How does the car fleet industry view odometer legislation . . . What solutions, if any, are offered to ease the aching used car market ... Is a national odometer law a possibility . . .
Automotive Fleet presents the viewpoints of an industry.
On Nov. 7, 1967, the California Legislature put teeth into its law prohibiting tampering with odometers by making it a misdemeanor.
The legislators, in effect, thus put the bite on the entire car fleet industry.
Under provisions of the law, those convicted could be sent to prison for up to a year and/or fined. Before the law was enacted, anyone found turning an odometer back could he sued. Under the present law, however, anyone caught and convicted of the same offense can be prosecuted and can also be sued.
In California, an individual convicted of a misdemeanor can be sentenced up to one year in jail. Conviction of a felony calls for a penalty of more than one year.
While the major brunt of the odometer legislation falls on California companies and on those doing business in California, the repercussions of the new law are being felt throughout the entire country.
"It's a subject that just can't be ignored," a fleet administrator told Automotive Fleet.
"No sense wishing the odometer issues will go away . . . it won't," said a Midwest fleet dealer.
"I will be: greatly surprised if a similar law is not-passed in each of the 50 states," said, a New York leasing official.
Predict a U.S. Law
At the recent meeting of the Western Auto Auction Association in Scottsdale, Ariz., all the auction operators were in accord that the odometer law had hurt the market and they further felt that soon there would be a federal law regarding odometers to cover every state.
On March 27, 1968, a law went into effect in Massachusetts whereby the state attorney general was given broad powers to act against unfair methods of competition or deceptive practices.
The new law provides a $100 fine for anyone turning back or readjusting the speedometer or odometer with intent to misrepresent mileage to a prospective buyer.
It is this mileage factor that is the bane of the entire automotive industry. Since the day that the first used car was offered for sale, mileage has been the key factor not only in the selection of a car to be offered for sale, but also in the customer's guide for buying.
With the passage of the California law, and with all that the law portends, the automotive industry may be forced to change its long-standing approach in used car selling.
The Key to Success
To those in the car fleet market, used car prices often hold the key to a successful operation. Therefore, it is not surprising to view the concern on the issue prevalent throughout the industry. A survey of leasing companies and new and used car dealers in California revealed an almost unanimous opinion that a two-year-old car will drop in value by at least one cent for each mile on the odometer over 30,000 miles regardless of the condition of the car.
It is this "condition of the car" that takes on greater importance in California since the advent of the odometer legislation and the item that soon may be the determining factor in fleet used car sales throughout the country.
In a recent Newsletter of the American Automotive Leasing Association, one California dealer was quoted as saying that the entire concept of used car selling in California must now change.
"It now becomes important that you must sell the condition of the car rather than mileage. You have to sell the point that a car driven, say 50,000 miles, but a car properly maintained, is a better used car buy than a car driven only 25,000 miles but not properly maintained.
E. W. "Babe" Scammon is chief of the Transportation Division for the State of California. Scammon has some very definite ideas regarding mileage as a factor in used car selling.
"We have subscribed to 100,000 miles of operation for our state fleet - less miles if the condition of the unit indicated earlier replacement," said Scammon. "And the car that gets the highest mileage in the least time is the best used transportation buys. Actually, the cars that are operated by little old ladies in Pasadena to go shopping and the cars used for the short commute once a day are the vehicles most apt to give trouble. Once an engine is hot there is negligible wear regardless of mileage traveled. But the cold engine, stop-and-go operation shortens engine life. These are the things that dealers must get across to the used car public. Dealers must teach each buyer how to recognize value other than by visual observation of the odometer reading," Scammon said.
An AF survey of leasing company officials, fleet dealers and fleet administrators who have cars in California revealed an almost unanimous opinion that the law "has hurt the used car market."
"This result is the dealers' own making because they have conditioned the public to consider value in direct relationship to miles shown on the odometer," was the opinion of one California leasing executive.
15,000 Miles Per Year
"The average mileage here among dealers is generally conceded to be 15,000 miles per year," said Joe J. Horn, used car manager, J. W. McAlister Co., San Francisco. "When a fleet or individual's car comes in from lease with say 60,000 miles on the odometer, the accepted formula among dealers is to deduct .01 cents per mile over the average for the age of the car. In other words, a two-year-old car would lose $300 off the value immediately."
One California leasing publication reported that wholesalers are, reluctant to purchase high-mileage cars at any price, and that in many cases such units arc selling from $400 to $500 below book figures.
"Out-of-state buyers are coming into California and buying these same vehicles, taking them back to their respective states where they can turn the, odometers back and wholesaling them at a profit," the publication added.
Out of State Selling
Why then can't California firms do the same thing?
"Some say sell cars out of state," Horn told AF. "California has a population of 20,000,000. The peripheral states around us, Oregon, Washington, Nevada, Utah and Arizona, combined do not have half the population of California. It does not stand to reason that these, states could possibly begin to absorb in their markets the number of cars that could be shipped in to them."
Sam Lee of Sam Lee Associates, Los Angeles, is in agreement.
"I talked to a leasing company the other day who told me they got such low bids on their cars in California that they had them driven back to Chicago where they picked up about $200 more over' and above the cost of transporting them back," Lee said. "I know that many leasing companies are doing similar things, moving their cars out of the state. Oregon has become swamped with high-mileage used cars and dealers there have stopped buying," Lee added.
There are exceptions to this generally gloomy view of the California scene.
Ford Motor Co. recently sold 329 one-year-old cars at the Los Angeles Auto Auction and averaged more than $100 over book value on the vehicles. Mileage on the vehicles was not indicated, however.
And the president of a large national leasing company with headquarters in California told AF that "there is now a leveling off of used car prices" in his state.
