Auto salvage and S. 431, S. 485, and S. 1232 : hearing before the Committee on Commerce, Science, and Transportation, United States Senate, One Hundred Third Congress, first session, August 3, 1993 online

Thank you.

[The prepared statement of Mr. McCarthy follows:]

Prepared Statement of Frank McCarthy

My name is Frank McCarthy and I am Executive Vice President of the National
Automobile Dealers Association (NADA). NADA is a national trade association rep-
resenting over 19,000 franchised new car and truck dealers holding more than
35,000 separate franchises. The primary business of NADA members is the retail
sale of new and used motor vehicles, both foreign and domestically produced. On



22

behalf of our membership, I would like to thank you for the opportunity to testify
today on S. 431.

We commend Senator Exon and the Subcommittee for addressing the matter of
salvage and rebuilt vehicles. The majority of states presently have some indication
on their titles that a vehicle has been salvaged or rebuilt. However, as vehicles are
retitled in other states which do not "carry forward" title brands, this information
is often dropped from the title. This eliminates valuable information to both dealers
and ultimate consumers that would greatly assist in evaluating the safety and value
of an automobile.

Congress recognized this problem and established a task force in the Anti Car
Theft Act of 1992 to examine the matter and report to Congress with recommenda-
tions. The task force is directed to consider the advisability of requiring uniform
title brands on all certificates of title indicating that a given vehicle was salvaged,
rebuilt, or reconstructed. We applaud Congress for establishing this task force. We
believe that its recommendations will serve as the basis for legislation which will
guarantee uniformity among the states in branding its titles. However, it is reason-
able to assume that if such requirements are enacted into law, it will not become
effective for several years. There are things that can be done presently to provide
potential used car buyers with information regarding the history of vehicles which
would be extremely important in evaluating the vehicle. These small steps could be
taken without encroaching upon the duties and responsibilities of the task force.

S. 431 identifies the steps which should be taken immediately. It establishes very
simple and nonburdensome requirements on state Departments of Motor Vehicles
which would provide dealers and consumers valuable information. As we under-
stand the bill, it would simply require that all states indicate on their titles whether
the vehicle was previously issued a title with a salvage, junk, or rebuilt brand and
to designate which state first issued such a title. We believe this can be accom-
plished by using no more than one or two lines of space on a certificate of title. A
short question on the title such as "Has this vehicle previously been branded? Yes
or No. Branding State .", would seem to fulfill the requirements and objec-
tives of the bill.

With this information a consumer can walk away from the vehicle or engage in
additional inquiries to determine the extent of damage the vehicle once sustained.

From the dealer point of view this information is also extremely valuable. When
dealers purchase for their used car inventories, they often do not have the time or
ability to conduct a detailed inspection of each vehicle. The title information re-
quired by the Exon bill would be very helpful to the dealer in determining the value
and commercial acceptance of the vehicle.

Once again, this can all be accomplished without any appreciable burden to the
states. The bill would not supersede the work of the task force. It does not attempt
to define the types of vehicles that should be branded nor does it attempt to specify
the terms which states would be required to use in "Tiranding" their titles. Those
matters are left to the task force deliberation. This bill merely requires that states
indicate on their titles whether another state has previously branded the vehicle.

While we fully support the basic requirements of the bill, we would like to make
several observations. First, we believe that lines 17 and 18 on Page 2 were added
inadvertently. The section of the code amended by these two lines relates to odom-
eter disclosure. The amendment would require that all odometer disclosures be
made "on the title". Congress specifically addressed this question several years ago,
and I do not believe it is the intent of Senator Exon or the Committee to revisit
that issue.

Second, we believe that passage of this much needed legislation could be jeopard-
ized by delegating to the Secretary of Transportation the authority to enact into law,
by rule, the task force recommendations. The Anti Car Theft Act requires the task
force to report its recommendations to the President, the Congress, and the chief
executive officer of each state. We fear that this will meet with a good deal of resist-
ance by many members of Congress who believe that Congress should consider ac-
tion on the recommendations, not the Secretary.

Again, we appreciate the opportunity to testify on S. 431, and will assist the Sub-
committee in any way on this matter.

