SACRAMENTO — The state Department of Motor Vehicles is preparing to enforce an obscure 17-year-old law that a burgeoning breed of discount automobile brokers contend would put them out of business and eliminate major savings to new car buyers.
The car brokers, asserting that they can usually beat dealers' prices on any particular car, say they charge from 2% to 12% less than the manufacturer's suggested retail price.
Spokesmen for the automobile brokers, who purchase the new cars from dealers and then resell them to customers, estimate that broker sales account for 10% to 15% of the roughly 2 million new cars sold each year in California.
The brokers say their customers often are buyers who have been "hassled and abused" at dealerships and want both a lower price and the convenience of purchasing an automobile without dealing with hard-charging sales people and closers.
But the brokers, led by Mike Scanlon of El Cerrito, president of a 50-member association of independent new car sellers, said Thursday that a regulation ready for adoption by the DMV will put the brokers out of business.
Enforce 1971 Law
Basically, the regulation would put new enforcement teeth behind a 1971 law that makes it illegal to "advertise or offer for sale any vehicle that is not actually for sale at the premises of the dealer" when an advertisement or offer is made.
Currently, this prohibition applies to new and used car dealers. But it has been department policy for the last 17 years not to apply the law to automobile brokers, who typically do not carry an inventory of new cars.
The brokers take a customer's order, quote a price, purchase the vehicle from a new car dealer and then resell it to the customer for less than dealers would sell it.
Scanlon said customers of brokers often come from referral by credit unions or word of mouth.
"A typical customer is a male or female credit union member, 35 to 40 years old and from a two-income family," he said in an interview. "Our members have sold cars to two police chiefs in the Bay Area, a San Francisco supervisor, a state legislator, a couple of legislative aides and a Ford dealer in Paris who wanted a Ford Bronco but couldn't get it from his own manufacturer.
"A young lady bought a Nissan Sentra Sport Coupe from us after she felt she had been abused by a dealership. A lot of them feel they are going to be mistreated and taken advantage of (by dealers)."
'Saved Him Almost $500'
Scanlon cited an example of what he termed a typical buyer. He said the customer arrived at his brokerage with three dealer price quotations for the car, the lowest of which was $14,900. "I found the car for him, and I sold it for $14,416, plus tax and license. I saved him almost $500, and I made $400 on the car," he said.
"The business is mushrooming," said Tracy Bennett, a San Jose auto broker. The DMV figures that there are between 100 and 200 brokers in California, but broker representatives contend that there are at least twice that many.
In recent years, new car dealers have sought to get the "no inventory, no advertising" prohibition enforced against the brokers but deny that they are behind the DMV's effort to adopt the regulation on Nov. 26, Thanksgiving Day.
DMV officials contend that there is no conspiracy against the brokers, although new car dealers and automobile brokers have battled over the issue off and on in the Legislature.
"Because something is wrong and has continued to be wrong for several years doesn't mean it should continue that way," said department spokesman Bill Gengler.
Gengler said that although the regulation will become effective Nov. 26, its actual implemention will be delayed until after Jan. 1 to enable brokers to get their affairs in order or to prepare counter-steps, such as legal action.
Later, however, Gengler held out hope for a compromise. He said DMV Director A. Del Pierce talked Thursday with Assemblyman Richard Katz (D-Sepulveda), chairman of the Assembly Transportation Committee and a supporter of the brokers, about the issue.
As a result of the conversation, Gengler said, Pierce "is considering holding the (regulation) in abeyance until legislation has been introduced and acted upon.
Legislation to regulate automobile brokers was introduced in 1987, but the new car dealers and the brokers failed to reach agreement on its details. The proposal could be acted upon in 1988, however.
Katz said he wants the DMV regulation reexamined because "there is a cloud over the whole matter."
New Car Dealers Blamed
"The whole move to put auto brokers out of business comes from new car dealers, no question about it," Katz said. "They are the only ones who stand to benefit by the auto brokers going out of business. Certainly the consumer doesn't benefit."
However, Loren Smith, lobbyist for new car dealers in California, contended thatdealers had nothing to do with the DMV's regulation, although they support itsimplementation.