May 8, 1976
Page 15940
CLEAN AIR AMENDMENTS — PERFORMANCE WARRANTY NEEDED TO PROTECT CONSUMERS
Mr. MUSKIE. Mr. President, under present law, automobile manufacturers are required to warrant that the emission control systems of new motor vehicles and engines in actual use will conform to the emission standards for 5 years or 50,000 miles provided that the vehicle or engine is maintained properly.
The Committee on Public Works adopted several amendments which were introduced by Senator BENTSEN to insure that no anticompetitive effect would result if the emission control warranty is implemented. These include a study by the Federal Trade Commission, establishment of an aftermarket parts certification program, and a prohibition of any attempt to tie warranty protection to the use of dealer's parts and service.
Senator BENTSEN will propose an amendment — No. 1614 — which would reduce the useful life in the performance warranty to 18 months/18,000 miles. The committee rejected this proposal. The other measures were deemed to be more than sufficient to protect the aftermarket industry. Adoption of this amendment would simply protect the automobile industry at the expense of the consumer and the public.
The performance warranty is designed to protect the consumer. The consumer pays for an emission control system that is required to be designed to last for the useful life of the car. Without the warranty the manufacturer has no financial responsibility to assure that a car will continue to meet standards after 18,000 miles. The Bentsen amendment would shift that burden completely to the consumer.
The warranty also helps assure that public health will be protected by providing an incentive for manufacturers to build cars that actually perform for the full 50,000 miles to which they are certified.
The choice of 50,000 miles for the useful life was based on the fact that automobiles generally last for 100,000 miles. Low mileage vehicles in certification shows emissions that are less than the standards. However, these emissions generally increase as the vehicle and engine gets older, and at mileages above 50,000 the emissions are greater than the standards. But, if a vehicle meets the emission standards at the 50,000-mile halfway point in its total life, as required, it is reasonable to assume that its average emissions over that total life will meet the emissions standards established to achieve health-related air quality. This purpose would be defeated if the performance warranty were reduced to only 18,000 miles.
And the warranty reduction is opposed by consumer groups. For example, Consumer's Union states that—
It is highly predictable that if (a shorter warranty period) is mandated device durability will be designed downward ... This would add substantially to the consumer's cost of maintaining emission control devices.
The Consumer's Federation of America is "opposed to this anticonsumer amendment."
Ralph Nader has stated:
Your proposed amendment to reduce the 50,000 mile/5 year ... automobile emissions warranty in the Clean Air Act would not only adversely affect air quality but also would hurt consumers while benefiting only the auto manufacturers.
The major change in the warranty provision proposed by Senator BENTSEN is the reduction in useful life to18 months/18,000 miles. As noted above, this would be inconsistent with clean air goals and consumer protection.
The performance warranty is one of the most important tools for achieving air quality goals for automobiles. Any attempt to reduce its coverage must be rejected.
In order to provide further information for Members of Congress and the public in this matter, I ask unanimous consent to have printed in the RECORD: First, a letter from the Consumer Federation of America, sent to all Senators, opposing this anticonsumer amendment; second, a letter and attachment from Consumers Union, Publisher of Consumer Reports, which opposes reduction of the warranty on emission control devices; third, a letter from Ralph Nader to Senator BENTSEN which states that the amendment would adversely affect air quality and hurt consumers while benefiting only the auto manufacturers; fourth, a letter from the Director of the Bureau of Competition, Federal Trade Commission to the Assistant Administrator for Enforcement of EPA which describes their suggestions for handling potential anticompetitive effects of emission control warranties, suggestions which were generally adopted in the committee bill, and which do not include reducing the performance warranty; and fifth, a committee staff memo, "Issues and Answers on the Aftermarket Industry and the Performance Warranty."
There being no objection, the material was ordered to be printed in the RECORD, as follows:
CONSUMER FEDERATION OF AMERICA,
Washington, D.C.,
April 28, 1976.
Re: Bentsen amendment to effectively limit section 207(b) Auto Emissions Performance Warranty of the Clean Air Act to 18,000 miles.
DEAR SENATOR: Consumer Federation of America, the nation's largest consumer organization, is composed of over 200 national, state and local nonprofit organizations that have joined together to espouse the consumer viewpoint.
