Did you know that offering a warranty on a new or used vehicle, even one that is limited in duration, can open a dealership up to litigation years after the warranty has expired?
Many dealerships currently offer written warranties on new and used vehicles independent of the warranty offered by the manufacturer. Typically these written warranties are short in duration and cover a vehicle for a few months or a few thousand miles and include limitations on coverage. For example a dealership might warrant a used vehicle for three months or 3,000 miles subject to certain terms and conditions.
While offering limited warranties from the dealership may be a useful sales tool, it can also expose automotive dealerships to litigation well after the terms of the written warranty have expired.
Generally, there are two types of vehicle warranties recognized in nearly every state. The first category includes express warranties. Express warranties are typically the written warranties that are offered by manufacturers or third-party vendors and cover repair of certain components of the vehicle for a specific amount of time or a specific amount of miles.
The second category includes implied warranties. Implied warranties are not written warranties, but instead are created by operation of law – they are implied into a sales transaction. The implied warranties require a product to be merchantable or fit for its intended use or purpose. For example, a running shoe should be suitable to be used for jogging, an oven should be fit to cook food, or a car should be fit for providing reliable and safe transportation.
The duration of an implied warranty differs from state to state and can be limited to the length of an express warranty. Many states’ laws allow dealerships to completely disclaim implied warranties in their sales contracts by using certain language or presenting disclaimers in certain ways. However, if a dealership chooses to make an express written warranty on a new or used vehicle, it can affect a dealership’s ability to disclaim implied warranties. So, if a dealer makes a written warranty the dealer might be stuck making implied warranties even where it tried to disclaim them.
Why? Because most consumers who sue manufacturers or dealers for failure to comply with the terms of a written warranty bring suit under the Federal Magnuson-Moss Warranty Act or MMWA.
This federal statute has become increasingly popular with attorneys who represent consumers because, in addition to damages related to a breach of warranty, consumers may recover attorney’s fees and costs related to bringing the suit. The MMWA also allows a consumer a method of avoiding implied warranty disclaimers when a seller makes a written warranty. The federal code, 15 U.S.C. Section 2308(a) (1) of the MMWA states that “no supplier may disclaim or modify … any implied warranty to a consumer with respect to such consumer product if such supplier makes any written warranty to the consumer with respect to such consumer product”. Therefore, if a car dealership offers a written or express warranty to a consumer it may eliminate their ability to disclaim implied warranties.
If a dealership makes a written warranty and, therefore, is not able to disclaim implied warranties, this may allow a consumer to bring suit against the dealership well after the express warranty given by the dealership has expired. It also can expose the dealership to greater liability for damages as well as attorney’s fees. In cases brought under the MMWA, such fees often far exceed the actual damages sought by the consumer for the failure to comply with the written warranty. Thus, a dealership should take the potential increase in risk of liability into consideration before making any written warranties from the dealership on new or used cars. Selling a few additional cars based on the promise of a written warranty may not be worth potentially exposing your dealership to tens of thousands of dollars of liability.
