion, which had been recalled just weeks earlier by GM.

Gass’ parents, Jay and Gerri, then embarked on a crusade for a law in Tennessee that would ban the sale of recalled used cars. They sat down with Mark Green, a Republican who represented their district at the time, and convinced him to introduce a bill, dubbed Lara’s Law, on their behalf.

But it turned out that, when crafting his bill, Green consulted other stakeholders — including Bob Weaver, an influential Nashville lobbyist who heads the Tennessee Automotive Association. The result: Lara’s Law was watered down to mandate only recall disclosure, not a sales ban.

“To say the least, we were very upset,” Jay Gass said. “We could not have our daughter’s name associated with a bill that included a disclosure requirement.”

Green, who has raised at least $56,000 in contributions from auto dealers, later withdrew the bill. He did not respond to requests for comment.

The following year, Green again introduced Lara’s Law, this time calling for a sales ban. On the House side, state Rep. Rick Staples, a freshman Democrat, sponsored an identical bill.

But both bills stalled in the business-friendly Tennessee General Assembly.

Then came a surprise: At the end of the legislative session, with Staples’ help, auto dealers succeeded in adding their bill as a last-minute amendment to an unrelated measure regulating rickshaws. It was quickly passed and signed into law by Republican Gov. Bill Haslam.

The Motor Vehicle Recall and Disclosure Law allows auto dealers to continue selling recalled used cars — unless they’re subject to “do-not-drive recalls” or “stop-sale orders,” which are issued on rare occasions for serious safety defects.

All auto dealers have to do is to disclose open recalls to customers and have them sign a form acknowledging that they were notified.

Staples said he introduced his bill because the only alternative was the status quo.

“Nothing was in place as far as protecting consumers dealing with those recalls,” Staples said. “I didn’t want to live with not having done anything to deal with the issue.”

In a statement, Weaver said the feedback from a number of stakeholders led to changes in the law’s language. While no stakeholders got everything they wanted, he said, “there was widely shared consensus that this law achieved a major step forward to benefit Tennessee automotive buyers.”

For the Gasses, however, a law that mandates only recall disclosure, not a sales ban, is a bitter disappointment. “This is absolutely the one thing that we did not want,” Gerri Gass said. “I feel so sorry for the people of Tennessee.”

Andy Spears of Tennessee Citizen Action, a consumer advocacy group, said the whole experience was a sober reminder of how much sway auto dealers — who have collectively given more than $1.4 million in contributions to state legislative candidates in Tennessee since 2000 — hold over lawmakers.

“They were more inclined to follow Weaver and protect unscrupulous dealers than to work to protect the lives of used-car buyers in our state,” Spears said.

A national ban?

For consumer advocates, one of the ultimate goals is to secure a federal ban on the sale of recalled used cars — through Congress or by regulatory means. Either approach would neutralize the laws now in place in Tennessee and Pennsylvania.

But a long road appears to lie ahead. A case in point: In 2017, a coalition of six advocacy groups filed a lawsuit against the FTC after it reached settlements with CarMax, GM and its franchisees that allow them to continue selling recalled used cars, so long as they disclosed open recalls to customers.

The case is pending before the U.S. District Court for the District of Columbia, which held oral arguments in September.

Meanwhile, U.S. Sen. Richard Blumenthal, a Democrat from Connecticut, co-sponsored a bill in 2017 to propose a sales ban, saying consumers should be protected “from driving a ticking time bomb off the lot and onto our roads.”

But Blumenthal’s bill soon faced opposition from the National Automobile Dealers Association, which represents about 16,000 auto dealers, and stalled without getting a single hearing.

Jason Levine, executive director of the Center for Auto Safety, a Washington, D.C.-based consumer advocacy group, said getting Congress to act on a sales ban is a daunting challenge.

“One would hope that more education of policymakers about the dangers would be sufficient,” Levine said. “One fears that more deaths and serious injuries will be necessary.”

Joe Yerardi and Pratheek Rebala contributed to this report.