Senator Mathews. Thank you, Mr. McCarthy.
Our last witness is Mr. Paul Cheek. Mr. Cheek.



23

STATEMENT OF PAUL CHEEK, VICE PRESIDENT FOR CLAIMS,
GEICO; ACCOMPANIED BY JUDITH STONE, PRESIDENT AND
EXECUTIVE DIRECTOR, ADVOCATES FOR HIGHWAY AND
AUTO SAFETY

Mr. Cheek. Thank you, Mr. Chairman.

I am Paul Cheek, vice president of claims for GEICO, and I am
accompanied today by Judith Lee Stone, who is president of Advo-
cates for Highway and Auto Safety. GEICO is proud to serve on
Advocates' board of directors.

On behalf of GEICO and Advocates, I thank you for conducting
this hearing, and allowing us to testify on the important issue of
State motor vehicle titling practices. I will summarize my remarks,
and ask that my entire statement be inserted in the record.

Senator Mathews. Without objection, it will be included.

Mr. Cheek. Thank you.

Advocates is pleased to again be working with this committee
and its members. And we commend Senators Exon, Gorton, and
Pressler for introducing legislation on the problem of motor vehicle
titling to fill the gaps that exist in dealing with junked, salvaged,
or rebuilt vehicles.

The Coalition Against Insurance Fraud estimates that auto in-
surance fraud accounts for approximately 10 percent of the pre-
miums, or more than $8 billion every year. According to the U.S.
Department of Transportation, just the practice of selling rebuilt
cars and passing them off merely as used cars costs consumers as
much as $4 billion annually. This problem is complex and a costly
one for consumers. The bills introduced on this topic all offer ele-
ments that will help address title fraud and protect consumers.

Advocates has identified several key factors that we believe
should be included in title reform legislation. Advocates will be
happy to work with the committee to further refine these propos-
als.

Advocates strongly supports a universal certificate of title among
the States, with certain minimum security standards to minimize
the opportunities for fraud. With a universal title, every motor ve-
hicle title would carry the same information in approximately the
same place on the document. This, we believe, is critical to the suc-
cess of any antifraud program as it is virtually impossible for all
law enforcement officers, department of motor vehicle clerks, judi-
cial officials, insurers, used car dealers, auctioneers, and consumers
to be familiar with 50 different title designs.

The committee should direct the Department of Transportation
to move as quickly as possible in developing regulations that pro-
vide comprehensive vehicle information in a clear format on the
title. The Motor Vehicle Titling Registration and Salvage Advisory
Committee created by the Anti Car Theft Act of 1992 is currently
addressing some of these issues, and their recommendations may
be helpful to the agency. Legislation may also help fast-track this
effort.

A universal title should be accompanied by unifoim definitions of
the terms relevant to title branding — junk, salvage, rebuilt, and so
forth. The Department of Transportation, with input by the advi-
sory committee, should also be given responsibility to define these



24

terms so that there is a common understanding among the States
and consumers regarding the information on the title.

The Uniform Vehicle Code already includes such definitions, and
provides a promising basis for these definitions.

The Anti Car Theft Act of 1992 has a slightly different definition
of salvage, but it is also a good one. The point is we do not have
to reinvent the wheel. Workable definitions exist, and they should
be included in the legislation. The number and types of vehicles to
be covered under the legislation should be as broad as possible, and
should not be limited to passenger cars.

At the very least, legislation must encompass vans, multipurpose
vehicles, sport utility vehicles, and light trucks. Though not tech-
nically called passenger vehicles, these classes of vehicles are the
fastest growing segment of motor vehicle sales, and are used by
consumers as basic family vehicles.

Advocates supports consumer protection laws, especially disclo-
sure laws. For a number of reasons, we would be concerned about
requiring the disclosure of repairs through setting a specific dollar
level of work which must be disclosed on the title. Even minor colli-
sions can result in extremely costly repairs. Regional cost dif-
ferences, as well as inflation, make it difficult to determine a sen-
sible threshold in repair costs that will remain reasonable over a
period of time.

One approach might be to consider repair costs at or above a per-
centage of the vehicle's original cost or its fair market value imme-
diately before being damaged. We would be glad to work with the
committee in developing such a reasonable threshold.

