Discussion Paper Summary

January 2001

Motor Vehicle Sales - A Proposed Regulatory Regime

This paper proposes a new Act to replace both the Motor Vehicle Dealers Act 1975 and the Motor Vehicle Dealers Bill that was introduced to Parliament in late 1998.

The Government has decided to review motor vehicle vendor regulation, and to engage in further consultation, for two reasons. Firstly, decisions on the content of the Motor Vehicle Dealers Bill were made in 1994-95, and since being introduced into Parliament, the Bill has spent over two years before the Commerce Select Committee. Secondly, submissions to the Select Committee showed varying degrees of support but generally sought further amendments.

The new Motor Vehicle Sales Act would contain the following elements:

• The Act would be focused on the regulation of motor vehicle sales "in trade" rather than just the occupational regulation of motor vehicle vendors. The definition of "in trade" would include car auctions, display-for-sale outlets, car fairs and any person dealing in more than six cars per year (with certain exclusions).
• In order to provide consumers with adequate information before they commit themselves to purchasing a motor vehicle, sellers would be required to disclose certain particulars on a "window card". This would be achieved through a Consumer Information Standard made under the Fair Trading Act.
• Consumers would continue to receive good title when purchasing a motor vehicle from a registered seller. This is an important protection for consumers. Its continuation, however, would require a mechanism to ensure compensation for financiers whose security interests are extinguished through such a protection. Several options are proposed for achieving this – such as performance bonds, compulsory indemnity insurance, and a modified fidelity fund.
• There would continue to be occupational regulation of those involved in the motor vehicle trade. However, this would not be based on the current licensing regime. Instead, a more simple "registration" system would be established and operated by the Business and Registries Branch of the Ministry of Economic Development. All persons selling motor vehicles "in trade" would be required to register, but with specific exemptions. Registration would be restricted, using "negative" criteria related to previous convictions or loss of registration.
• A new provision would empower the Courts to ban undesirable persons from being involved in motor vehicle sales on evidence of unsatisfactory practice.
• The jurisdiction of the Motor Vehicle Disputes Tribunal would be widened to include claims under the Consumer Guarantees Act 1993, the Fair Trading Act 1986, and Sale of Goods Act 1908. It would cover all sales "in trade".

The existing Motor Vehicle Dealers Act imposes many costs and restrictions on dealers. As a consequence, there is a strong incentive for dealers to operate outside the Act. The proposed regime would reduce the costs that licensed dealers currently face by removing some of the measures intended to protect consumers. On the other hand, a greater range of sales would be brought within the regime, raising the costs for some vendors who do not operate as licensed dealers. This trade-off is justifiable as increased numbers of consumers are choosing to purchase from outlets where the risk is greater.

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