MINUTES OF THE
SENATE Committee on Transportation
Seventy-First Session
May 17, 2001
The Senate Committee on Transportationwas called to order by Chairman William R. O'Donnell, at 2:27 p.m., on Thursday, May 17, 2001, in Room 2149 of the Legislative Building, Carson City, Nevada. The meeting was video conferenced to the Grant Sawyer Office Building, Room 4401, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Senator William R. O'Donnell, Chairman
Senator Mark Amodei, Vice Chairman
Senator Lawrence E. Jacobsen
Senator Maurice Washington
Senator Raymond C. Shaffer
Senator Terry Care
Senator Maggie Carlton
GUEST LEGISLATORS PRESENT:
Assemblywoman Barbara E. Buckley, Clark County Assembly District No. 8
STAFF MEMBERS PRESENT:
Donald O. Williams, Committee Policy Analyst
Alice Nevin, Committee Secretary
OTHERS PRESENT:
Joseph McDermott, Concerned Citizen
John P. Sande III, Lobbyist, Nevada Franchised Auto Dealers Association
Harry Stauros, Concerned Citizen
Samuel Sorich, Lobbyist, National Association of Independent Insurers
Jim L. Werbeckes, Lobbyist, Farmers Insurance Group
Scott M. Craigie, Lobbyist, Farmers Insurance Group
C. Joseph Guild III, Lobbyist, State Farm Insurance Companies
Bob Schendel, Concerned Citizen
Steve Katzmann, General Manager, Reno Toyota
Virginia (Ginny) Lewis, Deputy Director, Motor Vehicles, Department of Motor Vehicles and Public Safety
Anthony Granito, Supervising Investigator, Compliance Enforcement Division, Department of Motor Vehicles and Public Safety
Chairman O'Donnell:
I will open the hearing on Assembly Bill (A.B.) 207.
ASSEMBLY BILL 207: Imposes certain restrictions and requirements upon transfer and titling of, and requires certain notices and disclosures regarding, motor vehicles that have sustained certain damages. (BDR 43‑441)
Assemblywoman Barbara E. Buckley, Clark County Assembly District No. 8:
I am the sponsor of A.B. 207. This is an important consumer protection and safety measure. It will protect both consumers and honest businesses from the unfair practices of others involving the sale of damaged motor vehicles.
This bill requires disclosure must be made upon sale of a vehicle, if the vehicle has sustained certain damages in the past. The bill includes key provisions of a federal bill offered by U.S. Senators Diane Feinstein, Carl Levin, and Richard Bryan during the last session of Congress (S.678: Salvaged and Damaged Motor Vehicle Information Disclosure Act of the 106th Congress). This bill garnered support from many consumer groups as well as the leading states’ attorney general on consumer protection issues within the National Association of Attorneys General.
Assembly Bill 207 is needed because Nevada law does not protect consumers. Currently, there is no law requiring disclosure upon sale that a vehicle has been previously damaged, regardless of the seriousness of the damage. The only requirement is when a vehicle is sold as salvage, as a result of a total loss insurance settlement, defined as damaged to the extent that the owner considers it uneconomical to repair, and then the vehicle is rebuilt, the vehicle must be inspected and a salvage title issued. However, there is nothing in current law to prevent a vehicle which is almost a total loss from being rebuilt and sold without disclosure and with a clean title.
What is a total loss is subject to interpretation and abuse, since the owner can say a vehicle was uneconomical to repair; therefore no inspection or salvage title is required. Assembly Bill 207 eliminates these problems and draws bright lines which leave less room for dispute. It also provides protections not currently in the law.
Assemblywoman Buckley:
First, a salvage vehicle is defined in section 12 of A.B. 207. When a vehicle has suffered damage to the extent that the cost of repair exceeds a certain price, it is more likely the structural integrity has been compromised. It is difficult for anyone, except the most conscientious repair facility, to restore the vehicle to the manufacturer’s original specifications and standards for crash worthiness and safety. It must be our policy to do our best to protect the personal safety of the traveling public.
Second, A.B. 207 provides a definition and requires disclosure when a vehicle has been flood damaged. The definition of flood damage mirrors the recommendations adopted by the national advisory committee established by an act of Congress, which included lead insurers as well as law enforcement agencies. It is vital to identify flood vehicles because they may appear just fine on the surface, yet may have suffered damage to key mechanical and electrical components.
Section 6 of A.B. 207 defines flood damage: “‘Flood damage’ means damage to a motor vehicle caused by the submersion of the vehicle in water to such an extent that the water reaches over the engine or door sill or enters the passenger or trunk compartments of the vehicle.” The significance to the mechanical and electrical components of the car, encompassed by this definition, will be addressed by a technical witness who will be testifying shortly.
Last spring, an article in the Las Vegas Review-Journal indicated that one-third of the estimated 75,000 cars damaged by Hurricane Floyd, are starting to appear nationwide. Some sellers are not disclosing the damage, as required by most state laws, according to an American Automobile Association (California State Auto Association) official. Hurricane Floyd, North Carolina’s worst natural disaster, drenched the area in 20 inches of rain last September, and was blamed for at least 51 deaths. Floodwaters destroyed or damaged tens of thousands of homes and vehicles with the damage being more than $6 billion. It is evident to me Nevada, without a flood-damage disclosure, is a prime target to unload upon such cars.