This increased emphasis on mileage, which is also the dominant item in the Kelley Blue Book, the Black Book, Automotive Marketing Report, etc., also has repercussions on new car sales.
"If a dealer is unable to sell high-mileage cars except at greatly reduced prices, he simply cannot take them in trade," said Lee.
"What is an automobile dealer supposed to do about the high-mileage cars he is offered in trade?" Lee asked at a seminar on "Used Car Merchandising" at the recent National Association of Fleet Administrators Conference in Chicago. "So long as no one would buy a late model used car on which the speedometer showed much more than 10,000 or 12,000 miles, the automobile dealer has had no alternative but to set odometers back. Actually, lie removed mileage as a factor affecting depreciation.
"Certainly it is high time that the automobile industry, instead of compounding the problem by placing so much emphasis on mileage warranty programs, started to educate the public to the fact that low mileage in itself does not necessarily make for a good used ear and that high mileage actually may be a desirable feature rather than a disadvantage. Certainly a well-maintained, high-mileage car should be worth more than a rough, city-driven, low-mileage car. And the used car buying public should be made to appreciate that fact," Lee said.
"All education processes, though, are slow, and it is going to take a long time to change half-a-century of buying habits," Lee told the fleet administrators.
But what is the fleet manager to do in the meantime?
Here was Lee's answer:
'The Obvious Answer . . .'
"The obvious answer is that the old program of "5 years or 50,000 miles" and other arbitrary replacement plans of this type, will have to go. Fleet managers will have to replace cars much earlier, perhaps going back to annual replacement for high-mileage cars, or operating them for longer periods of time . . . perhaps three or even four years. But this is a risky proposition in these times when there is so much emphasis on highway safety," Lee added.
The problems in odometer laws are obvious. But what are the solutions, if any?
At the recent AALA convention in Miami Beach, Fla., dealer and factory officials suggested several solutions.
Like Lee, they agreed that probably the best solution is a massive educational campaign by all dealers and factories alike to inform the public that high-mileage should not be the major criterion in judging used cars' value.
Like Lee, however, they also agreed that this would be a long-range program.
For the immediate future they suggested that state laws be amended to eliminate odometers, except for trip-mileage units, or to require that all odometers be turned back to zero at the time of a car's resale.
Another suggestion involved the use of hubodometers instead of odometers.
Among administrators at the recent NAFA conference, the turning back of odometers to zero at the time of resale was by far the most popular method advocated to AF.
Odometer Elimination?
What about the elimination of odometers?
While none of the factories contacted by AF would comment on this, one manufacturer did suggest that a major stumbling block in this area is the state inspection laws.
"Each state vehicle inspection law has a list of equipment that must be included in the inspections. One of these items is the odometer. Before any manufacturer could even begin thinking of eliminating odometers, the inspection laws would have to be changed in most states," the official said.
A highly placed Detroit source told AF, however, that "most of the manufacturers are giving serious consideration to the elimination of odometers."
At the AALA convention, Armund J. Schoen, president of Four Wheels, Inc., Chicago, said that concern over the legislation must be tempered by the fact that "retail new-car business will not generate enough late-model used cars of varying mileage to affect the prices lessors generally receive for out-of-service vehicles."
Schoen, as well as Bruce Hinlein, president of Chestnut Fleet Rentals, Inc., Philadelphia, and J. R. Selig, president of Car Lease Co., Inc., Milwaukee, said their firms had not noted a softening of prices in California.
NIADA on Record
Don R. Hyatt, chairman of the National Independent Automobile Dealers Association, said he favored a warrantied used car for the highest possible resale value. This, of course, meant a low-mileage car, Hyatt said the price he pays for a used car is determined by the number of remaining miles under the warranty.
The 21st annual convention of NIADA went on record as saying that "new state laws restricting the spinning back of odometers are causing problems in used car pricing. The problem is, buyers have been conditioned to place too much emphasis on the odometer reading of a car in judging its value. While, in the past, mileage might have been important as an indication of the value of a used car, with the improvements in motor vehicle design, the wider facilities for servicing, the conclusion is that mileage has little or no value in determining the price at which a ear should be sold."
Hyatt's remarks at the AALA convention caused David Spielman, president of Transportation Vehicles, Inc., New York City, to say that he would suggest a special used-car warranty for leased ears, to be issued by the manufacturer, for a duration of at least 30 days following inspection and a "pool" type payment.
Spielman said his experience indicated that used-car buyers paid more for "in warranty" cars than for those whose warranty had expired, notwithstanding the basic condition of the car.
All the manufacturers have put extra bite into the California law and all future laws of this type by tightening up on their warranty regulations. They have done this by strengthening the language in their warranties as far as the odometer reading is concerned, stating that the warranty shall not apply to any "vehicle on which the odometer mileage has been altered and the vehicle's mileage, cannot be readily determined."
No Convictions Reported
While the California law has certainly been felt throughout the industry, there have been no convictions under the law.
"The best information from the Department of Motor Vehicles and the California Highway Patrol is that no convictions have been made to date under the law," said California's Scammon.
"Enforcement will probably be held to those eases where a complaint has been lodged and it can be shown that there was intent to defraud. Proving intent to defraud is not easy," Scammon concluded.
"I do not know of anyone who has been charged or sentenced under this law," said Lee. "I do know that no used car or new car dealer will tamper with a speedometer at this time and, as a result, high-mileage cars are taking quite a beating in the used car market," Lee added.
Perhaps Joe Horn summed up the situation best:
"One of the trends in government today is toward consumer protection. I have no doubt that there will soon be a federal odometer law and when there is, we will find out just what a high-mileage fleet car will be worth on the used car market."
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