Senator Bentsen has announced his intention to introduce an amendment on the Senate floor to limit the 50,000-mile Section 207 (b) auto emissions performance warranty to 18,000 miles. CPA is opposed to this anticonsumer amendment for the following reasons:
1. In urban areas having emission inspections, consumers whose cars fail the emission test beyond 18,000 miles will have to pay to have their cars remedied even when the cars were properly maintained. This could well create absolute consumer liability for the repair of autos that failed the test despite the fact that the manufacturer is responsible.
2. Reducing the performance warranty encourages the auto manufacturers to lower quality on the assembly line. The reduced quality control may save the consumer one dollar ($1) in the sticker price of the automobile but may well cost the new car consumer $100 in repairs on the road when a car fails to meet the emission standards between 18,000 and 50,000 miles.
3. Routine service on the emission control system can be performed by any independent garage. The Senate Public Works Committee bill, S. 3219, even provides a $10,000 fine for any auto manufacturer to communicate in any way to the car owner that the warranty is conditioned on use of parts or service provided by the manufacturer or its dealers. (Section 203(a) (4) and Section 205).
The Senate Public Works Committee bill also requires the Environmental Protection Agency to eliminate potential anticompetitive effects of the performance warranty on the aftermarket parts industry by setting up a voluntary parts certification program. The auto manufacturer is prohibited from invalidating the performance warranty where certified parts were used by the consumer.
5. More vehicles are already recalled each year for safety defects (5.6 million safety recalls each year) without any significant anticompetitive effects than will be "recalled" under the Section 207(b) warranty (2 to 4.5 million vehicles each year) .
6. There is no persuasive evidence that reducing the performance warranty to 18,000 miles will improve the competitive position of the independent parts and service industries in relation to the monopolistic auto industry. More stringent measures such as antitrust actions and providing independents with access to warranty repairs are indispensable steps toward the accomplishment of this goal.
7. During the hearings on the Clean Air Act, Congress did not have the benefit of testimony from consumer groups such as CFA, Consumers Union, the National Consumers Congress and Ralph Nader's Public Citizen. Consumers Union did advise the House Subcommittee on Environmental Problems Affecting Small Business by letter that it opposed reducing the 50,000 mile warranty to 18,000 miles.
Very truly yours,
CAROL TUCKER FOREMAN,
Executive Director.
KATHLEEN F. O'REILLY,
Legislative Director.
CONSUMERS UNION,
Washington, D.C.,
April 2, 1976.
Hon. EDMUND S. MUSKIE,
Chairman,
Subcommittee on Environmental Pollution,
Committee on Public Works,
Washington; D.C.
DEAR MR. CHAIRMAN: Thank you for your letter of April 1 asking for any update there may be of Consumers Union's June, 1975 position on the auto emissions warranty issue. We have not changed or added to our position of that date as it was stated in our letter to Representative McCollister. A copy of that letter is attached for your information.
If we can be of further assistance to you in preparing for debate, please let me know.
Sincerely,
MARK SILBERGELD, Attorney,
Washington Office.
Attachment.
CONSUMERS UNION,
Washington, D.C.,
June 2, 1975.
Hon. JOHN Y. MCCOLLISTER,
House of Representatives,
Washington, D.C.
DEAR CONGRESSMAN MCCOLLISTER: This is in response to your request for Consumers Union's views on H.R. 3598. This bill, which you have introduced and which is now pending before the Health Subcommittee of the House Committee on Commerce, would prohibit EPA from requiring warranties of more than one year's duration on automobile emission control devices.
The purpose of the legislation is to prevent the automobile manufacturers and their franchised dealers from using the presently required five-year warranties to capture the markets for replacement parts — including the devices and many related parts such as spark plugs — and for repairs related to maintenance of such devices. After consultation with our Auto Test Division, we have concluded that we cannot support H.R. 3598 but prefer an alternative approach.
In response to the five-year warranty requirement promulgated by EPA, auto manufacturers have designed the control devices, and the various parts related to the performance of these devices, for substantially longer endurance than would be the case under a one-year warranty. It is highly predictable that if the one-year warranty period is mandated, device durability will be designed downward, so that devices and parts will not be expected to perform according to EPA standards for more than one year. Because there is no "quick" test which state auto inspection officials can use to determine whether devices are operating according to standards, this would mean that many more automobiles would be operating with inadequate devices than is now the case. Even when such a "quick" test is available, design of device durability for a one year period may well result in more devices operating below standards for the better parts of several years before they are detected upon inspection and required to be repaired or replaced.