Assemblywoman Buckley:
Third, A.B. 207 defines a nonrepairable vehicle in section 10. A nonrepairable vehicle is a motor vehicle that has sustained major damage in a single incident, for which the cost of repair exceeds 90 percent of the fair retail market of the vehicle, before the accident. This definition means that disclosure must be made for a car with such damage.
Fourth, A.B. 207 requires disclosure, where there has been major damage to the car for which the aggregate cost of repair is 20 percent of the lesser of the manufacturer’s suggested retail price or the fair market value of the vehicle, unless the cost is attributed to cosmetic damage. Cosmetic damage is further defined in the bill. This is crucial to ensuring consumers are not given a false sense of security about vehicles that should be subjected to close scrutiny. This bill requires that a car that has been damaged in this way have these types disclosures indicated on the title. This will reduce title washing.
Assembly Bill 207 is an important consumer protection measure. During debate on this bill, folks were saying this bill might hurt poor people. If someone buys a junker and the car is in an accident, it might be tough for them to unload the car, even if it is a serious accident. If you are buying a car for your child, would you want to make sure you know as much as you can about the history of the car? That is all this bill attempts to do. It would let you know if the car was in a serious accident or flood, so you can know better what you are buying. That is the whole intent of this bill.
I have brought an expert from the car industry, Mr. McDermott, to testify.
Senator Care:
If we were to enact this bill, would the buyer and the seller have the freedom of contract to opt out of the agreement? What happens to agreeing to purchase the vehicle “as is”? Could you still do that?
Assemblywoman Buckley:
It does not change that at all. Many vehicle sales in the used car world are sold as is and that would not be changed. What it does for example: in a private party sale, I sell you my junker as is; but if I had lived in North Carolina before I moved here and my car was in a flood such that the whole car took on water, I would have to tell you. That would remain unchanged. If I do not know, if I am a private party and I have no knowledge, I am not required to pass on anything that I do not know. If, in the commercial world, someone inspects a car and they do not know it has been in a flood, but before they buy it they do an inspection and see the car has been welded together through two pieces, then they are under the duty to disclose this information.
Chairman O'Donnell:
Let me see if I can understand the bill. Does this bill pertain to private party sales? If I am going to sell my $3000 junker to you and it has been wrecked and the frame is bent, I would have to disclose that to you. What value would I get for my car now?
Assemblywoman Buckley:
The bill does pertain to private parties. You and I would be in a transaction. When the damage has been severe, should I not, as a good consumer, have as much knowledge as I can about the vehicle that I am going to be driving in with my family? You can sell it, and you can argue, yes, the car was in an accident, but it was fixed. It is still worth $3000. But that information is out there and in the consumer protection arena knowledge is power. Hiding knowledge, hiding bad facts about cars, only makes it more perilous on our roads.
Chairman O'Donnell:
Under the bill, when a car is registered, the disclosure form goes to the Department of Motor Vehicles and Public Safety (DMV/PS). As a good citizen, would you complete the disclosure form and register your car to have the title branded, so when you resell it you are going to notify the person that the car has been in a wreck?
Assemblywoman Buckley:
You are thinking that the subsequent purchaser would have a motive to hide the disclosure because of their own financial self-interest.
Chairman O'Donnell:
The value of the car would be diminished.
Assemblywoman Buckley:
There are always folks who cheat the system, regardless of what we do. All we can do, in every law, is size up a problem and try to figure out the best solution without hurting those who operate businesses in a legitimate way. We can try to make things better.
Senator Care:
Section 17 of A.B. 207 mirrors the statute for punitive damages. A violation of this statute would be intentional and not a breach of contract. Do you know if the proposals you cited earlier contain a similar provision, or if there is something else in the consumer law that mirrors the same language?
Assemblywoman Buckley:
Section 17, because it contains the intent to defraud language, has higher damages than there would normally be with a breach of contract. That scheme of three times the amount of actual damages is very similar to our penalties in other consumer fraud sections and is recommended by the National Association of Attorneys General, but only where there is the intent to defraud.
Joseph McDermott, Concerned Citizen:
I am the owner and founder of the Auto Inspector, whose primary purpose is to provide information to the consumer in all matters relating to vehicle purchasing. Our secondary goal is to work to establish support for consumer protection laws that protect individuals from fraud and deception. We do this through inspection of vehicles, prior to purchase and through awareness education.
I have worked in all areas of the automotive industry, and have earned certification as a master automobile technician and master of automobile body and structural analysis. Within the automobile dealership environment, I was directly involved in working with auctions, purchasing vehicles to be sold on the dealership lots. Many times, there were vehicles that were bought, unknown to all the parties concerned, which would have fallen into the major damage disclosure category. In some cases, the titles did not transfer with the vehicles, but followed later. Some of those cars had branded titles from states that did disclose, but some came from states that did not brand titles nor provide disclosure information.
