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fore, the warranty could not be arbitrarily limited to a relatively short time, but in both of these areas, I think, however, there may be something wanting with respect to automobile warranties, and that is certainly. Both from the standpoint of the party whose automobile needs repair and may be out of service for a period of time and the automobile manufacturers. The question is, What is a reasonable time for repairing an automobile.

With respect to the duration of the warranty, the Act provides that, “implied warranties may be limited in duration to the duration of a written warranty of reasonable duration if such limitation is conscionable and is set forth in clear and unmistakable language.” And then the section that provides for minimum standards for a full warranty says you can't reduce the implied warranty, so it seems to me it embraces that provision. I think an automobile manufacturer giving a full warranty may legitimately say it is difficult for him to determine in advance what time is conscionable in which, say, the differential will operate properly and not malfunction.

How about this: Suppose we simply applied the full warranty provisions to automobiles mandatorily? I think there is considerable argument for that, because we do recognize that the simplicity or the cheapness of a product should affect the leeway which a manufacturer has in its sale. For instance, we don't apply this at all to objects under $10. We are really saying that such a product is likely to be simple and you can look at it and tell whether it is going to work. Say a $5 hammer either has the handle reasonably fastened to the metal portion, or it doesn't, and you can look at it and tell. Besides that, you would be overly burdened if you had to deal with every object and every complaint no matter how cheap the product, and we might excessively increase the cost of the product with the warranty. But an object that is over $5 is a different thing, and you must disclaim. If you give any kind of warranty, you must designate it as a limited warranty if you don't want it to be a full one.

But it would seem to me you go on up the scale to a very expensive and complex object like an automobile, and it would be quite reasonable to require something like a full warranty. If you did, though, I would think that it might be desirable to give the Federal Trade Commission certain rulemaking authority with respect to the time when repairs or replacements are made, so as not to create the liability on the part of the manufacturer to pay incidental costs. It seems to me that this calls for a little bit more flexibility, a little bit more technical examination of the problem than would be desirable for us as legislators to attempt to write rigidly into a statute. It would also seem to me it might be well to give rulemaking authority with respect to section 108(b) as it applies to automobiles, as to what is a reasonable duration or conscionable limitation with respect to certain warranty coverage. If you had that flexibility, why wouldn't the full warranty provisions take care of the problems that you are raising and at the same time also assure the manufacturers some degree of certainty so they know that if they operate within reasonable standards, they will not be subject to liability?

Mr. KRAMER. Mr. Chairman, I think that the kind of change you are suggesting and the kind of rulemaking authority you are talking about would go a long, long way toward resolving many of the problems, and I think you are right; at that point, it would be appropriate to limit incidental and consequential damages so long as certain standards were met. I think it would be appropriate to prescribe the standards of conscionability in a rule after the industry had an adequate opportunity to provide guidance. I think that kind of a provision would go a long way toward alleviating many of the problems I referred to, and it would also make it realistic for us to attempt to promulgate a "lemon" rule for automobiles. It would go a long way toward resolving a lot of the problems.

I would strongly endorse such a proposal.

Mr. ECKHARDT. Now, mind you, I am suggesting this rulemaking authority only with respect to the automobile.

Mr. KRAMER. I understand.

Mr. ECKHARDT. And I am suggesting that the other provisions not dealing with these two issues be handled just in exactly the same way as the full warranty requirements are made applicable. I don't think they raise the same questions requiring certainty as those two points do, and I think the standards are pretty well spelled out in the statute.

I also would like to emphasize that Mr. Broyhill and I both had something to do with the rulemaking process, and I think in drafting it we recognized that here rules may be the final determinative factor, that there is no meaningful opportunity for participation with respect to the regulation after the rule is made, because an enforcement process becomes so channeled as to make cross-examination there meaningless. I think it is particularly important that we apply it in this case, because what we are dealing with is a question of certainty and predictability and cost. The purchaser wants certainty with respect to when he is entitled to have a car provided him when his car is in the shop. The manufacturer needs certainty with respect to how long he is going to guarantee the transmission. Both have an opportunity to come into the rulemaking process and make their contentions to a greater extent than I think in any other statute that we have ever drafted. And that is one reason I am suggesting that the rulemaking process here might be better than to try to set out a certain number of specific standards in the statute with respect to the problems that you here outlined.