In addition, a reduction in designed durability would mean an increased incidence of repair for such devices and parts. This would add substantially to the consumer cost of maintaining emission control devices to EPA performance standards.
The alternative, we believe, is to prohibit new car manufacturers from specifying brand names or manufacturers in warranty conditions which require adequate maintenance and parts replacement. Instead, the law should limit such warranty conditions to performance specifications equal to those met by the manufacturers' own replacement parts and repair specifications, if any, required of their franchised dealers. The law should require manufacturers who use such warranty conditions to submit these specifications to EPA for inclusion in a public record available to any person.
This will permit independent parts manufacturers and independent repair establishments to compete in these markets with the new car manufacturers and their franchised dealers.
This entire problem, of course, is only a part of the historical problem of restraints of trade in the "after parts" and "crash parts" markets. The Federal Trade Commission has for several years been conducting an antitrust investigation in the crash parts industry. It is our understanding that no resolution to that investigation is yet in sight. Appropriate inquiries as to what action, if any, the Commission intends to take in this market and the "after parts" market might assist in obtaining whatever action is appropriate.
We hope that these comments will assist you in finding a solution to this problem. Please feel free to call on us if we can be of further assistance.
Sincerely,
MARK SILBERGELD, Attorney,
Washington Office.
APRIL 28, 1976.
Senator LLOYD BENTSEN,
U.S. Senate,
Russell Senate Office Building,
Washington, D.C.
DEAR SENATOR BENTSEN: Your proposed amendment to reduce the 50,000 mile/5 year section 207(b) automobile emissions performance warranty in the Clean Air Act would not only adversely affect air quality but also would hurt consumers while benefitting only the auto manufacturers. One measure of the air quality impact is that certification of vehicles to emission standards alone results in an emission reduction of about one-third that achievable through enforcement including the full performance warranty.
Reducing the performance warranty to 18,000 miles will not save consumers money but will cost them money. Lowering the performance warranty will induce auto manufacturers to reduce the initial quality of the emission control system. While the reduced quality may save consumers a few cents on the sticker price of the car, it will cost them many dollars over the life of the car in increased repair costs. There is already too much planned obsolescence in the auto industry without further encouraging it by reducing the performance warranty.
Lobbyists for reducing the performance warranty to 18,000 miles attempt to justify their position on gross exaggerations of anticompetitive effects of a 50,000 mile warranty. Contrary to the lobbyists' allegations, routine service (including spark plug and point replacement, oil and filter changes, carburetor and timing adjustments and PCV and EGR valve servicing among others) can be performed by independent garages and local service stations. The Senate bill, S. 3219, would even improve the present service competitive situation by imposing a $10,000 fine on any auto manufacturer who communicates in any way to car owners that the warranty is conditioned on use of parts or service provided by the manufacturer or its dealers.
To eliminate potential anticompetitive effects, the Senate bill as suggested by the Federal Trade Commission requires the Environmental Protection Agency to set up a parts certification program where an independent parts manufacturer could voluntarily certify its parts as equivalent to an automobile manufacturer's original equipment parts. Where such equivalency of quality has been demonstrated in the aftermarket, the Federal Trade Commission has found that product manufacturers cannot force purchasers to also buy parts and services from the manufacturer. The vehicle manufacturer is protected from undue warranty failures by the certified quality of the repair parts.
Manufacturer repair of cars which violate the section 207(b) performance warranty is very similar to manufacturer recall of motor vehicles for remedy of safety defects. (In both cases, the vehicle owner takes the car back to the dealer for repair of the defect at the manufacturer's cost.)
The safety program recalls an average 5.6 million vehicles each year (with a high of 12 million in 1972) with no demonstrated anticompetitive effects. The section 207(b) program will subject less vehicles (2 to 4.5 million depending upon emission test failure rate) to manufacturer remedy and hence even less potential direct anticompetitive effect through giving franchised dealers an opportunity to sell additional parts and service during a recall. In terms of the entire automobile population, only 2 to 4.5% of all cars will fail a section 207(b) emission test and be subject to manufacturer remedy at franchised dealers each year.
In considering other anticonsumer aspects of your proposed amendment, you may want to consult with Consumers Union and the Consumer Federation of America who are also on the record as strongly opposing reduction of the 50,000 mile warranty to 18,000 miles. Both of these groups have also staunchly supported strong competition in the market and have exhibited special concern for small businesses.
