government affairs blog
You may be following a story that has gone viral recently that centers around claims by the vehicle manufacturers that car owners should be prevented from working on their own vehicle. The issue in question arose when the Electronic Frontier Foundation (EFF) requested that the Copyright office approve a proposed exemption for the diagnosis and repair of motor vehicles from the Digital Millennium Copyright Act’s (DMCA) prohibition against circumvention of technological protection measures that control access to copyrighted works. According to their website, EFF “champions user privacy, free expression, and innovation through impact litigation, policy analysis, grassroots activism, and technology development.”
It’s interesting that EFF’s exemption request probably would have received little attention, but for opposition comments filed by General Motors (GM) and the Alliance of Automobile Manufacturers. As part of their comments, GM and the Alliance make the case that the car companies own the software on the vehicle and that it is licensed to the car owner. Therefore, any attempt by the car owner to circumvent the software on the car would be considered a violation of the car companies’ copyright. They also make the case that car owners working on their car could endanger the safety of the vehicle and cause the vehicle emissions system to operate out of compliance. The manufacturers state that the exemption is not necessary, pointing to the Memorandum of Understanding (MOU) signed by the Auto Care Association and Coalition for Auto Repair Equality with the car makers that says that manufacturers will make available all of the information that is necessary to repair a vehicle.
Yes, the MOU was intended to ensure that information is available to car owners and shops so that vehicles can be repaired. However, the entire concept behind Right to Repair and the MOU is that the car owner owns the vehicle when they purchase it; and that those same car owners should have the freedom to have that vehicle repaired by whomever they want, including themselves. In fact, one of the hallmarks of Americans’ love affairs with their car is the freedom that it provides, whether it is taking the car on a road trip or being able to work on it in their garage. This concept of ownership goes beyond just what repair information the car companies place on their website -- it is ownership of the entire vehicle.
There is no doubt that technology has changed how vehicles are repaired. Cars are run by computers, and therefore repairing or customizing a vehicle entails changes to the software that control the vehicle systems. However, should the computerization of vehicles change how car owners view their vehicle? We don’t think so. Clearly, car owners should not be encouraged to tamper with their vehicle’s emissions or safety systems (there are laws in place to ensure the integrity of the emissions system), but sometimes innovation that comes from outside the vehicle manufacturer can lead to better safety, improved performance and reduced pollution.
Further, technologies such as telematics systems and new entertainment features provide more opportunities for car owners to customize their driving experience. There is little doubt that the connected car will further enhance a driver’s connection with their car, unless of course the manufacturers determine to stifle innovation through their drive for profits.
The Auto Care Association feels strongly that when a consumer buys a vehicle, they purchase everything -- the body, seats, engine and yes, the software on that vehicle as well. Anything less is not in the best interest of the automotive industry or the U.S. car owner.
You can find a copy of the joint comments filed with the U.S. Copyright Office by the Auto Care Association and Automotive Parts Rebuilders Association here
When the debate over Internet sales tax parity began, the Marketplace Fairness Act (MFA) was a simple solution for leveling the playing field between brick and mortar businesses and online retailers. However, as occurs in all things legislative, the simplest solution comes with some of the strongest objection.
The MFA as drafted would simply provide states with the ability to collect sales taxes on purchases made by people and businesses within their jurisdictions based on the tax rate applied to the buyer’s address. The benefit of such an approach, also called “destination sourcing,” is that it is simple and fair. The system under the MFA looks like this:
- The rate of tax is calculated based on the buyer’s address;
- The tax is collected by the remote seller, and remitted back to the state of the buyer’s address.
Buyers, especially those in non-sales tax states, are not required to pay a tax beyond that mandated by their legal residency. The MFA also requires that online retailers are provided free software to perform the collections, remittance and proof of sales for auditing purposes that integrates into their Internet shopping cart systems. Additionally, online retailers doing less than $1 million in remote sales do not have to comply with the online tax collection.
Seems like a fairly easy approach that eliminates the unfair pricing advantage that online retailers have over physical store fronts. Yet, legislators, for reasons not entirely clear, have objected to certain details of MFA and have drafted two new proposals that have already slowed progress of the legislation.
One concern being expressed by some legislators is that MFA provides an exemption for small sellers, but brick and mortar stores do not get exemptions from sales tax collection unless they are in a no sales tax state. So the second proposal to emerge would phase out the exemption for small sellers over three years, but keep the “destination sourcing” principle. Proposal two, would look like this:
- The rate of tax is calculated based on the buyer’s address;
- The tax is collected by the remote seller and remitted back to the state of the buyer’s address:
- In year one, all remote sellers doing less than $10 million in online sales are exempt.
- In year two, all remote sellers doing less than $5 million in online sales are exempt.
- In year three, all remote sellers doing less than $1 million in online sales are exempt.
- In year four, no remote sellers are exempt.
Only a few layers are added into what is still a fairly direct solution to the Internet sales tax issue, but those are easy enough to incorporate into the legislation. Furthermore, the software being provided has the capabilities to incorporate these requirements into their systems. So why not stop there? Or as some elected officials might prefer, why stop there?