The used car industry has had a tremendous upsurge in volume. Today, approximately one in four vehicles purchased are used vehicles. The average buyer has worked hard for their money and generally has saved just enough money to purchase the vehicle. People need efficient and reliable transportation to get to work. They are not prepared for major repairs or litigation costs. The industry has grown to $400 billion a year. The number of used vehicle dealers has increased dramatically over the last 5 years, and even the new car dealers are selling more used vehicles than ever before.
Mr. McDermott:
Where are these vehicles coming from? They are not technically all trade-ins. They come from numerous places such as auctions, or private individuals selling and trading them to dealerships. Insurance companies, when they total the vehicle, send them to the salvage pools; sometimes the cars are repaired and sold back to the public. The sellers do not always have the best interest of the consumer in mind. Sellers are there to sell a car.
Let us say a vehicle is involved in a major collision or flood and repaired. Would you like to know that before you bought the car? What if the repairs were done poorly or even dangerously? It could place your life or the lives of your family in jeopardy. Dealers sell these vehicles to the public on a daily basis.
The current disclosure laws are very vague. There is a series of guidelines dealers must follow, called the used car rules (Federal Trade Commission’s Used Car Rule). They were designed to instruct the dealer in disclosure laws and to establish a used car buyer’s guide designed to make the dealers disclose any warranty information. The buyer’s guide is most commonly utilized to sell a vehicle that is known by the dealer to be defective or not in good mechanical order. The box is marked as is. This relinquishes the responsibility of the selling dealer to repair or correct any deficiencies with the vehicle.
This leaves the burden of discovery solely upon the untrained, uneducated buyer. The seller will tell you any story necessary to sell the vehicle, often failing to disclose problems with the vehicle. Dealers are often victims as well, because the individual does not disclose the vehicle’s faults before they trade it in. It slips past the dealer and is sold to the public.
Mr. McDermott:
Assembly Bill 207 will force the disclosure that there is no major damage to the vehicle, preventing the seller from hiding these facts from the consumer. It is all right to sell a vehicle as is; however, the consumer has the right to know whether the vehicle is worth the price. The majority of dealers are honest, but if they were all honest, we would not need these laws to protect us.
These rebuilt wrecks are dangerous. Ninety percent are coming through with substantial and major damage to them. Not only is it dangerous, but most manufacturers of late model vehicles are voiding the warranties, knowing the vehicle has either been salvaged, rebuilt, or reconstructed. So the consumer is being deceived; believing they are buying a new vehicle or late model vehicle, with factory warranties applying, and yet the warranties are voided.
Assembly Bill 207 defines a number of different terms including what is salvage and what is not. Legislation already in place handles how a salvage vehicle can be resurrected and reregistered. The problem arises when the vehicle is sold without disclosing this to the consumer. It is easy for the consumer to mask and hide the flaws.
Mr. McDermott:
Here are a few examples. A 1992 Toyota Camry was sold by a large Toyota dealer in this area. There had been severe collision damage to the front end and the repairs were very expensive. Deeper investigation revealed the entire front end of this vehicle had been cut off. The frame had been cut and another section of frame, from another used vehicle, was welded in place. The repair itself was not done with the integrity of the vehicle in mind. The welds were insufficient, welded with what appeared to be oxyacetylene welding and coat hangers. It made a very brittle and very weak weld. In the attempt to hide the welds, they had ground most of the weld away, covering it with undercoating and paint. The section of car that was used was not even from the same year car.
The point is the dealer was unaware this car was even on their lot. The dealer bought the vehicle from an auction where no disclosures were made and it had slipped through their used car inspection process. Eventually, the vehicle was bought back by the dealer and again, that placed the burden of disposal of this car back to the dealer.
Mr. McDermott:
There have been numerous times when I have inspected vehicles that were only cosmetically repaired. The frame was bent, but not straightened. Enough drilling or welding is done to put the cosmetic components back on the vehicle, but the vehicle is left in a damaged condition, which is dangerous and leads to many other problems. I have witnessed various kinds of flood-damaged vehicles coming to Nevada from other states that do not disclose this information. These are vehicles, with zero miles, that were submerged under six feet of water. The vehicles are brought in, cosmetically cleaned, and sold to the public as brand new.
Assembly Bill 207 defines the guidelines that allow disclosures of these damages. In the Assembly, the major damage amount was set at 20 percent of the vehicle’s value. This figure should not be raised any higher. Raising this value leads to vehicles being repaired that have far greater damage than normal, and potential safety problems could arise from the internal damage. With the amendments to the bill, which were made in the Assembly, the bill is in compliance with all existing legislation. Section 21, of A.B. 207, was deleted and should be put back in. A vehicle should have some sort of brand or mark placed upon it because the titles do not always transfer with the vehicle.
Flood damage is very harmful to a vehicle. Many other electrical components are located on or near the floor of the vehicle. Often manufacturers place the computer under the passenger’s seat. The amount of water entering the passenger trunk and engine areas was established with this in mind. Also, the potential for dangerous and unhealthy bacteria or mold growing in a flood- damaged car increases according to the amount of water the car has been subjected to. There is no dollar amount which can be placed on protecting Nevada’s citizens. By passing this bill, we will take a positive measure to ensure the safety of all Nevadans, as well as protecting the investments made by consumers and dealers alike in this state.