Finally, enclosed is a copy of a letter to me from a member of the auto repair industry who opposes the warranty reduction position taken by the industry's Washington lobbyists. In commenting on the distorted "Destroy Your Business" lobbying campaign of the Automotive Service Industry Association (ASIA) and the Iowa Automotive Wholesalers Association, Mr. Schlebach writes:
"These people [the trade associations] are disturbed that a provision such as this is proposed to carry a 5 year/50,000 mile warranty.
"No wonder people are dissatisfied with the automotive repair industry. I am too, and I make a living from it."
Thank you for your consideration. Sincerely,
RALPH NADER.
FEDERAL TRADE COMMISSION,
Washington, D .C.,
December 11, 1974.
Re: Corres. No. 97318.
Mr. ALAN G. KIRK II,
Assistant Administrator for Enforcement and General Counsel,
U.S. Environmental Protection Agency,
Washington, D.C.
DEAR MR. KIRK: This is in response to your letter of September 23, 1974 to Chairman Engman which requested an opinion with respect to the legality under the antitrust laws of certain language used by several automotive vehicle manufacturers in their 1975 emission control warranties and vehicle owner maintenance instructions. In accordance with your discussion with Assistant Director David L. Boll, I understand that because of time constraints you will accept the views of the Bureau of Competition on these matters rather than a letter from the Secretary expressing the views or the entire Commission.
Before commenting on the materials provided for our review, I would like to make two initial points. First, the comments herein set forth represent the views of the Bureau of Competition. They are not necessarily representative of the views of the Commission as a whole or any individual Commissioner.
Second, although the Commission has long been active in seeking to maintain competition in the automotive aftermarket parts and service industry and the Bureau itself has in recent months provided written statements to EPA and Congress concerning potential anticompetitive effects of the warranty provisions of the Clean Air Act on the parts and service industry, the Bureau does not have expertise in the technical aspects of air pollution and the technology of emission control devices.
As you know, the Bureau for some time has been concerned with the competitive problems which might arise for the independent businessman in the automotive aftermarket parts and service industry if the warranty provisions of the Clean Air Act are interpreted so as to allow each major motor vehicle manufacturer to condition the protections afforded by the statutory warranty on the use by the motoring public of parts made by such manufacturer and on the service provided by such manufacturer's franchised dealerships. Such conditions may be characterized as "tying practices" or "tie-ins" which raise serious questions under the antitrust laws because of their potential for adverse competitive impact on independent parts manufacturers and independent service outlets in the automotive aftermarket. The tie-ins which concern the Bureau are those which arise in the implementation of the Section 207(a) defects warranty and which may arise in implementing the Section 207(b) performance warranty.
In construing Section 1 of the Sherman Act and Section 3 of the Clayton Act, the Supreme Court has said that a tie-in violates those laws when the following is shown: (1) the purchase of one "product" (i.e., an automobile which carries with it Clean Air Act warranty protections) is conditioned upon the purchase of a separate distinct "product" (i.e., aftermarket parts and service); (2) sufficient economic power over the "tying" product (i.e., the automobile and its warranty) to make the tie effective; and (3) foreclosure of a substantial amount of commerce in the tied product (i.e., aftermarket parts and service). See Fortner Enterprises, Inc. v. U.S. Steel Corp., 394 U.S. 495, 498 (1969). Moreover, if a practice does not fall squarely within the proscriptions against tying which flow from the Sherman and Clayton Acts, the Commission has the power to determine that a practice akin to a tie-in which in substance violates the spirit of the Sherman and Clayton Acts is a violation of Section 5 of the Federal Trade Commission Act. FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244 (1972).
Based upon this authority, the Bureau is of the opinion that any language in warranties and maintenance instructions which will have the effect of substantially foreclosing the independent parts and service industry from competing for the business generated by the Clean Air Act emission control warranties will establish the basis for a violation of Section 5 of the FTC Act.
With the foregoing in mind, I turn now to the specific language of the warranty provisions and maintenance instructions which have been provided to us. They will be examined on a company-by-company basis:
1. Ford—
In general, Ford's warranty instructions are of more concern to us than the terms of its actual warranty. However, the 1975 Ford warranty does deviate slightly from the warranty contained in MSAPC Advisory Circular No. 15A (July 30, 1974) which is, we believe, a clear and straightforward statement of the warranty protection the vehicle owner should enjoy under the Section 207(a) defects warranty. The Ford warranty states that it runs to "the eligible ultimate purchaser and each eligible subsequent purchaser" while the Advisory Circular language does not contain the word "eligible." It is possible that the word "eligible" may suggest to the motorist that he needs to do more to keep the warranty in effect than follow the maintenance instructions. You may want to question Ford on the necessity for the use of this word.