Rebuilt salvage vehicles should not only be properly identified to
prospective buyers, but they should also be subject to a safety in-
spection prior to titling. Requiring a thorough safety inspection of
a rebuilt salvage vehicle will go a long way toward providing con-
sumers with assurances that they are not placing themselves and
their families in unnecessary jeopardy.

Advocates for Highway and Auto Safety is encouraged to see con-
gressional efforts to address these costly consumer difficulties, and
we will be glad to work with you to move forward legislation that
will inhibit fraud and provide essential consumer protection.

Thank you for the opportunity of testifying today.

Ms. Stone and I would be glad to answer any questions.

[The prepared statement of Mr. Cheek follows:]

Prepared Statement of Paul Cheek

Thank you, Mr. Chairman. I am Paul Cheek, Vice President of Claims for GEICO.
I am accompanied by Judith Lee Stone, President of Advocates for Highway and
Auto Safety (Advocates). GEICO is proud to serve on Advocates' Board of Directors.

Advocates is a coalition of consumer, safety, health, law enforcement and insur-
ance organizations working together to promote laws and policies to help reduce
death and injury on America's highways and to decrease the economic losses due
to motor vehicle crashes, fraud and thefl.

On behalf of GEICO and Advocates, I thank you for conducting this hearing and
allowing us to testify on the important issue of state motor vehicle titling practices.
I will summarize my remarks and ask that my entire statement be inserted in the
record.

Advocates is pleased to again be working with this Committee and its members.
In the three and a half years since Advocates' creation, we have frequently worked
with your Committee, Mr. Chairman, to further a number of initiatives that will
save thousands of lives, as well as save taxpayer dollars. This Conrunittee and its



25

members have played a leadership role in enacting these measures into law. We
look forward to continuing to work with you, Mr. Chairman, to see the enactment
of S. 738, the High Risk Drivers BUI.

We commend Senators Exon, Gorton and Pressler for introducing legislation on
the problem of motor vehicle titling to fill the gaps that exist in dealing with junked,
salvaged or rebuilt vehicles.

The Coalition Against Insurance Fraud, a new group formed to fight insurance
fraud, estimates that auto insurance fraud accounts for approximate^ ten percent
of premiums, or more than $8 billion every year. According to the U.S. Department
of Transportation (DOT), just the practice of selling rebuilt cars and passing them
off merely as used cars costs consumers as much as $4 billion a year.

This problem is a complex and costly one for consumers. The bills introduced on
this topic all offer elements that will help address title fraud and protect consumers.
Advocates has identified several key factors that we believe should be included in
title reform legislation. Advocates will be happy to work with the Committee to fur-
ther refine these proposals.

Universal Title: Advocates strongly supports a universal certificate of title among
the states, with certain minimum security standards to minimize the opportunities
for fraud. The intent of this legislation will be better realized if consumers know
where to look on a title for vital information, regardless of the state of origin.

With a universal title, every motor vehicle title would carry the same information
in approximately the same place on the document. This is critical to the success of
any anti-fraud program, as it is virtually impossible for all law enforcement officers,
department of motor vehicle clerks, judicial officials, insurers, used car dealers, auc-
tioneers and consumers to be familiar with fifty different title designs. Model format
fields will also facilitate electronic transfer of information between jurisdictions, if
necessary.

This type of inter-state coordination has already been proven possible through, for
example, the successful commercial drivers license program (CDL). The CDL pro-
gram has shown how effective this kind of cooperation between the federal govern-
ment and the states can be in addressing a national problem.

One practical source for a model title and for security standards is the American
Association of Motor Vehicle Administrators (AAMVA), which has issued rec-
ommendations for "Universal Certificate of Title Specifications and Minimum Secu-
rity Features."

The Committee should direct the DOT to move as guickly as possible in develop-
ing regulations that provide comprehensive vehicle information in a clear format on
the title. The Motor Vehicle Titling, Registration and Salvage Advisory Committee,
created by the Anti Car Theft Act of 1992, is currently addressing some of these
issues and their recommendations may be helpful to the agency. Legislation may
help to fast-track this effort.

