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October 14, 2013

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Obstacle course of car warranties

China’s first regulation on car warranties, which comes into effect this month, brings to mind an ancient Chinese saying: hao shi duo mo. That translates as “good things are a long time in coming,” or it might be stated as “the road to happiness is strewn with setbacks.”

It has been 12 years since the General Administration of Quality Supervision Inspection and Quarantine began drafting this regulation, with the aim of giving consumers some recourses when the car they buy turns out to be a lemon. After an estimated nine revisions, the regulation was enacted earlier this year.

The regulation is a balancing act between carmakers, whose industry is considered a pillar of economic growth, and car buyers, who are becoming increasingly vocal about their rights. Last year, consumer associations across China received 7,755 complaints about vehicle problems, of which 17.7 percent were related to after-sales service.

Led by Volkswagen, General Motors and Mercedes-Benz, most foreign and domestic car brands have rushed to expand and strengthen their warranties ahead of the new regulation coming into effect. Some say that is a cynical exercise, but I view it as a warm-up for the coming peak season in auto sales.

Judging by the wait-and-see market sentiment in the past two months, would-be car buyers were very much looking forward to the day when their consumer rights are officially protected. 

In the past, promises have been made and broken by carmakers, incensing consumers.

Now with the clout of government behind them, car buyers won’t have such a hard time in demanding redress for faulty vehicles. That doesn’t mean, however, that finding justice will be a piece of cake.

The devil is in the detail

The most important thing you need to know about China’s car warranty regulation is that it is only an administrative rule, whose power and enforcement fall below the muscle of a law.

Besides, it is a pity that the State Administration of Industry and Commerce, which oversees product quality in China, wasn’t involved in framing the regulation.

The trick is not to set expectations too high. Like always, the devil is in the detail.

First, there are two main time frames in the regulation that bear on its effectiveness. A free replacement vehicle or a refund is available only in the first two years of car ownership or in the first 50,000 kilometers.

Free repair can be provided until the car reaches three years or 60,000 kilometers. After that, you might be on your own.

If you plan to buy a car from a brand that has taken the initiative in providing more expansive warranty policies, you should be careful about which time frame is specified. In most cases, it is the one for repairs.

Most carmakers don’t want to extend the period for free replacements or refunds, fearing a surge in operating costs. That worry seems unwarranted to me. After all, the chance that a car will need to be replaced or the purchase price refunded within two years or 50,000 kilometers is pretty slim.

One scenario is that a car found with defects, like cracks in the body, dysfunctional brakes or steering, or oil leaks, within the first 60 days or 3,000 kilometers of its usage, will be covered. Experience tells us that rarely happens.

And when it comes to more frequently encountered major problems, such as faulty components in the engine and gearbox, steering, braking, suspension systems or front and rear axles, you are entitled to a refund only if they cannot be fixed after two replacements.

In the delicate and complicated internal mechanism of vehicles, there might also be abnormalities that cannot be diagnosed according to routine quality standards.

Therefore, if a serious vehicle malfunction related to safety cannot be resolved after two times in the repair shop, you are also eligible for a replacement or refund. 

 

 

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But what kind of malfunction is defined as “serious” and “safety-related?” The regulation doesn’t quite spell that out, except for describing the situation as “quality problems that endanger human or property safety” and taking dysfunction of protection devices and fire hazards for example.

The good news is that a more precise guideline for the evaluation of malfunctions is already in the works, though even that is not expected to cover all safety-related issues. There’s been a lot of public talk about cancer-inducing, in-cabin air pollution resulting from inferior interior materials, but that concern is not addressed in the car warranty regulation because it is not a mechanical problem. 

For most of other quality issues, if they cannot be resolved after 35 days of work or after five times in the repair shop, you can ask for car replacement. But think twice before taking this to the court because, in this case, the regulation might be overruled by China’s law on the protection of consumer rights and interests, which has no such articles.