Although the Ford maintenance instructions do not expressly condition the warranty protection on the purchaser's use of Ford parts and the patronizing of a Ford Dealer, the instructions, at the very least, strongly recommend to the purchaser that he use Ford parts and go to a Ford dealer for maintenance. The warranty provides that it will be performed by the selling dealer's (in some cases any authorized Ford or Lincoln/ Mercury dealer's) ... repairing, replacing, or adjusting, following delivery of the vehicle to his place of business, without charge for parts or labor and using Ford service parts or Ford Authorized Remanufactured Parts, any part of the emissions system determined by Ford to be not in conformity with the requirement of the act.
2. General Motors.
Like the Ford language, the GM maintenance instructions constitute a strong recommendation that the motorist use GM parts and GM franchised dealers. The instructions do this by recommending that "any replacement parts used for required maintenance services or for the repair of emission control systems be new genuine GM parts." "Genuine GM parts"are defined to include those manufactured by or for Pontiac, designed for use on Pontiac vehicles and distributed by Pontiac for any division or subsidiary of General Motors Corporation. The instructions also shift to the purchaser of the GM automobile the burden of determining if non-GM parts are warranted as equivalent to GM parts by stating that:
If other than new genuine GM parts are used for required maintenance service replacements or for the repair of components affecting emission control, the owner should assure himself that such parts are warranted by their manufacturer to be equivalent to genuine General Motors parts in performance and durability.
Although the 1975 GM emission control systems warranty varies slightly in its wording from the provision in the Advisory Circular, the variance is not substantial.
3. British Leyland.
The British Leyland maintenance instructions represent almost an explicit tie-in of the warranty to the use of British Leyland parts and British Leyland dealer service. The instructions indicate that the company's dealers are "trained and equipped to use proper parts, either manufactured by British Leyland or approved by it if made by others." A failure resulting from the use of nonapproved replacement parts will apparently void the warranty; authorized dealers "will have spare parts that can be used." The language concerning dealer service makes it unlikely that the motorist will go anywhere else if he wishes to preserve his warranty protections:
If replacement of any component at the manufacturer's cost is necessary under the Emission Control Warranty, the work (including parts and labor) should be performed by an authorized British Leyland dealer, unless written approval has first been secured from British Leyland for use of another service facility. (Emphasis added) .
No British Leyland warranty was sent to us for review.
4. Nissan (Datsun)
Both the Nissan warranty and maintenance instructions represent a subtle, but consistent, linking of the warranty protection to the use of the company's parts and the patronage of its dealers. The Nissan warranty in the last sentence states that the company's obligation under the warranty:
... is to repair or replace, at its option, at an authorized Datsun dealership, any part which proves to be defective as required to bring the vehicle into conformity with such standards.
Like the GM maintenance instructions, the Nissan instructions attempt to shift to the motorist the burden of determining if non-Nissan parts will be usable in the automobile. Nissan does this by first warning that "it is important that genuine Nissan parts be used when servicing the system" and the use of replacement parts "which are inferior to genuine Nissan parts may reduce the effectiveness of the system" and then, in the next paragraph, stating:
Therefore, if it becomes necessary to utilize other than genuine Nissan parts, the owner should make certain that such parts are warranted by their manufacturer to be equivalent to genuine Nissan parts in quality.
In light of the foregoing warranty language, we have come to a number of conclusions regarding the likely impact of the Clean Air Act warranty protections on the automotive aftermarket parts and service industry. In our judgment, the warranty and maintenance instructions of GM, Nissan and British Leyland, and to a lesser extent those of Ford, are likely to have a serious competitive impact on the independent aftermarket parts and service industry insofar as emission control systems are concerned. The British Leyland material comes close to an explicit attempt to tie company parts and company service outlets to the emission control system warranty. The impact of maintenance instructions like those of GM and Nissan, which seek to compel the vehicle owner to check the adequacy of the warranty provisions of other manufacturers if he is not disposed to use the company's parts, is clear. It is unlikely that more than a few motorists will take the time and trouble to find out about the warranty provisions of another manufacturer; instead, the motorist will avoid the possibility that the parts made by a company other than the vehicle maker will not have an equivalent warranty by patronizing the company's franchised outlets and allowing the company's parts to be used in the maintenance of the emission control system.
