Michigan Dealership Suspension Sparks Debate on New vs. Used Cars

The Debate Over Michigan’s Loaner Vehicle Laws

A recent suspension of a Michigan car dealership over its handling of loaner vehicle sales has reignited a long-standing debate about a state law that dates back to 1949. The law, which requires dealerships to title and register loaner vehicles as used regardless of mileage or how long they have been available for customer use, is now under scrutiny as regulators and dealers clash over its implications.

The controversy began when LaFontaine Chevrolet Buick GMC of St. Clair Inc. was cited for titling loaner vehicles as new, even though some had been driven up to 6,100 miles. Regulators argue that the law is essential to protect consumers by ensuring transparency in vehicle sales. However, dealers claim that the law creates unnecessary red tape and fails to reflect the actual condition of these vehicles.

What the Law Says and Why It Matters

Under current Michigan law, any vehicle that has been used as a courtesy or loaner car must be classified as used, even if it has low mileage or has only been on the road for a short period. This means that dealers cannot legally sell these vehicles as new, despite meeting the criteria for new-vehicle incentives and warranties.

According to Max Muncey, a spokesperson for LaFontaine Automotive Group, this creates a conflict between state law and manufacturer guidelines. “Under current manufacturer and lender definitions, vehicles utilized in manufacturer-approved rental or service loaner programs fully qualify as new vehicles,” he said. “However, Michigan’s outdated titling laws still require such vehicles to be classified as used.”

James Fackler, executive vice president of the Michigan Automobile Dealers Association, has been advocating for changes to the law. His goal is to allow loaner vehicles to be sold as new if they meet certain mileage thresholds. This would align Michigan’s regulations with those of other states, where similar rules are more flexible.

Regulatory Concerns and Public Safety

Michigan regulators have taken a firm stance on the issue, citing public safety as a key concern. In response to violations by LaFontaine dealerships, the Secretary of State’s office has suspended two locations in the past year. The latest suspension occurred at LaFontaine Chevrolet Buick GMC of St. Clair Inc., which was fined $25,000 and placed on probation after being cited for selling used loaner vehicles as new.

The Secretary of State’s office claims that such practices pose an “imminent threat to the health, safety or welfare of the public.” They argue that misrepresenting the status of a vehicle can lead to inaccurate depreciation information, which could negatively impact future sales. “This practice is not only in violation of the Code, but it also does not accurately reflect the depreciation of the vehicle to the consumer,” officials wrote in their statement.

Industry Responses and Variations Across States

Not all dealerships face the same challenges with the law. For example, Champion-Hargreaves Chevrolet in Royal Oak has not struggled with the regulation, according to General Manager Walt Tutak. He explained that his team checks titling paperwork carefully, employees attend annual training sessions, and internal audits help ensure compliance.

Tutak also noted that while the law may seem like a “paperwork” issue, it ultimately leads to greater transparency and consumer protection. He suggested that the problem at LaFontaine might stem from poor management or high employee turnover rather than a systemic issue.

Other dealerships, such as Suburban Mazda of Troy, clearly outline their policies on their websites. According to the site, loaner vehicles can be eligible for new-vehicle incentives but must be sold as used. The warranty start date is tied to when the vehicle enters loaner service, not when it is first sold.

State-by-State Comparisons

Laws governing the sale of courtesy and demo vehicles vary widely across the United States. Pennsylvania, for instance, mirrors Michigan’s approach by requiring loaner vehicles to be sold as used and limiting them to 500 miles of usage. Melanie Stine, a spokesperson for the Pennsylvania Automotive Association, said she has not heard of any compliance issues or complaints over the past two decades.

In contrast, Missouri revised its law in 2019 to allow loaner cars to be sold as new without being titled. This change was supported by both chambers of the legislature and aimed to reduce confusion among dealers, law enforcement, and the motor vehicle bureau.

Ohio takes a different approach, allowing dealers to sell demo vehicles as new as long as customers are informed about the vehicle’s history. The Ohio Automobile Dealers Association emphasized that a vehicle retains its new status if it is titled as a demonstrator, even if it has been used as a loaner.

Conclusion

The debate over Michigan’s loaner vehicle law highlights the tension between consumer protection and industry flexibility. While regulators argue that the law is necessary to prevent misleading sales practices, dealers believe it imposes unnecessary burdens. As the situation continues to unfold, it remains to be seen whether legislative changes will bring relief to dealers or reinforce the existing framework.