Regulating and resolving new car warranty problems and disputes: An analysis of lemon laws, FTC Rule 703 and alternative dispute resolution
Date of Award
Doctor of Philosophy (PhD)
1985 J. D. Power & Associates Customer Satisfaction Survey
Law | Transportation Law
Policy impact evaluation examines the effects that implemented policies or laws have on the objectives they intend to achieve. This study examines whether new car lemon laws, passed in 39 states from 1982-85, induced automakers to provide better warranty service and to settle warranty-related disputes more satisfactorily.
Lemon laws make automakers liable for purchase price refunds or vehicle replacements if they fail to correct warranty problems within a reasonable period of time. Almost all lemon laws condition relief to the consumer's prior resort to an automaker-sponsored arbitration program, if one is offered, and it complies with regulations promulgated by the Federal Trade Commission. Those regulations--FTC Rule 703--require such programs to be procedurally fair and expeditious. Primarily, if not entirely, in response to the passage of new car lemon laws, all domestic, and several foreign, automakers established arbitration programs purporting to comply with FTC Rule 703.
State agency evaluations, annual program audits submitted to the FTC, and arbitration observations of over 150 lemon law disputes reveal that, by and large, the arbitration process is unduly influenced by the automaker sponsors. The programs do not comply with many critical Rule 703 procedural requirements, and arbitrators, for the most part, totally ignore the lemon law in reaching decisions. The vast majority of "awards" concerning lemon law disputes consist of further repair attempts, not purchase price refunds.
Results from the 1985 J. D. Power & Associates Customer Satisfaction Survey were also utilized for this study. After one year of ownership, the warranty service and dispute resolution experiences of 9,520 new car purchasers with lemon law rights were virtually identical to the 9,525 new car purchasers without lemon law rights. In both groups, one-in-eleven reported major warranty problems that were not repaired within a reasonable time (i.e., four attempts or 30 cumulative days). And, of those who contacted arbitration programs to resolve their disputes, only one-in-five were satisfied with the results. From a comparative standpoint of group experiences, lemon laws had no impact.
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Nowicki, Philip Roy, "Regulating and resolving new car warranty problems and disputes: An analysis of lemon laws, FTC Rule 703 and alternative dispute resolution" (1987). Social Science - Dissertations. 131.