As an alternative to placing an impossible burden on the vehicle owner to investigate the adequacy under his warranty of a myriad of parts made by a large number of manufacturers, a program of voluntary certification could be undertaken by the manufacturers and EPA. The outline of such a program was disclosed in your April statement to the Subcommittee on Environmental Problems Affecting Small Business of the House Committee on Small Business. We have supported and continue to support the aims of such a program.
The major vehicle manufacturers might resist such a program on the ground that only their parts possess the quality and meet the technical requirements of the emission control systems in automobiles manufactured by them. However, the law on tying suggests that although in some circumstances a manufacturer/franchisor may require that its distributor/franchisee purchase nonspecifiable items and ingredients from it, the manufacturer/franchisor cannot force the independent distributor/franchisee to buy from it those items and ingredients which could be supplied by other firms if these firms had the requisite specifications to insure quality control. In the Matter of Chock Full O' Nuts Corp., Inc., 3 CCH Trade Reg. Rep. ¶20,441 (October 2, 1973).
By the same reasoning, the vehicle makers could be required to make the specifications for emission control device parts and components available to other parties. The same result could be accomplished through an industry program of voluntary certification for aftermarket parts, an approach which we favor.
None of the warranty provisions or maintenance instructions which we have reviewed contain an explicit statement that the vehicle purchaser is free to use any manufacturer's parts and service outlets in complying with the maintenance instructions so long as the parts do not impair the emission control performance. In your April testimony you indicated that EPA was "exploring the possibility of requiring the manufacturers to make a positive statement in their owner's manual that parts and service can be obtained from any competent source We urge EPA to implement such a requirement and suggest that the statement recommended by the Motor and Equipment Manufacturers Association for use in the 1975 vehicle owners' manuals would amply suit this purpose. We also believe, as indicated above, that the warranty contained in MSAPC Advisory Circular #15A is a clear and straightforward statement of the warranty protections the vehicle owner will enjoy under the defects warranty.
If you have any questions or are in need of further assistance regarding the matters discussed herein, please feel free to contact Assistant Director David L. Roll, Noel W. Kane, or myself.
Sincerely yours,
JAMES T. HALVERSON, Director,
Bureau of Competition.
ISSUES AND ANSWERS ON THE AFTERMARKET INDUSTRY AND THE PERFORMANCE WARRANT
There has been considerable mail from the aftermarket industry — service stations, independent garages, parts makers — predicting that the 50,000 mile "performance" warranty — Section 207(b) of the Clean Air Act — will "destroy" their industry and increase consumer costs by "billions of dollars a year." Their campaign seeks to reduce the Section 207(b) warranty to 18 months/18,000miles. The Committee rejected this amendment.
Contentions of the aftermarket people are incorrect. They do not represent the experience with warranties under the Clean Air Act, and they underestimate the value of the amendments that were adopted by the Committee to resolve any problems. EPA has stated that "strong warranty provisions are essential if the clean air goals of the act are to be achieved . The aftermarket has demonstrated no present loss of business resulting from the Act — any anticompetitive problem is entirely prospective." The Consumer Federation of America has attacked any shortening of the warranty provisions as "anti-consumer."
Misconception: Monopolistic, Anti-Consumer Aspects — The performance warranty has been described by the industry as monopolistic and anti-consumer in nature.
Response — Consumer organizations, speaking for themselves, including the Consumer Federation of America, Consumers Union and Ralph Nader support the performance warranty and oppose any anti-consumer amendment which would reduce it.
Misconception: Consumer Cost — Much of the argument for reducing the warranty term involves the alleged high cost to the consumer.
Response — The Bureau of Labor Statistics has found that the existence of a Clean Air Act warranty has, so far, cost the consumer $1 per car, not the several hundred dollars per car often mentioned by the aftermarket people. (see below)
Estimates by the Bureau of Labor Statistics of the added retain costs attributable to the Clean Air Act requirements on New Cars (by model year) :
[Table omitted]
Misconception: Manufacturer's Parts and Dealers Service Must be Used — It is argued that customers must go back to the dealer for all service work during the 50,000 mile warranty period.
