The Magnuson Moss Warranty Act was enacted by Congress back in 1975 to ensure that consumers are protected from misleading warranties being offered by manufacturers. The act does not require that companies offer warranties, but only regulates how the warranties are disclosed to the public if they are offered.
During the development of Magnuson Moss, Congress was concerned that companies would deceive consumers by telling them they must use a parts offered by the manufacturer in order to maintain their product’s warranty. A provision was included to the act that prohibited the conditioning of a warranty on the use of any of the manufacturer’s parts or services needed to maintain the product. Under interpretations by the Federal Trade Commission (FTC), the only way that a warranty could be denied based on the use of a non-original equipment part would be for that non-OE part to have caused the failure. Further, the onus is on the manufacturer of the product to prove that the non-OE part caused the failure.
It’s my guess that very few car owners have any idea that the Magnuson Moss Warranty Act exists or that there is a federal law that prohibits tie-in sales. Further, the agency charged with enforcing Magnuson Moss requirements, the FTC, has shown little interest in taking any enforcement action on the issue. Hence, many car companies have been ignoring or skirting the tie-in prohibition, and they are becoming more daring every year.
Here are some examples of efforts by car companies over the past several years to convince motorists that the use of an aftermarket part could jeopardize a warranty; and that the original equipment part is the only way to ensure their future warranty rights:
• In 2010, Honda issued the following Position Statement: “American Honda recommends that all maintenance and repairs are performed using Honda recommended procedures and Honda Genuine parts. Other parts — whether aftermarket, counterfeit or gray market — are not recommended. The quality, performance, and safety of these parts and whether they are compatible with a particular Honda vehicle are unknown.”
• In 2011, Mazda issued a statement that it “does not recommend the use of aftermarket parts (or imitation parts) for any Mazda maintenance or collision repair… These aftermarket parts are generally made to a lower standard in order to cut costs and lack the testing required to determine their effectiveness in vehicle performance and safety.”
• Then 2012, Kia issued a Technical Service Bulletin that stated that, “Kia does not test or approve any aftermarket filters and recommends the use of Kia genuine parts that are designed to operate as specifications set forth during engine lubrication design and testing. If the engine oil has been changed recently and a noise condition has developed, perform an inspection of the oil filter and or customer oil change maintenance records to help you in determining if an aftermarket filter or the wrong oil viscosity was used. If the vehicle is equipped with an aftermarket oil filter, perform and oil change and filter using the correct oil grade/viscosity and a replacement genuine KI oil filter at the customer’s expense.”
AAIA, along with the Automotive Oil Change Association (AOCA), Tire Industry Association (TIA) and the Service Station Dealers Association, have forwarded all of the above examples to the FTC for investigation, but thus far, no action has resulted. The result of FTC’s inaction is that manufacturers appear to be pushing the tie-in sales envelope even further.
The most egregious example to date in my opinion comes from BMW this year. As part of its owner’s manual for the 2013 model year vehicles (at least for the Mini, 3 Series and Coup), there is a statement that, “Oil changes should only be performed by a BMW Center.” No beating around the bush here, only BMW dealerships are qualified to perform an oil change. Why, you may ask? Well, there really is no explanation anywhere that I have been able to find.
Our hope is that by pushing the law too far, FTC will take action against BMW for what appears to be a clear violation of Magnuson Moss. However, that may be just wishful thinking. Thus far, the only action taken by the commission has been the placing information on the rights of car owners regarding new car warranties on their website. That information can be found at: http://www.consumer.ftc.gov/articles/0138-auto-warranties-routine-maintenance.
However, the FTC must also ensure that the car companies are getting good information to consumers. Many consumers find auto repair intimidating and therefore, a dealer or car company recommendation or alert can be taken as the truth, even though there are few facts to back it up. Therefore, it is critical that the FTC take action to require that the car companies act more responsibly in their owner’s manuals and releases. This includes mandating that the car companies place clear disclosures in their warranty booklets and owner’s manuals regarding the rights of consumers to have maintenance performed using non-original equipment parts and service.
Further, and maybe most importantly, the FTC must send a clear signal to the car companies that they will not tolerate misleading consumers on their warranty rights. Specifically, the FTC must enforce the prohibition on tie-in sales by prosecuting car companies that attempt to use their warranties as a marketing tool for their replacement parts. It may be the only action that gets the attention of the car companies to stop the growing trend of misleading statement that are not fair to the independent aftermarket, but more importantly, not fair to consumers.
The Senate returned from its one week recess on Monday, May 6, and in their first major action, overwhelmingly passed (69-27) the Marketplace Fairness Act (S. 743). As you may have already heard, this bill will permit states to collect sales and use taxes on Internet sales into a state from vendors that do not have a brick and mortar location in that state. Proponents of the legislation were the nation’s major retailers, who claimed that the present system was unfair by forcing them to charge state sales tax on purchases of their products in the stores while Internet companies could sell the same products tax free. Also supporting the bill were the state governors that claimed, according to the National Conference of State Legislators, that they are losing about $23 billion in revenue due to the fact that they cannot collect the tax from the vendor. This is a no-brainer for states that are desperate for revenue. In Maryland, where AAIA is located, the state legislature passed legislation that will place a 1 percent sales tax on gasoline in July 2013, with a 5 percent increase in the tax taking place in 2016 should Congress not enact the Marketplace Fairness bill.
Many argue that Congress, through passage of this bill, is creating a new tax, but it seems to me that this is more of a case of fairness between brick and mortar and Internet sales. Both are competing for the same customer dollars for the same products, only one can charge significantly less -- about 6-10 percent less -- depending on the size of the sales tax. Further, it should be noted that many states require that the purchaser of the product pay the sales tax if it is not collected by the vendor, but of course that never happens.
The one argument raised by the opposition that does appear to me to have merit, is that the new legislation will place a major burden on small businesses operating over the Internet that will need to both collect the tax from customers in multiple locations and then pay each state the appropriate sales tax. The bill seeks to address this issue by exempting companies with less than $1 million in online sales across the US in a calendar year. The bill further requires states to provide remote retailers with free software to calculate taxes, file returns and communicate with the tax collection entity in each state. Further remote retailers will only have to report and file returns one time. While these provisions will help, Congress should probably look at this issue closely to ensure that small businesses will not be overly saddled with compliance burdens. However, it should be noted that the small business aspect works both ways since many brick and mortar small businesses are placed at an extensive competitive disadvantage when their Internet competitors do not need to collect sales tax from customers.
While the strong vote in the Senate provides some momentum for this measure, the House will be a tougher road since many conservatives have made this into a no new taxes issue. Further, Speaker of the House John Boehner, R-Ohio, recently announced that he will oppose the measure. So, if you support the ability of states to collect sales tax on Internet sales, you need to make your feelings heard by your representative. Clearly, while this legislation stands the best chance in years for obtaining enactment, it is going to take a strong push from the business community to make it happen.