Senator Care:
On the issue of major damage, it seems to me the consumer is looking at two things. First, the right to know of concealed or repaired major damage, because it would diminish the value of the vehicle. Secondly, the consumer has the right to know about any concealed damage that would lead to a safety concern, such as the cracked frame. In your experience, is it possible to restore a damaged vehicle? A vehicle that has suffered major damage, as contemplated under the bill, to the extent that it makes no difference in the value of the vehicle?
Mr. McDermott:
Technically, there is no way to take a major damaged vehicle and repair it to exactly the condition prior to the accident. Any time you straighten or repair any structure on the vehicle, replacing a component that was not factory produced or anytime you use an air-spraying painting technique where the factories have used the electrolysis process, you have diminished parts of the vehicle to an extent. The vehicle could never be repaired to the exact same value and there would be a diminished value.
Assemblyman Ms. Buckley:
I know there is a great deal of opposition to the bill. I cannot stay to listen to that testimony but I would be happy to provide follow-up information to the committee.
John P. Sande III, Lobbyist, Nevada Franchised Auto Dealers Association:
I am here with Wayne Frediani (Wayne A. Frediani, Lobbyist, Nevada Franchised Auto Dealers Association). We are opposed to A.B. 207, although this bill would not affect our clients as much as it would affect the average person.
This should be a nationwide issue. We have, in the past, supported a nationwide title branding bill, but Congress has yet to pass a bill on this issue. I would like to point out a few things. Section 4, of the bill, refers to cosmetic damage, or damage to paint, glass, trim, tires, and other components of a motor vehicle that does not affect the ability of the motor vehicle to function. There are problems with that definition; for example, if you have damage to your lights, that could affect the ability of your motor vehicle to function. The definition is a problem.
Section 8, of A.B. 207, says, “‘Major damage’ means damage of any kind, sustained in a single incident, for which the aggregate cost of repair is at least 20 percent of the lesser of the manufacturer’s suggested retail price of the vehicle or the fair market value of the vehicle, unless that cost is attributable solely to cosmetic damage.” In the Assembly, the question asked was if you had cosmetic damage that was over 20 percent of the fair market value of the vehicle, that is if someone took a screw driver and ruined your paint job and did a lot of other damage to your car, but only $1 was not cosmetic in damage, would this still apply?
Mr. McDermott:
Yes.
Mr. Sande:
Just think of how difficult it would be for the average consumer who had their car repaired 5 years ago, and wants to sell it, to try to determine if this is applicable. How would you find out what the fair market value of the vehicle was 5 years ago? You would have no way of knowing that information. The only thing you are doing is inviting litigation and potentially treble damages.
We did not oppose passage of the bill in the Assembly; however, I talked to Assemblywoman Buckley and indicated there were some problems with the bill, which perhaps could be resolved. The bill required the Department of Motor Vehicles and Public Safety (DMV/PS) to call for disclosure statements any time a car came in for registration. The DMV/PS basically said we do not want to be responsible and that wording was written into the bill. So, if someone comes in with a disclosure statement, the title will be branded; otherwise DMV/PS does not want to be involved.
The difficulty is you are telling the average consumer, even if the car has been fully repaired and is perfect condition, it has to be disclosed under this bill. Then the minute disclosure is made it decreases the value of the car, because now the car title is branded. The DMV/PS told us unless someone brings in a disclosure statement, they will not brand the title. If a used car dealer, or anyone gets a title, is there incentive for them to take it to the DMV/PS? Those are some of the problems we see.
We think the bill will put the average person in a very difficult situation to try to figure out whether to disclose or to not disclose when selling a car. I believe the law, as it stands right now, says if you are doing a contract for a car and fail to disclose a material fact that the average person would want to know, you can be sued and be subject to damages as is provided in this bill. In addition, if it is intentional and fraudulent, they can also award punitive damages. I think there are protections in the law already.
Finally, in section 15 of A.B. 207, it says this only applies to transfers of title in this state. This means it does not apply to North Carolina and flood-damaged vehicles. It does not apply to any vehicles that are purchased outside the state and brought to Nevada and it does not apply if someone has a branded title and they are not reputable. They can take the vehicle some place else, have it registered there, bring it right back to Nevada, and it will not be branded any more. It does not apply to any auctions that are conducted outside of the state. It only applies to Nevada and it would harm the average consumer.
Senator Care:
Was there any discussion in the Assembly, of the case of the co-owner? Something akin to the IRS (Internal Revenue Service) and the innocent spouse rule? What if you have two people who own a car and they sell it, and one of the owners is aware of the repair, and the other is not aware? Was there any discussion about that?
Mr. Sande:
None whatsoever.
Harry Stauros, Concerned Citizen:
I want to testify against the bill. I am a claims supervisor for a major insurance carrier, but I am testifying as a citizen. I have several problems with A.B. 207. This bill is not going to do anything to protect against vehicles coming in from other areas with branded titles.
