Local auto dealer says pending legislation could increase black market auto sales
July 26th, 2012
A trio of proposed consumer protection bills working their way through the state Legislature has some local auto dealers concerned about the bills’ potential impact.
The proposed legislation specifically targets Buy Here, Pay Here auto dealers and would impose new restrictions in an effort to reduce frequent vehicle repossessions and high interest rates that are said to characterize the industry.
Opponents of the bills — SB 956, AB 1447 and AB 1534 — contend that the so-called consumer protection bills would force dealers to limit sales to potential buyers with less-than-stellar credit as well as lower sales tax revenues going to cash-strapped cities.
Here in the Valley, the proposed legislation could put more consumers at risk, said Rey Guluarte, president of the Independent Auto Dealers Association of Imperial County.
“If this law passes then more cars will be sold on the street,” Guluarte said. “Then we’ll find out how it affects buyers.”
A recent tour of El Centro streets revealed several lots where vehicles, lacking license plates and any sort of operating permits, could be found for sale. Such vehicles, which could also be seen displaying the same buyer’s phone number, are typically bought at auction and sold illegally on the streets, putting the buyer at greater risk of fraud, Guluarte said.
The act of buying and selling cars in volume by someone without a license is referred to as “curbstoning” and is fairly prevalent throughout the state, a Department of Motor Vehicles spokesperson said.
Consumers are also at greater risk of buying cars with salvaged titles from unlicensed dealers, Guluarte said. Nor are safety tests performed on such cars, in contrast to the vehicle evaluations Guluarte performs on cars sold at his El Centro dealership.
Buying from licensed dealers offer consumers better protection and guarantees for their vehicle purchase, he said.
The Valley’s proximity to the border makes it likely that people loosely affiliated with Mexican auto dealers are engaging in the illegal sales, Guluarte said. Over the years Guluarte has had meetings with DMV officials to bring awareness of the local activity to their attention, he said, but is unsure if anything has been done about it.
About 150 citations were issued for curbstoning in the state in 2011, said DMV spokeswoman Jessica Gonzalez. Stings that target the illegal activity often take months to build before any action is taken against a suspected curbstoner, she said.
Tax fraud also occurs when a seller leaves the title blank so as to avoid paying state sales tax or federal income tax, Gonzalez stated.
Aside from a 17.25 percent cap on interest rates as a result of AB 506, AB 1534 would also force BHPH dealers to explicitly state a vehicle’s fair market price. AB 1447 would require a dealer to offer at least a 30-day, 1,000 mile warranty covering all essential parts and repairs.
The Consumer Federation of California backs the three bills as an appropriate defense against predatory lending, according to its Web site.
The added regulations would put an undue financial strain on an already heavily regulated industry, said Larry Grooms, spokesman for the Coalition to Protect Our Freedom to Drive, which opposes the legislation.
While Grooms admitted that the industry does suffer from a “few bad apples,” the proposed legislation failed to look at the potential fiscal impact it will have on BHPH dealers as well as the public coffers.
The state could stand to lose between $234 million and $337 million a year if these bills are passed, according to data provided by the coalition. Pre-owned car sales generated nearly $468 million during 2011.
“It makes it more difficult to operate,” said Imperial County Supervisor Jack Terrazas, who is familiar with the proposed legislation. “(Dealers) already work with a small margin and will have to decide if they want to stay open or close.”
The decision to close an auto dealership would not bode well for potential buyers who are struggling to get by and who depend on having a secure mode of transportation in order to procure and retain employment, Grooms said.
Those with bad credit may have no choice but to rely on a private party transaction, which may come with additional risk if buying from an illegal seller here in the Valley.
“(Legislators) at least need to take a hard look at what they’re doing before they do it,” Grooms said.