Definitions: A universal title should be accompanied by uniform definitions of the
terms relevant to title branding: "junk," "salvage," "rebuilt," etc. Carrying forward
the term "salvage" from one state's title to another is not helpful to potential pur-
chasers if the terms have different meanings in different states.

Thus, the DOT, with input by the advisory committee, should also be given re-
sponsibility to define these terms so that there is a common understanding among
the states and consumers regarding the information on the title. The Uniform Vehi-
cle Code already includes such definitions, and provides a promising basis for these
definitions. The Anti Car Theft Act of 1992 has a slightly different definition of "sal-
vage vehicle" than the UVC, but it is also a good one. The point is: don't reinvent
the wheel — workable definitions exist and they should be included in the legislation.

Broad Vehicle Coverage: The vehicles to be covered under this legislation should
be as broad as possible and should not be limited to passenger cars. At the very
least, the legislation must encompass vans, multipurpose vehicles, sport utility vehi-
cles and light trucks. Though not technically called passenger vehicles, these classes
of vehicles are the fastest growing segment of motor vehicle sales and are used by
consumers as basic family cars.

Other than commercial motor vehicles over 10,000 pounds gross vehicle weight
rating (GVWR), no reason exists to exclude any vehicle normally sold to the general
public.

Disclosure of Repairs: Advocates supports consumer protection laws, especially
disclosure laws. However, for a number of reasons, we would be concerned about
requiring the disclosure of repairs through setting a specific dollar level of work
which must be disclosed on the title.

Even minor collisions can result in extremely costly repairs. According to insur-
ance industry sources, the average collision claim in the first quarter oi this year
was nearly $1,600. The Insurance Institute for Highway Safety (IIHS) annually



26

tests the costs of repairing new vehicles involved in five-mile-per-hour bumper
crashes. In its most recent tests, the Institute found that five out of nine 1993 model
year vehicles suffered more than $1,000 in damage; two others suffered damage
above $900.

Regional cost differences, as well as inflation, make it difficult to determine a sen-
sible threshold in repair costs that will remain reasonable over time. One approach
might be to consider repair costs at or above a percentage of the vehicle's original
cost or its fair maricet value immediately before being damaged. We would be glad
to work with the Committee in developing such a reasonable threshold.

Safety Inspection: Rebuilt salvage vehicles should not only be properly identified
to prospective buyers, but they should also be subject to a safety inspection prior
to titling. Not all states have periodic motor vehicle inspection. Even those that do
are checking for the basics (like turn signals, horns and headlamp aim) and are not
necessarily attesting to the overall road-worthiness of the vehicle. Requiring a thor-
ou^ safety inspection of a rebuilt salvage vehicle will go a long way towards provid-
ing consumers with assurances that they are not placing themselves and their fami-
lies in unnecessaiy jeopardy.

Advocates for Highway and Auto Safety is encouraged to see congressional efforts
to address these costly consumer difficulties, and we will be glad to work with you
to move forward legislation that will inhibit fraud and provide essential consumer
protection.

Thank you for the opportunity to testily today. Ms. Stone and I would be happy
to answer any questions you may have.

Senator Mathews. Thank you, Mr. Cheek. We are at the point
now where we could hear the tapes. Mr. Gray, what length is the
tape?

Mr. Gray. Senator, the tape is approximately 6V2 minutes in
length. It is a distillation of 4 nights worth of reporting, about 28
minutes in total. So, we are talking about 6V2 minutes, 7 minutes.

Senator Gorton. I would like to see it.

Senator Mathews. Yes, may we see it?

[A videotape was shown.]

Senator Mathews. Mr. Gray, we thank you for sharing this with
us. I would note for the committee that Mr. Gray won the pres-
tigious Society of Professional Journalists' National Service Award
for the series that he did, and I thank you for sharing this with
us.

Mr. Gray. Thank you. Senator.

Senator Mathews. I understand further that Mr. Blumenthal
has an early plane this afternoon, and he is going to need to leave
right away. If you have some time, I am sure the committee would
like to engage in some discussion. If you need to leave, we under-
stand that.

Mr. Blumenthal. Thank you. Senator. I have about 15 or 20
minutes. If the committee does have any questions, I would be
happy to try to answer them.