Section 8 of A.B. 207 defines major damage without setting a consistent standard. If you have a $40,000 car, we can spend $8000 to repair it; if you have a $10,000 car, we can spend $2000. There are a lot of problems with cosmetic and structural damage. For example, someone attempts to steal a car and they set off the air bag. We can spend anywhere from $3000 to $8000 on cars just to replace air bags. Is that a structural item? Is it the same if it has been repaired with factory air bags? Those are some concerns.
Another concern is with section 10, of the bill, where the owner of the vehicle is allowed to determine if the vehicle is a total loss. Nevada has some of the highest insurance rates in the country. Now, if I am understanding this correctly, we are allowing the owner of the vehicle to decide if the vehicle is a total loss. Suppose someone who drives a sports utility vehicle decides they do not want pay $3 a gallon for gas and the car is in a minor accident. They could require or force the insurance company to handle it as a total loss. Again, that would have a very adverse effect on our rates in the state of Nevada.
We have a good law in Nevada which defines structural damage. Yes, there are some cars that are deemed totaled in Nevada that would be fixed in other states and I think the current law does a lot to protect the consumer. Salvage yards in Nevada are required to sell to a licensed dealer and a licensed dismantler.
Samuel Sorich, Lobbyist, National Association of Independent Insurers:
I am vice president of the National Association of Independent Insurers (NAII). We are an association of insurance companies, with about 200 members or insurance companies of our association doing business in Nevada. Our companies are responsible for about half of all the private passenger automobile insurance premiums written in Nevada.
We oppose A.B. 207 because the bill’s definitions would unfairly and unreasonably lower the value of our customers’ vehicles. The bill’s proposed definition of major damage would arbitrarily punish vehicle owners whose cars have sustained relatively minor damage. Given the cost of automobile repairs today, even slight damage can result in repairs that exceed A.B. 207’s threshold for major damage. In every case, where the 20 percent threshold is met, the vehicle title would be branded as major damage and the vehicle owner would suffer a double loss. First, the car is damaged in an accident; then, after it is repaired, the car’s title is branded and the resale value is lessened.
We insurance companies are required to pay for the repair of our customers’ cars so the cars can be put back in pre-accident condition. We do not want our customers to be punished by the double loss that would result from A.B. 207. The 20 percent threshold, proposed in the bill, has no basis in safety standards or auto repair science. It is arbitrary. When a car sustains damage, and is repaired and operates safely and properly, its title should not be branded as major damage just because it meets some arbitrary standard. Such branding unjustifiably lowers the value of cars that are repaired to their pre-accident condition.
Insurance companies acknowledge this bill’s goal is informing consumers about the damage history of vehicles. That is a laudable goal but A.B. 207‘s approach is wrong. The bill’s radically new definitions would arbitrarily punish consumers whose cars sustained limited damage and are repaired to operate properly and safely. This bill tries to achieve consumer disclosure, but I am afraid it does it at the cost of imposing inequities and hardships on consumers.
Chairman O'Donnell:
Are you saying it would be up to the consumer to determine whether or not a car has been branded?
Mr. Sorich:
No, I do not think there is any discretion allowed in the bill. The bill simply says, at least for major damage, if the repair cost exceeds the fair market value of the car, there is no discretion. The consumer must inform the DMV/PS and the title must be branded as a major damage vehicle. Then the consumer would have the obligation to make that information available, if he or she sold the car.
There is really no discretion. That is the fundamental problem we have with the bill. The bill sets a 20 percent standard and declares no matter what the nature of the repairs are, as long as it meets the 20 percent standard, the vehicle is to be branded with a major damage brand. We feel, for our customers, that this is unfair. It lowers the value of their automobiles, that we have paid to be repaired and put back in a condition so the car operates properly and safely.
Jim L. Werbeckes, Lobbyist, Farmers Insurance Group:
For the record, Farmers Insurance Group supports disclosure. We think disclosure is important when you have major damage to a vehicle. Our concern with this bill has been the 20 percent threshold. The trigger of 20 percent is extremely low. I have a handout (Exhibit C) with three examples of vehicles that would be branded under this law. Each example contains a copy of the blue book page (Kelley Blue Book) for that automobile and the low (20 percent of the low book) and high (20 percent of the high book) repair cost estimates. The first vehicle needed a front fender replaced, and the repair cost was $1791. Under this bill, this car would be branded as a major damage car.
Chairman O'Donnell:
I am trying to understand why the insurance companies would have a problem with this bill. Are you saying when you have a vehicle that falls within the purview of this bill, that sustains damage of 20 percent or more, but could be repaired to a point that it would have no significant effect on the operability of the vehicle, it would have to be branded? At that point, the value of the car is quite a bit less. The owner of the vehicle could claim it as a total loss and you (the insurer) would have to buy them a new car.
Mr. Werbeckes:
No. We will weigh out what it costs to repair the car, versus the salvage. In the first example, the replacement cost of this vehicle is $6000 and the repairs to it are $2000. Obviously the car is repairable. We determine a total loss vehicle by adding the repair cost and the salvage cost to see if it is less than the total loss.
