Earns Carmax

Safety groups and a prominent politician are taking aim at CarMax, the country's largest used car chain, over allegedly deceptive advertising, and they're hoping to prompt a major shift in the way that pre-owned vehicles are sold in the US, as well. In two letters filed with the Federal Trade Commission this week, a coalition of consumer groups and Senator Charles Schumer (D-NY) urge the regulator to investigate CarMax and force all used car dealers to fix any pending recalls on a model before it can be sold.

Currently, the law only insures that new cars are up to date on recalls. Senator Schumer's letter to the FTC asks that the regulator pass new rules covering used cars in the same way. He claims, "I am also actively exploring with my colleagues ways to enhance the agency's power to take action on this matter via legislation."

The senator also puts his support behind the consumer groups' petition, which is being spearheaded by an organization called Consumers for Auto Reliability and Safety. Schumer goes so far as to ask the FTC to launch "full-fledged investigation" into the their claims.

The advocates' major concern lies in CarMax's "CarMax Quality Certified" label that promises that its used cars are inspected, repaired and checked for water damage. However, the company doesn't check to see if all pending recall repairs are complete on the vehicle. The petition alleges that the advertising could "mislead even sophisticated car buyers" into thinking the cars are safe. It believes that the company should easily be able to check the recall status and supply that information to consumers. The group's goal is to end this type of advertising from the business.

CarMax appears at least partially on board with the idea – with a catch. A company spokesperson told The Detroit News that it supports added regulation, if it also forces manufacturers to supply "all recall notices, the same diagnostic and repair information, and the tools and parts that manufacturers make available to their franchise dealers." That doesn't seem too likely.

Scroll down to read Senator Schumer's letter to the FTC and the advocates' petition submitted to the regulator.
Show full PR text
SCHUMER URGES FTC TO CRACK DOWN ON USED-CAR DEALERS WHO CAN SELL CARS UNDER SAFETY RECALL TO UNWITTING CUSTOMERS

Schumer Letter Comes as Consumer Group Submits Petition to FTC Alleging CarMax is Engaged in Deceptive Advertising and Sales Practices

Motor Vehicle Safety Act Prohibits Car Dealers Selling New Cars from Selling Vehicles without First Fixing the Safety Defects -- Schumer Urges Used-Car Dealers be Held to Same Standard

Schumer: Used Cars with a Safety Recall Shouldn't Roll One Inch Off the Lot


In a letter to the Federal Trade Commission, Senator Charles E. Schumer today called on the agency to immediately direct car dealers that sell used-cars to change any policy which may potentially allow the sale of recalled vehicles without first fixing safety defects, putting used-car buyers in harm's way. The letter comes in response to reports that used-car dealers are selling cars subject to recall for safety-related defects while at the same time, advertising the used vehicles as having passed rigorous safety inspections. Currently, the Motor Vehicle Safety Act prohibits new car dealers from selling recalled vehicles without first fixing the safety defects but does not hold dealers selling used-cars to the same standard. Schumer added that if the FTC does not act to prevent used car dealers from selling defective vehicles, he will take legislative action to address this issue.

"Used cars that have a safety recall shouldn't be sold to anyone until the recall is fixed, period," said Schumer. "Far too many times we have seen the tragic and often fatal consequences when deficient cars are allowed on the road, and it's time for the FTC to do everything it can to put a stop to it."

Schumer's letter comes as Consumers for Auto Reliability and Safety and other consumer groups have petitioned the FTC to investigate and take appropriate legal action regarding the advertising and sales practices of CarMax, the largest retailer of used vehicles, in selling vehicles that have been recalled for repair of safety defects without having fixed those safety defects.

A copy of Senator Schumer's letter to the FTC is attached and pasted below, and the consumer groups' petition to the FTC can be found here.

June 24, 2014

The Honorable Edith Ramirez
Chairwoman, Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580

Dear Chairwoman Ramirez:

I write today to express my grave concern over reports that used-car dealers are selling cars subject to recall for safety-related defects, while at the same time representing to consumers that those used vehicles have passed rigorous safety inspection. It is bad enough that used-car dealers are not required by law to fix a safety recall problem prior to selling the recalled vehicle to a consumer. Compounding the safety risks with misleading and deceptive advertising and sales practices only further endangers the safety of used-car customers and everyone who shares the roads. I ask that the Federal Trade Commission immediately investigate whether car dealers that sell used cars are implementing policies that mislead consumers about safety-related recalls. If the investigation reveals that used-car dealers have implemented these policies, the Commission should suggest steps that regulators or Congress should take to end these policies.

I understand that Consumers for Auto Reliability and Safety and other consumer groups have petitioned the Federal Trade Commission to investigate and take appropriate legal action regarding the advertising and sales practices of the largest retailer of used vehicles CarMax, because they allege this operation is selling vehicles that have been recalled for repair of safety defects without having fixed those safety defects. I respectfully request that the Commission address the allegations in the petition, launch a full-fledged investigation to determine whether other used-car dealers engage in similar practices, and move to prevent these practices from occurring in the future.

As you know, in accordance with the Motor Vehicle Safety Act, car dealers selling new cars are not permitted to sell recalled vehicles without first fixing the safety defects. Dealers selling used cars should be held to the same standard. I believe the Federal Trade Commission has the regulatory power to take appropriate action to protect the safety of used-car buyers. However, I am also actively exploring with my colleagues ways to enhance the agency's power to take action on this matter via legislation.

The Commission has a long and distinguished history of cracking down on deceptive sales practices and protecting consumers. If the allegations by Consumers for Auto Reliability and Safety prove to be true, I believe the Commission should take swift and decisive action to rectify the inherently deceptive and dangerous practice of selling safety-compromised used cars that are under recall to unsuspecting consumers.

Thank you for your prompt attention to this important matter. I look forward to hearing from you on this issue.

Sincerely,
Charles E. Schumer
United States Senator

###

June 23, 2014

Consumers for Auto Reliability and Safety
Center for Auto Safety
Consumers Union
Consumer Action
Consumer Federation of America
Courage Campaign
National Association of Consumer Advocates
National Consumer Law Center 1
National Consumers League
Trauma Foundation
U.S. Public Interest Research Group

1 On behalf of its low-income clients.

Edith Ramirez, Chairwoman
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580

Re: PETITION Seeking FTC Enforcement Action vs. CarMax, Inc.

Dear Chairwoman Ramirez:
The non-profit consumer organizations listed above submit this petition, seeking enforcement action by the Federal Trade Commission, to curb CarMax's deceptive advertising and sales practices, which endanger the lives of their customers, their families, other passengers, and everyone who shares the roads.

CarMax is the nation's largest retailer of used vehicles. According to CarMax, it has sold more than 4 million cars. CarMax advertises on its website, on television, in newspapers, and at its dealerships that each of the used vehicles it offers for sale are "CarMax Quality Certified" and has undergone a rigorous, "125+ point inspection."

However, CarMax fails to ensure that safety recalls are performed prior to selling used cars to consumers. The New York Times recently reported that "CarMax, the nation's largest seller of used cars, offers a "Certified Quality Inspection," which does not include fixing [safety] recalls."2

2 "Recalled Used Cars Roam Roads as Legislation Stalls," New York Times, front page, May 9, 2014, by
Rachel Adams and Christopher Jensen. (Emphasis added.)

It is inherently deceptive for an auto dealer to represent that its vehicles have passed a rigorous inspection, while failing to take even the most basic step of checking the vehicle's safety recall status in order to identify known safety defects that have triggered a federal safety recall, and ensuring that the safety recall repairs have been performed, prior to selling the vehicle to a consumer.

CarMax's claims clearly go beyond mere puffery, and would very likely mislead even sophisticated car buyers into believing that they do not need to have the vehicles inspected by an independent automotive technician of their choice, or check them out themselves. The company even lists dozens of specific vehicle components that it supposedly checks prior to offering vehicles for sale, without revealing that they may be so defective, they are subject to a safety recall. It also claims that each car has been "renewed" prior to sale.

For example, CarMax advertises on its Website:
125+ point inspection
Experienced technicians put every vehicle through a rigorous Certified Quality Inspection-over 125 points must check out before it meets our high standards.

Every used car is renewed
CarMax cars undergo (on average) 12 hours of renewing-sandwiched between two meticulous inspections-for a car that doesn't look or feel used.

No cars with flood or frame damage
Not every car that looks good is good. We're confident in the safety and reliability of our vehicles because our technicians are trained to detect those with hidden damage.

Such claims are dangerously deceptive, since they tend to lull car buyers into a false sense of security regarding the safety of used vehicles CarMax is offering for sale to consumers.

It is all the more important for the FTC to act, and exercise its authority under the FTC Act to address false or deceptive advertising, since the National Highway Traffic Safety Administration (NHTSA) currently lacks authority over new and used car dealers, regarding sales of used cars that are subject to auto safety recalls. According to the U.S. Government Accountability Office (GAO), in its 2011 report to Congress:

"NHTSA cannot require used-car dealers, or franchised dealerships that sell used vehicles, to..get the defect remedied prior to sale....With over 35 million used cars sold by used and franchised dealerships in the United States in 2009 alone, this could pose a significant risk to the safety of millions of vehicle drivers, and may have a negative impact on recall completion rates." 3

3 United States Government Accountability Office: Auto Safety: NHTSA Has Options to Improve the Safety Defect Recall Process, Issued June 2011, page 40 (emphasis added).

While the U.S. Department of Transportation recently recommended to Congress, as part of its proposal regarding the GROW America Act, that Congress include a provision to prohibit dealers from selling recalled used cars to the public without fixing them first, that provision is likely to face stiff auto dealer opposition. In addition, CarMax, the California New Car Dealers Association, and independent auto dealers are opposing first-in-the-nation legislation currently pending in California, SB 686, authored by California State Senator Hannah-Beth Jackson, that would prohibit auto dealers from selling used vehicles with unrepaired safety recalls to consumers.

Under the National Traffic and Motor Vehicle Safety Act, auto manufacturers are mandated to recall vehicles that either 1) fail to meet a Federal Motor Vehicle Safety Standard, or 2) otherwise pose an "unreasonable risk" to safety. Most safety recalls fall within the second category. According to NHTSA, examples of defects that lead to safety recalls include faulty steering, brakes that fail, components that catch on fire, air bags that fail to inflate when needed in a crash, accelerators that stick, stalling in traffic, wheels that fall off, or axles that break.

Federal safety recalls are aimed at addressing serious safety defects, not defects unrelated to safety, "service campaigns," or emissions recalls. If a manufacturer believes that a recall is not justified, it can petition NHTSA not to require a recall or contest the issue in court. Typically, the manufacturers agree with NHTSA that the vehicles are unsafe and should be recalled, and "voluntarily" comply with the federal mandate.

According to the National Highway Traffic Safety Administration, which oversees vehicle safety recalls:
"All safety recalls resulting from defects present an unreasonable risk to safety and we believe it is inappropriate to suggest that some defects are not risky enough to require repair. For the safety of the motoring public, all recalled vehicles should be fixed promptly." -- NHTSA Official Statement, issued April 4, 2011.

Therefore, we urge the FTC to investigate CarMax's advertising and sales practices and take all appropriate and necessary action in order to curb CarMax from selling unsafe, recalled used cars to the public. In addition to any other remedies or penalties that may be appropriate, we also urge the FTC to:

 Obtain VIN-specific information regarding the safety recall status of vehicles CarMax has already sold to the public, and release that information to the public
 Notify the owners of vehicles sold by CarMax that had safety recalls pending at the time of sale
 Enjoin CarMax from engaging in such irresponsible and reckless practices in the future

It is also important to note that under the National Traffic and Motor Vehicle Safety Act, auto manufacturers are required to provide safety recall repairs for FREE. It is also easy for dealers such as CarMax to check the safety recall status of used vehicles online, simply by checking the manufacturer's website, calling the manufacturer's toll-free number, or contacting a local dealer and providing the Vehicle Identification Number.

Last August 14, the National Highway Traffic Safety Administration issued a final rule that requires all auto manufacturers who produce more than 25,000 vehicles a year to provide safety recall data on their own Websites, searchable by VIN and updated at least every 7 days. That rule takes full effect this August 14, 2014.

Bottom line: there is absolutely no excuse for CarMax or other auto dealers not to ensure that the used vehicles they sell to consumers are not ticking time-bomb cars with unrepaired safety recalls.

Thank you for your consideration of this petition. We hope that the FTC will act expeditiously, considering the serious threat CarMax's practices pose to public safety. Should you or the FTC's staff have any questions regarding this petition, please contact:

Rosemary Shahan, President
Consumers for Auto Reliability and Safety 1303 J Street, Suite 270
Sacramento, CA 95814

Respectfully submitted,
Consumers for Auto Reliability and Safety
Center for Auto Safety
Consumers Union
Consumer Action
Consumer Federation of America
Courage Campaign
National Association of Consumer Advocates
National Consumer Law Center 4
National Consumers League
Trauma Foundation
U.S. Public Interest Research Group

4 On behalf of its low-income clients.