Have Our Accomplishments Prepared Us for the Future?
By Mike Conlon
Occasionally the rebuilding industry needs to sit back and review what has occurred over the past few years to get some perspective on events that loom on the horizon. This is especially true in the legislative and regulatory arena where past successes or failures often foreshadow future events. The beginning of a new year and the advent of a Republican-controlled Congress to complement the Republican president makes this an ideal time to see where we are.
The last few years have not been very good for most rebuilders. However, during the same time period the industry has done quite well in meeting legislative and regulatory challenges.
As a direct result of aftermarket efforts, both the US Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) have recognized the right of automobile service and repair facilities to have the information they need to adequately diagnose and repair the emissions-related parts of vehicles. Both agencies published regulations requiring automobile manufacturers to make that information available at a reasonable price.
California was persuaded to go even further, and it legislated disclosure of the information needed to manufacture or rebuild emissions-related parts. The new California regulations require each manufacturer to have a Web site accessible to any person who needs this information, up and running by March 30, 2003. While it is anticipated that some vehicle manufacturers may not fully comply with the new regulations and may try to continue to deny access to some information, the new California regulations give the aftermarket the right and the framework to challenge such efforts.
Vehicle scrappage laws were all the rage six or seven years ago. However, except for certain parts of California, the industry has successfully blunted efforts to get older cars off the road. In fact the average age of the automobile fleet is much higher than 10 years ago. Several attempts to increase the parts warranties on vehicles have also been stopped or slowed down, and no new emissions warranties have been imposed.
A bureaucratic suggestion by EPA that engine rebuilders test and certify their products for emissions compliance was demonstrated to be unworkable before it could gain any support. To cement this success, the industry worked with EPA to craft relatively simple rules which allow car, truck, off-road and marine engine rebuilders to rebuild an engine to any configuration as long as there is a reasonable thought that the configuration will not increase emissions. This solution kept EPA off the backs and out of the shops of most engine rebuilders.
Many provisions of Federal and state procurement laws precluded government agencies from purchasing rebuilt products as replacement parts for their vehicles. As a result of industry efforts, many of these rules were changed to delete this exclusion or to allow rebuilt products to qualify in more situations.
IRS attempts to increase rebuilders’ taxes by increasing the value of their core inventories have also been successfully met, and a new procedure was developed which will allow most rebuilders to value their core inventories at a reasonable level.
An attempt by the Federal Trade Commission to withdraw its guidelines which specify the steps a company must take in processing cores before the finished product can be called "rebuilt" or "remanufactured" and how such parts must be labeled was also defeated. These FTC guidelines assure your customer of the quality of the part he buys from you and allows you to positively differentiate your product from those of junkyards and mere fixer-uppers.
These accomplishments are significant and have positioned the industry well to meet new challenges. But, what is on the horizon?
In general, the new Congress should be more receptive to rebuilders, and general business issues of concern to rebuilders are more likely to be addressed. For example, the President is committed to passing additional tax reductions and benefits for business and the new Congress is more likely to give him what he wants.
These changes are likely to include a repeal of the minimum tax on corporations and a more generous depreciation allowance on capital purchases. Small business owners who want to pass their businesses to their heirs when they die will likely also benefit.
While Congress reformed the estate tax laws a couple years ago to gradually increase the size of estates subject to the tax, to lower the tax rates and to eliminate the tax in 2010, this change has a sunset provision. As a result, the tax will be fully reinstated in 2011. A major effort will be made this year to make the phase out permanent and maybe even to speed up the date for full repeal.
The level of enforcement activity at EPA and to a lesser extent at OSHA has declined over the past four years. This decline may continue, but because environmental concerns are no longer confined to a small group but have become issues of importance to the general public, no Federal government can reduce enforcement activities significantly.
While there may be some greater leniency allowed in enforcement, the environmental laws will not go away. However, efforts to establish ergonomic regulations by OSHA are moving slowly, and no major ergonomic rule is likely in the near future.
Also of concern is the possible reauthorization of the Clean Air Act. Major modification of the Act has been pending for several years, but legislators have not been willing to deal with the maelstrom of controversy such a reform would generate. The new Chairman of the Senate Committee on the Environment and Public Works is expected to be Senator James Inhofe from Oklahoma. Sen. Inhofe favors using a "surgeon’s scalpel" to address problems he sees in the Act rather than using a shotgun on it.
This approach may limit the changes, but merely opening the way to any amendments may create a tidal wave of pressure for full scale reform. Rebuilders could be adversely affected by reform, especially if the vehicle manufacturers use it as a pretext for repealing information access requirements or to limit entry into markets by creating compliance requirements which only their parts can meet.
With respect to information access, the aftermarket will continue to push for passage of the Motor Vehicle Owners’ Right To Repair Act. This bill would require the vehicle manufacturers to make available to vehicle owners and repair facilities "the information necessary to diagnose, service or repair the vehicle" including "information necessary to integrate replacement equipment into the vehicle."
The significance of the bill is that it would require the vehicle manufacturers to make available information related to all parts of a vehicle not just emission-related parts as the Clean Air Act does. The Right To Repair Act gained strong support this year, but two events over the last few months make its passage next year difficult.
First, one of the major associations representing service facilities cut a side deal on information availability with the OEMs. Although this deal would give service facilities less information than they would have received if the Act passed, this association is not likely to continue supporting the legislation.
Second, Senator Paul Wellstone, the primary sponsor of the Act in the Senate and a strong advocate for the aftermarket, died recently with his family in a plane crash in Minnesota. Finding another strong advocate in the Senate may be a problem. However, most of the aftermarket remains committed to this bill and will continue to push for its enactment.
Competition with imported products (some of which are of less than stellar quality) continue to cause headaches for U.S. rebuilders. General tariff reform to protect domestic rebuilders from foreign competition (with their lower labor and other costs) is unlikely and may not be possible because of the restrictions on imposing such tariffs which the U.S. is obligated to follow as a member of the World Trade Organization.
Dumping actions, whose purpose is to obtain an order restricting or penalizing individual foreign companies who are using predatory pricing policies to gain U.S. market share at the expense of domestic companies, are expensive, time-consuming and, in many cases, ineffectual. While a recent change to Federal law which allows affected companies to share in the dumping penalties may spur greater pursuit of individual violations, it is unlikely to promote fundamental tariff change.
As we start 2003, the legislative and regulatory landscape behind us looks good. The future, however, is still raw and undeveloped. Hopefully in six or seven years we can look back on the challenges of these coming years as "well met" by the automotive aftermarket industry.
Mike Conlon is legal counsel for the Engine Rebuilders Association (AERA) and the Automotive Parts Rebuilders Association (APRA). He is an attorney with the Washington, DC, firm of Conlon, Frantz, Phelan, Knapp & Piers.