Response. — Antitrust laws and FTC activities prohibit such a requirement. To augment this position, the Committee included language that prohibits the manufacturer from conditioning its warranty or instructing the buyer to use the manufacturer's aftermarket parts or service to maintain the warranty (Sections 25 and 29 of S. 3219).
Misconception: Parts Covered. — It is claimed that practically all parts of the vehicle must be covered by the emissions performance warranty.
Response. — EPA draft regulations and practice require a car's owner to be responsible, as a part of "proper maintenance," for replacing any part that has a design life of less than 50,000 miles. Spark plugs, for instance, carry a design life of 12,000 miles. EPA explains its policy on parts after this design life period: "If a manufacturer requires replacement of the positive crankcase ventilation (PCV) valve at 12,500 miles, this would constitute the normal replacement interval for the PCV valve ... the Agency's position is that failures occurring in a component after the expiration of the normal replacement interval for that component are not covered by the ... warranty. Such components should be replaced by the car owner at approximately the specified interval."
Misconception: Psychological Impact on Consumer. — The aftermarket industry has argued that the mere existence of the performance warranty, even with language in 8. 3219 cited above, is a "psychological" impediment to the car owner's use of independent dealers.
Response. — The psychological aspects of the performance warranty have been in effect since 1970, and the industry proponents of the Bentsen amendment admit that their business has substantially increased during those years. And the proposed change does not touch the 50,000 mile defects warranty — section 207(a) of the bill — which might have just as strong an effect on the customer, if any such psychological impact exists. Similarly, the existing motor vehicle safety program recalls an average of 5.6 million vehicles each year with no demonstrated anticompetitive effects.
Misconception: Maintenance Instructions — It is claimed by the aftermarket industry that maintenance instructions provide illusory relief.
Response — The same Federal Trade Commission study cited above also recommended that maintenance instructions contain a statement that parts and service can be obtained from any competent source. Section 29 of the Committee bill prohibits the manufacturer from including in the maintenance instructions any component or service which is identified by brand, trade, or corporate name.
As stated in the Committee report:
"There is one exception to this requirement. If the manufacturer can demonstrate to the Administrator that such a captive part or service is essential to the car's operation, and if EPA finds that the exception is in the public interest, including a consideration of its impact on competition, then the Administrator may grant an exception. The Committee intends that the manufacturer will have a significant burden in making such a showing and would expect the Administrator to consult with Congress before making such an exception."
Misconception: Parts Certification — It is claimed by the aftermarket industry that certification of parts will not solve the anticompetitive problems of the performance warranty in its present form.
Response — The Federal Trade Commission concluded in a staff study in 1974 that a voluntary parts certification program would be useful in overcoming any potential anticompetitive problems of the Clean Air Act warranty. Such a program is mandated by Section 28 of the Committee bill.
Misconception: FTC Study — The aftermarket industry claims that a study of any anticompetitive effects of the performance warranty is of no help whatsoever.
Response — Such a study is mandated by Section 39 of the Committee bill, with the report required within 18 months of enactment.The performance warranty will only be triggered by the existence of a "quicky" field test with a penalty or sanction on the vehicle owner. These do not yet exist, and can only be expected to be established over a period of many months even in those communities that need them most. There is time for the FTC to conclude the study and for its findings to be considered without removing the performance warranty in the meantime.
Misconception: EPA Waiver of Parts Certification — The EPA waiver of the ban on specification of manufacturer's parts or service provides a major loophole which could hurt manufacturers of aftermarket parts.
Response — The limited authority of EPA to waive this prohibition under limited circumstances does not lessen its benefits to the consumer. The Administrator can only waive this requirement when he makes a "public interest" finding — a finding which would be indefensible if the effect would be to reduce competition.
Conclusion — It may be argued that it is better to be safe than sorry and therefore to reduce the warranty terms as a precaution. This would be unwise. The performance warranty was included to encourage the industry to design and install in its cars emission control systems that will meet the clean air standard for a car's "useful life" of 50,000 miles. Without such a requirement, there is every reason to believe the industry will not design emissions systems capable of meeting the standard for any longer than they must warranty. Shorter performance warranty means a less durable, less effective system. Time still exists to make a full FTC/EPA study and because of the need to maintain the design goals for the industry, it would be inappropriate to reduce the term of the performance warranty at this time.