The third legislative option being proposed is called “hybrid-origin sourcing.” And no, it does not mean only states where all residents drive hybrid vehicles can participate, but it does make it pretty difficult for states to apply the new law. The system under the third proposal would look like this:
- Online retailers are determined to have a physical presence in a state depending on a series of factors, including where the largest amount of employees exist, whether they do business in a state for more than 30 days, and others.
- Online seller pays the tax rate on purchase based on state presence of the retailer.
- Retailer sends the tax rate collected to their state tax revenue department, along with the zip code of the purchaser that is provided at the time of sale.
- If the retailer’s tax rate is higher than that of the purchaser, the balance of the revenue is kept by the retailer’s state.
- Seller’s state then sends the amount, along with the zip code, to a newly formed Internet Fairness Tax Act tax revenue board, as required by the law.
- The law only becomes effective if each state participating in the opting-in to the program develops their board within 90 days.
- All members of the board are appointed by the governor.
- The buyer’s state IFTA board then keeps a portion of the revenue while remitting the rest to the buyer’s county of jurisdiction, as determined by their zip code
- States that do not currently have sales tax laws have the option of participating in order to receive tax revenues from purchases made by out-of-state buyers.
Of course, the third option raises the question of whether its authors are attempting to move the bill forward or actually muddy up the water, creating more questions than answers and mandating additional layers of state bureaucracy that are sure to bring objections.
On some level it is heartening that the debate last year as to whether Internet sales should be taxed has now morphed into an argument this year over how that tax should be imposed. This is clearly progress. However, it is also ironic that when Congress is seriously looking at the simplification of a tax code, that proposals are being discussed that would lead to a more complicated and expensive system to implement for retailers and states. Legislators need to look beyond the smoke that is being produced during the debate and look for a workable proposal that would instill fairness in the collection of sales tax from online sales.
Consumer Reports (CR) recently published a blog that appeared on several prominent websites, including Yahoo, warning motorists against using non-original equipment oil filters on Kia produced vehicles. In the posting, CR cites a technical service bulletin (TSB) issued by Kia that states: “Customer concerns as a result of incorrect oil viscosity or use of aftermarket oil filter should not be treated as a warranty repair and any related damage is not warrantable, nor is changing engine oil and filter to isolate this condition.” CR recommends to its readers that:
- When dropping your car off for service, make sure you don't authorize the dealer to perform repairs without speaking with you first. This way you won’t get a surprise bill for an oil and filter change.
- If your Kia is still under the powertrain warranty, considering taking it to the dealer for oil changes. Yes, it probably costs more than the quick-lube store, but you’ll avoid any potential problems with oil- and filter-related warranty claims.
- Consider buying Kia-approved oil filters and either using them when you do your own oil changes, or have your mechanic or quick-lube store use the Kia filter and not their own.
Lost in the Consumer Reports article or the Kia TSB is the fact that the Magnuson-Moss Warranty Act specifically prohibits the conditioning of a new car warranty on the use of an original equipment part or service. Put another way, the use of a non-original equipment part on a vehicle cannot by itself be used by the car company or dealer to deny warranty coverage. Further, the act places the onus on the vehicle manufacturer not the consumer, to demonstrate why the use of the non-OE part caused the problem which resulted in the need for a warranty repair.
Kia’s directives circumvent this process entirely: the mere presence of an aftermarket oil filter automatically voids warranty coverage for the oil change parts and services, as well as any damage Kia says “relates” to oil filter function. Making matters worse, Consumer Reports jumped on the bandwagon, urging consumers to adhere to the anti-consumer and anti-competitive TSB from Kia.
The Auto Care Association along with the Automotive Oil Change Association, Tire Industry Association and Service Station Dealers of America sent a letter in May to the FTC urging them to force Kia to withdraw the TSB and to issue a statement that use of aftermarket filters will not void a new car warranty. The groups further have called on CR to issue a correction to its readers on this issue. You can find copies of the letters on the Auto Care Association website.
Of course, Kia is not the only vehicle manufacturer to issue statements which mislead or scare consumers into thinking that use of a non-original equipment part or service will violate their new car warranty. Further, we constantly receive phone calls from repair shops and even consumers from time to time complaining that a dealer refused warranty coverage for a vehicle issue simply because the car owner patronized a non-dealer for maintenance. In most cases, the car owner gets caught in the middle between the dealer or manufacturer and the independent service shop. Often the independent takes the hit and pays for the repair fearing they will lose the business of their customer.
The auto care industry must take action to understand the current law and to educate their customers that car companies and their authorized dealers on the Magnuson-Moss Warranty Act and car owner’s warranty rights under the law. A great resource for both industry and consumers can be found on the FTC website: http://www.consumer.ftc.gov/articles/0138-auto-warranties-routine-maintenance. The industry also should let us know if you or your customers are subject to misinformation or warranty threats by the dealer or vehicle manufacturer. Please email information on any warranty related issues to Aaron Lowe at email@example.com.
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.