Chairman O'Donnell:
Why would insurance companies, whose motive is the bottom line, be concerned?
Mr. Werbeckes:
The diminished value of our insurance vehicle. You have an insured who has paid a premium to have his or her car restored to its pre-accident condition.
Chairman O'Donnell:
But if you have a branded car, now the car is worth less. Now your insurance premiums are the same, and you have made a lot of profit because you can total out the vehicle and give them a check for less money.
Mr. Werbeckes:
You would still pay whatever it costs to total the vehicle. For example, if I had to total this vehicle, I would have to pay the actual cash value of that vehicle today.
Chairman O'Donnell:
I have a 1999 Dodge Durango. If I run into someone and it costs a little over 20 percent of the damage but I go ahead and have the car repaired, now my car has been branded. I have to go to the DMV/PS when it is registered, and it has been branded. When I have a subsequent accident, my car is worth next to nothing, because it has a branded title.
Mr. Werbeckes:
The insurance company still has to replace the car with the same Dodge Durango. From the insurance standpoint we are not looking at it as branded. We are going to have to replace the car with a like-kind quality vehicle.
Scott M. Craigie, Lobbyist, Farmers Insurance Group:
Branding a car does not take place until the car is transferred. It does not affect the value of the vehicle until it is disclosed at the time the car is sold. The concern is these vehicles are going to be branded by us. We are going to tell people you have a vehicle that, when you sell it, is worth less because it is branded. We have good interactions with our clients and this bill leaves us in an awkward situation. People are coming to us, getting their cars repaired, and we are telling them the realities of the day. As you look at these examples (Exhibit C), how do we explain the 20 percent issue to people?
Chairman O'Donnell:
So the problem is you will have to brand the car and when you do that, you diminish the value. When you sell the car, the recovery dollars you recover from the salvage pool, are going to be diminished as well. When it is diminished, you have a loss on the books; when you have a loss on the books, you go to the insurance commissioner and ask for a rate hike because you have too many losses. Is that a good explanation?
Mr. Werbeckes:
I would not disagree with you. One of the problems is when the 20 percent is applied, it is applied to older cars that are of small value already. When the replacement part is a small piece (as in Exhibit C), with no absolute structural damage, we are going to have to say to those insured customers, you now have an obligation to reduce the value of your car.
C. Joseph Guild III, Lobbyist, State Farm Insurance Companies:
We are not opposed to the disclosure issue, but the State Farm Insurance Companies is a mutual company, unlike other companies. The policyholders in State Farm’s system are actually owners of the company, in a sense. For instance, last year State Farm Insurance Companies returned portions of premiums to its mutual policyholders here in Nevada.
Assembly Bill 207 bill would put State Farm’s customers in a conflicting situation with the company, in two instances. The first instance was set forth by Mr. Craigie and Mr. Werbeckes. The second instance is in section 10, subsection 2, a vehicle can be “designated as nonrepairable by its owner,” under this bill. In section 15, the person with a nonrepairable vehicle must make a written disclosure, to the transferee, in a title situation. Also in section 18, where an insurance company settles a claim on a nonrepairable vehicle, if the insured declares the property to be unrepairable, then the company must tell the insured they have to provide the disclosure. That puts a conflicting situation in front of everybody. In addition, there is a technical problem with section 18, by the way, that needs to be addressed. The section does not make any sense as it is read.
Senator Amodei:
Was there any discussion in the Assembly on classic vehicles that are taken from basically two or three vehicles? Is there language in the bill which would exempt those?
Mr. Werbeckes:
There was some discussion on that subject and the language which was proposed was not included in the bill.
I would like to discuss the other two examples in Exhibit C. The 1998 Isuzu truck had a low blue book of $5700 and high blue book of $8100. We had an estimate of $1800 for repairs. In reality, the truck just needed a rear bed quarter panel replacement, and yet it would have been branded with the 20 percent rule. The last example is a 1984 Chevrolet Blazer which had to have the door replaced and it would be branded under this bill.
Mr. Craigie:
We have discussed this among ourselves and we think there are some good components in this bill. As Assemblywoman Buckley mentioned, the possibility of the state becoming a dumping ground is a genuine concern. What really needs to happen here is a serious review of the 20 percent standard. There is a need to have a uniform system among all states, a federal law. We respect and appreciate Assemblywoman Buckley’s bill, because this is an important issue, but it really should be done uniformly across all states.
Chairman O'Donnell:
Are you saying if we pass this bill, we are doing the right thing; however, we are hurting ourselves because the rest of the nation has not followed suit?
Mr. Craigie:
I believe if we do this in a patchwork quilt method, we really should have laws that are uniform for all states. The basic concern is the 20 percent standard in the bill.
Chairman O'Donnell:
Is the determination as to whether a car has been totaled, a decision the insurance companies make?
Mr. Werbeckes:
That is correct. You look at the amount of damage to the vehicle, what the salvage return would be on the vehicle, and the value of replacing that vehicle. Those three things need to be determined to decide whether to total the vehicle or repair it.
Senator Jacobsen:
I would like to hear testimony from a car dealer.