And remember that “consumable parts” — as opposed to mechanical ones — are not included. The tricky part is that carmakers often have their own warranty time frames for consumable parts indicated on the warranty certificates. They involve 13 components specified by the regulation, from safety-related tires and mechanical performance-related filters to the visually important windshield wipers. You can ask for replacements only if problems happen during their quality assurance period.

Get lost? There’s still more to the labyrinth

Even if you think your car is eligible for replacement or refund, you still have to convince your car dealer and the carmaker. Whether there really is a quality problem is often a matter of dispute, harking to considerations such as different driving environments, individual driving habits and motorist errors. 

That’s why car professionals are often called in as mediators. Since the General Administration of Quality Supervision Inspection and Quarantine lacks car evaluation expertise of its own, it has chosen to create local panels of experts to do evaluations.

It seems a reasonable solution, at least for a transitional period. However, the list of experts serving on these panels won’t be made public, according to the administration, in order to protect their privacy and ensure their neutrality.

But would you trust the judgment of supposedly impartial experts if you knew they had some links to carmakers, dealers or other industry players?

Given the lack of transparency, aggrieved motorists will have to pray for impartiality.

Let’s say that you do get a fair judgment. Your next step is to get your dealer on your side.

According to the car warranty regulation, the car seller is the one to provide you with free repair, replacement or refund, but the dealer, in turn, clearly needs the nod from the manufacturer before making any commitment that will require reimbursement later.

And even if you successfully jump all the hurdles, you may be shocked to discover that a replacement vehicle or a refund doesn’t come at no cost. There is a formula in the regulation that specifies the money you need to pay to exercise the warranty claim. Brace yourself for this. The out-of-pocket cost is equal to the retail price of your car, multiplied by its odometer reading in kilometer, divided by 1,000 and then multiplied by a coefficient “n”, which will be pegged in the range of 0.005 to 0.008, set by the carmaker according to the condition and time you have had the car.

It would be easy to conclude that the new regulation is really stacked against the car buyer. That may or may not be the case. The important point here, as always, is caveat emptor. Let the buyer beware.

This is not a perfect regulation, either in content or enforcement provisions. If you have problems with a car you have bought, it’s best to approach the process with a clear head and no overblown expectations.

No doubt the day will come when the rights of car buyers in China will be more fully protected. The market is maturing. Automakers in a competitive and slowing market will need to take increasing heed of the concerns of the motoring public, and that includes redress for faulty vehicles.

At this early stage, it’s a difficult process. But that’s no reason to shy away from what rights exist at this phase. What you don’t use, you may lose.

Additional and important heads-up about the new car warranty policy

1. The regulation applies only to cars for private usage.

Taxis, government fleets and machinery vehicles are not covered by the free repair, replacement or refund terms. However, unlicensed taxis might make use of the loopholes.

New energy vehicles, such as all-electric and hybrid cars, are supposed to be covered by the warranty regulation. But batteries, their major power source, are classified as “consumable,” not mechanical, auto parts and aren’t necessarily covered.

2. Cars that have been modified or repaired by their owners or unauthorized garages are not covered by warranty benefits.

That is clearly to prevent disputes over who is responsible for the quality problems. If you would like to make some changes to your car, it is better to go to a workshop authorized by the car brand — the so-called 4S dealerships.

For maintenance work, you may have to turn to them as well because they are the only legally recognized providers of original spare parts for your car. Using original auto parts is one condition for your car to qualify under the warranty regulation.

3. Evaluation work is not free.

You will need to pay the auto expert panel some “consultancy fee” for mediating in any dispute related to your car’s quality problem. The amount, ranging from thousands of yuan to possibly tens of thousands, is supposed to be split between you and your dealer, but just how it’s split is open for debate. If the expert finds no quality problems in your car, are you expected to foot the whole bill?

4. Dispute resolution is tricky.

You are supposed to negotiate with your car dealers first and then call in mediators if there’s no resolution. If that doesn’t work, you can apply for arbitration or file a lawsuit, whose ruling could overrule any tentative settlement agreement you have with the dealer.

If you choose to take your case directly to court right from the start, be prepared for possibly lengthy and costly proceedings.

 




 

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