Senator Mathews. Then I will defer to my associate here. Sen-
ator Gorton.

Senator Gorton. I will just have one question for Mr.
Blumenthal, and then I really think that Senator Pressler comes
ahead of me. Mr. Blumenthal holds the same office that I held in
my own State.

Mr. Blumenthal. I am aware of that fact. Senator.

Senator Gorton. I will ask this question of the others, too. But
this is for you alone in this round.

Each of you has really concentrated his testimony on one of the
bills, or one of the ideas. You are the one who has done it on lemon
laws. I would like to know whether you agree with the other, with



27

the salvage vehicle bills, or a portion of these bills as well. Is that
something that you have to deal with in Connecticut? And would
you like to see these two or more concepts merged into a single
bill?

Mr. Blumenthal. Speaking for myself, I am very strongly in
favor of the salvage provisions, which embody really the same con-
cepts and prevent the same kind of fraud.

I cannot speak for the National Association of Attorneys Greneral.
We have not yet addressed that by way of resolution. But I do
know from my conversations with many of my colleagues, and cer-
tainly you will understand their interest in consumer protection
from your own experience, that there is a lot of support for both
concepts.

Both involve, as your bill does with respect to lemon laws, a uni-
form national approach: Disclosure statements, stickers, stamping
and branding of title. And make sure that that stamping and
branding is carried forward, in the event that any new titles are
issued by motor vehicle departments around the country. And the
lack of a uniform standard in both areas. Salvage and lemon law
buybacks, is a glaring defect in our present consumer protection
scheme that I feel many of my colleagues would join me in urging
that the Congress address.

Senator Gorton. Thank you. I'm going to defer now, if I may,
to Senator Pressler, who was here ahead of me.

Senator Mathews. Senator Pressler.

Senator Pressler. That is very kind of you. I am going to aim
my questions at both Art Nordstrom and the Attorney General
from the State of Connecticut.

To Art Nordstrom, you support setting damage disclosure re-
quirements at a minimum of $1,000 in damages, I understand.
Many believe that amount may be too small. Others do not believe
dollar-based damage disclosure is the best approach. Please explain
to the committee why you support a $1,000 minimum standard,
and when you have finished, I would like to hear the attorney gen-
eral's view.

Mr. Nordstrom. The $1,000 amount came into being, first of all,
to catch all vehicles. Second, in South Dakota — and I think it is in
a lot of States — a reportable accident is $500, for two combined ve-
hicles of $1,000 or more. Also, we had that any brand new vehicle
that had damage in excess of 5 percent of the window sticker, came
up to about $1,000. And that is where we came up with the $1,000
amount to use.

The $1,000 amount was passed unanimously by the legislature,
except for two dissenting votes that first year; and they looked at
it as letting the consumer have the opportunity, at any vehicle that
he is buying, to take it to a qualified shop and have it inspected,
instead of the department of motor vehicles trying to make a deter-
mination whether that vehicle that was damaged was safe or not.
Because they were only doing it by paperwork. So, that is where
the $1,000 comes from.

Last year, in the legislature — excuse me, 2 years ago — it was
raised to $2,000. After it had been raised to $2,000, some of the
legislators, in talking to them, had wished that it would have been
left at $1,000; because what happened was that people that were



28

buying vehicles and repairing them, with the $1,000, always took
it to a frame shop, to make sure that the unibody structure of the
car was correct. They maybe could not paint right, and they maybe
could not hang the fenders right; but they made sure that it went
down the road straight. And that is why the $1,000 was so impor-
tant.

The legislature changed it to $2,000, and right after that we had
people coming into our business, and were talking about how they
could get under the $2,000 because they did not nave to take it to
the frame shop anymore, because they gave them a little higher
level, that they did not have to take it to the shop; they could save
that $500 or $600, and save it on the framework, and they could
try and get themselves a clean title. Last year — excuse me, this
year — house bill 1182 was introduced in South Dakota by a legisla-
tor, for a constituent, and they wanted to change, that anybody
that had a title that was granted at $1,000, and now that the
$2,000 was in effect, could send it in with an estimate, and could
get a clean title.