For instance, you were talking about affording taxi fare or a rental car during the period of time that the automobile is out of use. It might be better to look at that a little bit more flexibly and consider how long out of use, or out of use with respect to what kind of problem. That a car will be out of use for a day or so may be quite a predictable thing. Also, shouldn't the manufacturer or the dealer have a rather flexible way to meet this requirement, that is, letting a demonstration car be used rather than a rental car, for instance, or taxi.

It seems to me these questions go into such very intricate detail with respect to the operation of this particular type of business that we would not be well advised to attempt to draw rigidly in the

statute precisely the manner in which the warranty would be satisfied.

Mr. KRAMER. I would agree, I think, with everything you have said, Mr. Chairman.

Mr. ECKHARDT. Mr. Broyhill?

Mr. BROYHILL. Thank you. I have been interested in the discussion here. I would, of course, be interested in any further comments that you might have to make with respect to suggested changes in the Magnuson-Moss Act and warranty provisions.

We received testimony yesterday that some automobile companies have announced an increase of payment to the auto dealers for warranty work. We haven't heard from the manufacturers or the dealers about this, but there was some allegation made that this increase in payment is going to do a great deal to solve a lot of this problem that you are talking about here.

I wonder if perhaps you might want to comment on that, as to whether or not you are aware of this, or maybe to predict what effect this would have, and whether or not maybe we should wait and see what effect this is going to have on warranty work before making any drastic changes in the Magnuson-Moss Act?

Mr. KRAMER. Congressman Broyhill, I am not familiar with the increase you have referred to, but from time to time, as you know, there have been complaints that the rate of warranty compensation is lower than the charges normally charged by the dealers for repairs. We have given some thought to this issue, and I think where we come out is to say that you can't tell.

There are arguments to be made, and we have had economists on our staff make the arguments both ways, and common sense dictates arguments that could say that the outcome may or may not be improved warranties.

I think, as I indicated earlier, the primary concern is with improved performance, and we just are not in the position to predict whatever the effects of that increase in compensation would be.

I should say that we do have before us a petition which requests that we require manufacturers to disclose to the purchaser when the warranty repairs will be compensated at a rate lower than the normal rate of compensation received by the dealer for comparable repairs or for the same repair.

We have not yet developed a recommendation on that petition for the commission.

We will be considering this again in connection with that petition, but my initial reaction is I don't think we are going to come up with more than we have come up with. When you are all done shaking it out, you just can't tell.

Mr. BROYHILL. I appreciate the comments and I think we may explore it some more with the automobile dealers when they appear before the committee.

There is one other comment, a conclusion that you have reached in your statement on page 11. You are expressing the conclusion that most State agencies do not have the power to handle complaints about unsatisfactory repairs and that existing State and private programs apparently have not had a substantial effect on automobile repair problems nationwide; yet we have heard testimony already from witnesses and apparently we will be hearing later on this morning from witnesses who will tell us that State and local programs have had some success in dispute settlement.

Perhaps the Federal Government can help, for example, with this dispute settlement bill that the chairman was talking about earlier that is presently pending in the committee. That is not an omnibus bill, obviously. I personally believe that in this area the primary activity, the authority, and so forth, should be properly with local and State authorities. I wonder if you could comment on some of these statements?

Mr. KRAMER. Representative Broyhill, we in no way meant to detract from the substantial efforts which State and local governments have made. I think as I indicated elsewhere in the testimony, there is a problem of whether or not there are adequate resources. Most importantly, there is a problem because nobody is quite sure what the remedy should be. One of the things that is discussed at a different point in the testimony is that we see the primary role of the Federal Government here as providing the resources and expertise to develop information that could then be used by State and local governments. They could then implement programs which they regard as the most appropriate response in light of the information and the remedies which flow from the information that is developed by the Federal Government.

