The ins and outs of the new Dealers Act

Motor Vehicle Dealers accord will protect sellers but be a bigger aid to car and truck buyers.

It doesn’t lend itself to snappy headlines, but the newly revamped Motor Vehicle Dealers Act ushers in some welcome benefits for buyers of new and used vehicles and the Ontario dealers they engage.

The revised MVDA, which comes into effect on Jan. 1, significantly updates the regulatory framework for motor vehicle dealers and salespeople – the product of six years of teeth-gnashing negotiations between various players in the automotive retailing sector.

Some of the changes include full disclosure obligations that will provide more vehicle information to buyers, as well as “all-in” inclusive pricing, increased Compensation Fund claim coverage to $45,000 and stiffer penalties for convictions under the act.

“It’s the first dramatic change in auto retailing legislation in 45 years,” says Bob Pierce, director of member services for the Used Car Dealers Association of Ontario.

“Consumers will be in a better position to buy with confidence, and dealers are welcoming the changes because they make good business sense.”

Pierce has been spending the last three months criss-crossing the province to help dealers get up to speed on the impending changes. The retooled act will impact the business practices of the 9,000 dealers of new and used cars in Ontario.

Perhaps the biggest improvement is the enhanced disclosure statement that spells out 22 bits of information dealers must reveal to other dealers (in the case of a trade) or to the consumer as part of the sale. Among other things, the mandatory vehicle information will specify:

“Incident” damage repairs exceeding $3,000.

Known defects in the powertrain, electrical system and air conditioner.

Two or more adjacent body panels having been replaced (excluding bumpers).

Immersion in water up to the interior floor.

Previous vehicle registration outside of Ontario.

Insurance declared “total loss,” whether branded or not.

The disclosure rules cut both ways, Pierce points out.

Consumers trading in their vehicles will no longer be able to silently submit their car for trade-in appraisal without answering a battery of questions about the vehicle’s history.

“I teach a process to dealers about how they can engage car owners in a friendly chat about their vehicle’s history. Up until now, customers weren’t motivated to talk about their trade-in,” says Pierce.

The disclosure statement for trade-ins and lease returns will go a long way toward shining a light on a vehicle’s history, so that when the car is “remarketed” the next owner will receive a complete picture of the used car they’re buying. Auto dealers benefit, too, says Pierce.

“I know a dealer who lost $15,000 on a BMW trade-in. He failed to ask anything about the car’s history, and only learned later the car had been a salvage vehicle that was rebuilt by the owner’s father at his body shop.”

With trade-in customers required to sign off on disclosure statements, the new legislation may transform the private-sale market into a dumping ground for cars with questionable histories.

“With both lease returns and personal trade-ins being much more closely scrutinized, this will likely result in some people trying to then sell their `junk’ through the private market,” warns Mark Derry, a broker and a former new-car salesman.

“It is even more important for buyers of used cars from private sellers to be more cautious and get a report like CarProof to protect themselves and help sift through the junk to find the gems.

“Most dealers I know run CarProof before they take a trade-in, just in case they miss something on the appraisal. This is hard evidence that consumers can’t get around and, more importantly, tracks the whole ownership timeline,” says Derry.

One of the main reasons for revamping the MVDA was a need to include auto leasing activity, which accounts for about 40 per cent of sales in Ontario – an option that didn’t even exist in 1964 when the dealers act was first written.

“The lease return has been a big problem for dealers over the past 25 years,” says Pierce. “There’s often no disclosure made at the dealer level – they don’t own the car so why should they pursue it? So the vehicle enters the wholesale system and auction with no history and the next dealer may end up buying a collision repair.”

The new legislation identifies several classes of dealers doing business today, including brokers, auto wholesalers and exporters, as well as commercial fleet lessors and short-term lessors. Automobile manufacturers lobbied hard to have themselves excluded from mandatory registration.

“It’s indicative of just how much power the auto industry wields in Ontario,” says George Iny, president of the pro-consumer Automobile Protection Association, which was consulted during the arduous drafting of the legislation.

Iny says where consumers win is “all-in” advertised pricing on vehicles. He claims dealers have been inventing or inflating extra fees to tack on sticker prices to reap additional profits in recent years.

“We’ve seen incidental costs as high as $1,150 for prep fees, emissions testing and safety certification this year,” says Iny. “A used Toyota Corolla advertised for $9,500 may end up costing less than one advertised for $8,900.”

The new pricing regs should level the playing field come January. The MVDA states that if the price is shown in the ad, it must include all fees, such as freight, delivery, levies and taxes – although it can exclude taxes if the ad stipulates “plus GST and PST.”

Michael Turk, legal counsel for the APA, says a key improvement in the legislation is a boost in the Motor Vehicle Dealers Compensation Fund ceiling to $45,000 from a previous limit of $15,000.

The little-known fund, which repays consumers who have lost money and deposits in deals that have soured, will have a limit that can safely cover the value of most automobile transactions – and for an increased range of allowable claims.

In addition, the fund will be authorized to promote awareness of its existence so that consumers can actually find it and use it.

Turk also likes the consumer’s right to rescind the deal under certain conditions.

Car buyers and lessees will be able to cancel a sales contract within 90 days if the dealer failed to disclose (or inaccurately disclosed) the vehicle’s odometer reading; prior use as daily rental, emergency vehicle, taxi or limo; improper identification by make, model, trim and model year; or irreparable, rebuilt or salvage branding.

In addition, dealers cannot sell an extended third-party warranty unless the product is insured under the Insurance Act, or a $500,000 irrevocable letter of credit is provided to the Compensation Fund. Until now, Turk says, extended warranties were unregulated in Ontario and some consumers got burned trying to make a claim.

Overall, the new legislation appears to tip the balance more in favour of consumers. Iny is optimistic.

“If you can improve the information and pricing integrity for consumers, you’re going a long way in addressing some of the sore points in automotive retailing.”

________________________

Oct 14, 2009

Mark Toljagic

The Toronto Star