Bob Schendel, Concerned Citizen:
I am a car dealer in Yerington. In listening to the testimony, I think consumers are going to get hurt by passage of this bill. If consumers buy a car and find a problem with a car, they will not disclose it; they will trade it in to you. If the dealer does not check the vehicle very carefully, and it is sold again to someone else, the dealer is in trouble because the problem was not disclosed.
I have been a mechanic for many years. Cars can be rebuilt but it is not feasible many times because of the costs involved. National branding would take care of a lot of problems, especially problems with cars from states where there were floods. There are always unscrupulous people, but dealers are mostly good people trying to do right by their customers. The bill, as written, will not serve the public very well.
Steve Katzmann, General Manager, Reno Toyota:
We are not against damage disclosure on vehicles, we are just opposed to the way A.B. 207 is written. There are people that abuse things in the car industry, but generally car dealers do not try to hide things from customers. If the vehicle has been damaged, and we know about it, we will disclose it. If we buy a car from the auction, if it is a lemon law buyback or it has had some major damage, or if it was in our possession and one of our employees wrecked the car, we will disclose this information. I think it is the people who abuse the system that need to be looked at and not just the car dealers in general.
Every customer has the option to take a car to a mechanic or to a body shop before signing the papers to buy the car. We take in used cars on trade and customers do not tell us what is wrong with the vehicle. We have to find out what is wrong later. There are many cars which we take in on trade that do not pass our safety and reconditioning requirements, and we do not sell these cars to the public. These vehicles may have never been wrecked or damaged, they are just mechanically or cosmetically unsafe and we do not want to sell them to the public.
Car dealers do not have a reason to hide something from a customer. The bill, with the 20 percent clause, is going to create some real problems for the consumer. Consumers and the automobile industry will not benefit from this. If the customer is concerned that there is something wrong with the vehicle, they can take it to be checked out. Reno Toyota does not have a body shop. If I take a car in on trade, I safety check and recondition it but I do not know if it has been repaired; therefore, I have no way of letting the customer know that. But if I sell that vehicle and later the customer finds out it was damaged, under the proposed bill I am liable and am the unscrupulous one.
Chairman O'Donnell:
I am playing devil’s advocate here. If Reno Toyota did not have a body shop, and you had a car that sustained damage, you would have to take it to a body shop and pay them; and if it were 20 percent, the car would be branded. However, if you did have a body shop, how much would it really cost you? You could say it cost you nothing because you already own the body shop.
Mr. Katzmann:
I could, but I suppose there would be a value on it based on what it would cost me to fix it.
Chairman O'Donnell:
Do you think used car dealerships would put a value on it enough to brand their own vehicle? I am trying to be practical here. Think of the individual who has a full service mechanic shop. For example, I go out and I buy a car at an auction. I do know something is wrong with it, but it is not branded yet. If I take it over to my shop and I do the work myself, so it costs me nothing to have it repaired, I would not have to report it because it would cost me less than 15 percent.
Mr. Katzmann:
The insurance companies are the ones who determine if the car is a total loss, based on the salvage value and the repair value. We have nothing to do with whether the car is determined salvage or not. If a car is in an accident, and the value of the car is $6000 and the repair damage is $2000, why even fix it? The value of the vehicle would be diminished because the title is going to get branded. Why fix the car?
I think in most cases, the consumer will lose with passage of this bill. Also, a bank may have financed a car, and now it is wrecked and the value of the car is less. When you go to sell it, because it is branded, the value is less and you will get less money for it. What will happen to the difference with the loan that you have? There could be a deficiency on what the car is worth and the customer could owe the bank.
I disagree with Mr. McDermott when he said you cannot repair a car to its original value. I am not the expert, but body shops are licensed, bonded, and trained. If a vehicle has been in an accident, where the insurance company does not deem it to be a total loss, body shops do a great job of repairing it so it is as safe and reliable as it was originally intended.
Mr. Sande:
From the automobile dealer’s association standpoint, if this bill were to pass, this would not be a negative for us but it would be a negative for the consumer. If I was advising an auto dealer, I would say anytime somebody comes in and trades in a car, you will hand them a little disclosure statement where they will sign, saying what disclosure there was for the vehicle. Making a disclosure will lower the trade-in value of the car. When the car is sold and someone comes back to you saying there is a problem that was not disclosed, you would come back after the original owner for treble damages and attorney fees. A car dealer can learn to live with this law, but it really hurts the consumer.
Senator Jacobsen:
Mr. Katzmann, do you ever put a car on a lot with an as is sign?
Mr. Katzmann:
Yes, we do sell cars that say as is. There is a federal law that every used car has to have a disclosure statement on it and we have the customer sign that disclosure statement. In some cases, if it is a certified vehicle, for example a 2000 Toyota Corolla, we do a 128-point safety inspection. If the car comes with a warranty from the manufacturer, we disclose it. It either comes with a warranty or no warranty and the customer signs the disclosure form. Generally used cars are not sold with warranties. If it is a certified vehicle, the warranty is 6 years or 100,000 miles from the original date that it went into service. A used car usually does not come with a warranty. Legally, if a customer buys a car and drives it away and something happens, and they did not purchase an extended service contract or a warranty, I do not have to do anything. If it is within 30 days, morally I feel I need to fix the car. New car dealers in northern Nevada are reputable and we want the customers to come back again.