If you will go on to the next page, page 12 of the testimony, I specifically state that we recognize that any real progress in reducing repair costs losses requires State and local action, and it would be our anticipation that the majority of the implementation of any information or technical expertise developed by the Federal Government would be at the State and local level. We are not advocating-and I should make it clear that we are not advocating-any Federal or uniform standards for State and local auto repair programs or for dispute resolution mechanisms. We see the role of the Federal Government here as being to marshal resources and information which the states and local governments could use.

Mr. Broyhill I do appreciate those comments because there was some question in my mind as to what you were leading to with the statement on page 11, and I thank you very much.

Mr. ECKHARDT. I would like the record to reflect that the bill that both Mr. Broyhill and I have referred to, which I think would have a considerable effect on affording dispute settlement, are Mr. Broyhill's bills H.R. 8678, later introduced with additional co-sponsors as H.R. 12965. There is a companion bill S. 957, the Dispute Resolution Act, in the Senate. The bill was jointly referred to this committee and the Judiciary Committee, and we feel that we have agreement with Judiciary to proceed in this committee on that bill. I must say and admit that initially Mr. Broyhill had to urge me very strongly that this was an important bill and that he has succeeded in convincing me of that fact. I hope we will get such legislation enacted in this Congress. Mr. BROYHILL. Would the gentleman yield?

There is some considerable difference in the breadth and the total reach of the two bills. The Senate-passed bill and the bill apparently that is coming to us from the Judiciary Committee envision more of an experimental program or a program of demonstration projects around the country, whereas the bill I had introduced was going in the direction of encouraging the states to establish these programs on a statewide basis, so as to involve the State as much as possible in a program of this type.

So apparently we may have to act on the experimental or demonstration projects first to get some experience with that before enactment of a full-blown program of this on a nationwide basis.

Mr. ECKHARDT. I think the witness may be interested in this, that since the emphasis of this subcommittee was on dispute settlement relating to consumer matters of which the question of automobile defects, would be a very major part, we urged the inclusion of the Federal Trade Commission as required consultants to the Justice Department, and it was not without some difficulty that we finally got agreement on that proposition. So I feel that this sort of process is one in which you will have an interest and should take a very active part if the legislation is ultimately to be passed.

Mr. KRAMER. Mr. Chairman, we have followed the progress of that legislation closely and we greatly appreciate the role that has been put in the legislation for us and intend, to fully exercise it when the legislation becomes law.

Mr. ECKHARDT. Thank you, sir.
Mr. KRAMER. Thank you.
Mr. ECKHARDT. You may be excused.

Mr. Robert Mallon, president, National Automobile Dealers Association.

Mr. Mallon, if you will identify yourself for the record and the gentlemen with you, then you may proceed in your own manner. You may summarize and put your full statement in the record or read your full statement.



Mr. MALLON. Thank you, Mr. Chairman, and distinguished members of the committee. On behalf of the National Automobile Dealers Association (NADA) and its more than 22,000 members, I thank the subcommittee for this opportunity to appear and testify at these hearings on auto repairs.

My name is Robert P. Mallon; I am a Ford dealer from Tacoma, Wash. I presently serve as president of NADA.

Accompanying me today are Frank E. McCarthy, NADA executive vice president, and Mr. David Hunt, associate legislative counsel. We would like to submit our full statement and we have a brief statement to present.

Mr. ECKHARDT. Without objection, your full statement will be inserted in the record and you may proceed with your summary.

Mr. MALLON. NADA would first like to thank the distinguished chairman of the subcommittee for his kind invitation of August 25 to appear and provide dealer input to the members of the subcommittee on the subject of auto repairs and consumer problems therewith. Following brief remarks on the important role franchised dealers play in the motor vehicle service and repair business, I would like to focus NADA's comments this morning on several

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