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Rental firms support, automakers question bill to ban rental of defective cars

This article first appeared in the St. Louis Beacon, May 21, 2013 - WASHINGTON – After Carol Houck’s two daughters were killed in a crash while driving a rental car subject to a safety recall, the California woman started a campaign to convince rental firms to "ground" such vehicles until they are repaired. 

It took years for Houck, consumer groups and sympathetic lawmakers to get the big rental companies — Clayton-based Enterprise Holdings Inc., Hertz Corp., Avis/Budget and Dollar/Thrifty — to agree to a voluntary pledge last fall not to rent recalled vehicles until manufacturer-defined flaws are fixed.

And this month, those rental firms and others also agreed to back a compromise bill, sponsored by several senators, including U.S. Sen. Claire McCaskill, D-Mo., that would plug a loophole in federal law and make such "grounding" mandatory.

"Every provider of rental cars, whether from a big rental car company, or a used car dealer, should be required to repair unreasonably dangerous defects before those cars are rented to the public," Houck told a panel chaired by McCaskill on Tuesday. "Recalled cars endanger the lives of everyone who shares the roads."

Houck joined the head of an auto consumer group, the National Highway Traffic Safety Administration (NHTSA) and the American Car Rental Association in testifying Tuesday in favor of the bill, at a hearing of the Senate Commerce subcommittee on Consumer Protection, Product Safety and Insurance.

"It is important legislation that would protect the American motoring public," said NHTSA Administrator David L. Strickland. Preliminary results of his agency’s inquiry found indications that — before last fall’s voluntary recall pledge by rental firms — "the recall completion rates for the major rental fleets were about 50 percent at 120 days after the start of the recall, and about 60 percent one year after the start of the recall," Strickland said.

At the hearing, representatives of auto manufacturers and dealers expressed qualms about the bill’s impact on their industries and on consumers. That led to heated exchanges involving the industry officials and the bill’s most outspoken sponsor, U.S. Sen. Barbara Boxer, D-Ca., as well as McCaskill. 

"You may think that you can kill this legislation this year," McCaskill warned officials from the carmaker and dealer associations. "But I think you’re on the losing side, potentially, of a very bad public relations situation, if you’re not careful."

Another committee member, U.S. Sen. Roy Blunt, R-Mo., posed questions about the objections of the automakers and dealers, but both he and McCaskill said they hoped some sort of a compromise could be worked out.

Automakers, dealers warn of consumer impact

The bottom line of objections from automakers and dealers is that the legislation, if approved and signed into law, could have unintended consequences for consumers.

Mitch Bainwol, chief executive of the Alliance of Automobile Manufacturers — the trade association of the dozen biggest automakers — contended that "the bill as currently drafted will give rise to unintended, negative consequences for consumers."

Bainwol argued that the bill would increase costs "by giving rental car companies the opportunity to pursue 'loss of use' damages against manufacturers that issue recalls" and also would pressure automakers to give recall-repair precedence to rental firms over ordinary consumers.

"To minimize out of service time, rental car companies will demand (and have demanded) 'front of the line' access to parts and service, which may force ordinary consumers ... to the back of the line for recall repairs," Bainwol said.

Those assertions led to counterattacks from Boxer and McCaskill. "I don’t know what planet you’re living on!" exclaimed Boxer, who had worked last year with U.S. Sen. Chuck Schumer, D-N.Y., on an earlier version of the bill, and agreed to compromise provisions in the latest version. "We’re trying to protect our constituents," Boxer said.

Citing survey results from Missouri, Rosemary Shahan, who heads the Consumers for Auto Reliability and Safety group, said the public is strongly behind such a bill.

"We know from doing polling about rental cars and safety recalls that the public overwhelmingly supports requiring rental car companies to ground recalled vehicles until they are fixed. In fact, that question polled in the great state of Missouri at 86 percent support," Shahan told the panel. "The most common reaction we get from people when they are told about this bill is: 'What? You mean there isn't a law already?' "

But Peter Welch, president of the National Automobile Dealers Association, which represents more than 16,000 franchised new car and truck dealers, said dealers were concerned about parts of the Senate bill. He contended that it "does not distinguish between serious recalls and minor recalls;" it would regulate small auto dealerships that rent or loan a dozen cars "in the same manner as multi-national rental car giants;" and it would worsen the federal red tape for dealers.

“The large rental car companies that support this legislation comprise 93 percent of the market,” said Welch. “While this bill is unlikely to put any dealer out of business, it has the power to make it uneconomical or impractical for dealers to provide loaner or rental cars to a number of their customers.”

Car rental firms endorse Senate compromise

That contrasted with the analysis of Sharon Faulkner, executive director of the American Car Rental Association, which represents 235 auto rental firms, from the large to the small. She said that, despite the voluntary commitment of most of its members to ground recalled cars, ACRA is backing the revised bill.

"We ultimately concluded that our customers would expect us to support this type of legislation," she said, adding that the association had negotiated with staffers from Schumer, Boxer, McCaskill and Blunt to reach an acceptable compromise.

"The end result is a proposal that will provide our customers additional assurance that the vehicles they rent are safe, and provides our industry with a uniform federal standard ... and addresses our original operational concerns," Faulkner said.

The compromise bill would close the current law’s loophole that bars auto dealers from selling a recalled but unrepaired vehicle, but does not bar rental firms from renting or selling such cars. The Senate bill would, in effect, hold car rental companies to the same standard as new car dealers, requiring the vehicles under a safety recall be repaired before they are sold or rented.

The timing: the cars would have to be grounded no later than 24 hours after a rental company receives a recall notice, or two days if the recall covers more than 5,000 vehicles in the firm’s fleet. Rental firms would be allowed to carry out automakers’ instructions for "interim measures," and the NHTSA would be empowered to probe the recall practices of rental companies.

Under questioning from Blunt, Faulkner said rental companies would only be allowed to take temporary "interim measures" on a recall if "the manufacturer tells us, here is a fix, the car is now safe, and you can rent it or your can drive it as a consumer. Otherwise, we get it repaired."

But Bailwol said the "interim fix" concept "doesn’t really work in the real world. The idea that you would eliminate the risk … is [setting] a bar that I don’t think a manufacturer would be able to meet."

In a statement earlier this month, Enterprise — which had rented out the Chrysler vehicle involved in the 2004 California accident — said it would support the compromise bill.

"Although most of the car rental industry already prohibits renting or selling recalled cars if they haven’t been repaired, lawmakers can further reassure car rental customers across the board by supporting and voting in favor" of the bill, the company said.

Rob Koenig is an award-winning journalist and author. He worked at the STL Beacon until 2013.