Virginia (Ginny) Lewis, Deputy Director, Motor Vehicles, Department of Motor Vehicles and Public Safety:
I would like to introduce Anthony Granito, who can speak from the compliance enforcement prospective.
Anthony Granito, Supervising Investigator, Compliance Enforcement Division, Department of Motor Vehicles and Public Safety:
I am the chief investigator for the Las Vegas office. We do not oppose any disclosure laws. The way this bill is written, enforcement would not have a big impact on our department. I can see there are concerns with the bill and perhaps the bill needs to be clarified as to 20 percent portion.
Chairman O'Donnell:
Do you interface with the Consumer Affairs Division? How many complaints have you received over the past year or so on this type of transaction?
Mr. Granito:
Last year in our division, we had four complaints in Las Vegas and two in Reno. Most complaints were unfounded because the disclosure was marked right on the dealer report of sale. In one case, the dealer did not have knowledge of a problem with the vehicle. We had one case where dealer fraud was involved and that dealer went out of business prior to us receiving the complaint.
Senator Jacobsen:
If this bill becomes law, do you anticipate this would add to the price of the vehicle?
Mr. Granito:
The problem is knowing what 20 percent is. Is it 20 percent of the car now or 20 percent at the time of damage? What if the car was damaged 10 years ago and now you are trading it in?
Chairman O'Donnell:
What if you bought a $7000 car and you had $1000 worth of damage. If you turn around and sell that car in 5 years, the car is probably worth $3000. But you had $1000 damage, is it 20 percent now or is it 20 percent of new? How does that read? Do you disclose it at the time you sell the car?
Mr. Sande:
I think there is a little ambiguity in the bill. I assume they meant it would be at the time the damage occurred or at least when you got it repaired. A question would be what if the car is damaged at one time and repaired at a later time. Someone made a comment about the bill saying you had to carry a blue book in your pocket. They only go back 7 years so what do you use? Do you use low book, high book, and if you are wrong, and you intentionally do not disclose damage, and someone finds out about it and sues you, are you are subjecting yourself to treble damages? That is why it really does put the consumer in a difficult place. I do not know the answer to that question.
Senator Amodei:
I am thinking about people who restore cars and as part of that restoration they take everything off the frame, paint the frame and make sure everything is done just right, to include going through the engine. It is clearly going to be worth more than 20 percent. Do you have an opinion as to whether or not this would arguably create an issue, when that person comes to you for a title for that car, as far as the completion of the restoration process?
Mr. Granito:
The way the proposed bill is written, it says major damage and damage sustained. If you are talking about restoration I do not think you are talking about damage. If you bought an older car, a classic car and it was damaged so that you would need to repair the damage, that is restoration. I think the bill says damage of any kind sustained in a single incident, as in an accident.
Senator Amodei:
Do you think there is language here that exempts the restoration process from the applicability of this now?
Mr. Granito:
Yes, because in section 8 it says cost that is attributed solely to cosmetic damage. It talks about damage of the vehicle, it does not talk about restoration of a vehicle. A definition of major damage would exclude restoration of a classic car.
Senator Amodei:
Section 10 says a nonrepairable vehicle and section 12, which is a salvage vehicle; I think the language contained in those is sufficiently gray.
Mr. Granito:
In that instance I would agree.
Mr. McDermott:
In the testimony by the insurance industry, talking about what is low blue book and high blue book, A.B. 207 is clear that it means fair market value. The value would have to be established at whatever the price was before the accident. Would the 20 percent be based on the low blue book or the high blue book? If you would take 20 percent of the high blue book and apply it to the value of the low blue book, it would be over 20 percent. It is a figure that does need to be defined and determined. In the original bill, they had a dollar amount versus the percentage of the vehicle’s value. In the same context, there was testimony about air bags. Some air bags are $500 and some are $6000 to $7000 in the higher end cars, so clarification of that portion of the bill is needed. We cannot and do not want to set the value so high as to allow the structural types of damage to be repaired and the vehicles put back on the street.
The statement I made that the vehicle cannot be repaired to original standards, they can be repaired to a good standard. The way the manufacturers design the vehicle and the way the vehicle was put out of the factory is one way; anytime a vehicle is repaired, it can be repaired to a safe and serviceable standard. Cosmetic damage can be repaired. I have a little trouble with whether frame or structural damage is restorable to 100 percent. Anytime you weld to any metal, you alter its statistics and metallurgic qualities.
Chairman O'Donnell:
I will close the hearing on A.B. 207. We have a number of bills that need to have action taken on them; however, Senator Raggio has just asked if Senate finance can begin meeting as soon as possible so we will adjourn this meeting and reschedule the work session.
The meeting is adjourned at 4:06 p.m.
RESPECTFULLY SUBMITTED:
Alice Nevin,
Committee Secretary
APPROVED BY:
Senator William R. O'Donnell, Chairman
DATE: