June 13, 2016 Weekly Legislative Update

TIA Weighs in on Oil Change Intervals

TIA, the Automotive Oil Change Association, the California Retailers Association, the Auto Care Association, and the Service Station Dealers of America have written to members of the California State Senate in opposition to SB778, unless it is amended to reflect the true parameters of automaker oil change interval recommendations and how they affect consumer safety and warranty rights.

The extended drain intervals touted by automakers at the time of sale are not often appropriate for California drivers, especially if they—like most consumers—do not engage in consistent, preventative maintenance of their own and want their vehicles to have the best fuel economy and lowest emissions possible and last well beyond the initial warranty period. To suggest that it should be criminal for them to receive the support they need is reckless and poses a far greater threat to consumers and the environment than shorter interval oil changes at professional facilities that recycle their used fluids.

Establishing an Oil Change Interval Reporting Guideline without Endangering Consumers

In order to establish an oil change service interval reporting guideline without endangering consumers, several points must be clarified about automakers’ recommendations:

·         Service intervals represent a range, not a goal mileage to attain;

·         The longest service interval is not applicable to consumers with the most common driving habits;

·         Most consumers ignore their “home” maintenance obligations designed to catch problems with consumption and leakage between oil change services.

A high mileage number on service intervals looks great and feels like a promise, but it isn’t. In the context of warranty coverage, an automaker’s oil change interval indicates the maximum mileage after which the automaker can void the warranty for failure to uphold necessary maintenance obligations. In order to determine how much service is “necessary,” the consumer or his/her service provider must make the normal-to-severe service interval range calculation whether or not that range is listed in the same place or provided in pieces throughout the owner’s manual and subsequent technical service bulletins. The average driver in California’s fleet would fall within the “severe” service category due to consistent stop-and-go traffic alone.

Recent amendments to SB 778 acknowledge the existence of the severe service driving category, but mere reference doesn’t go far enough to protect California drivers’ safety and financial investment. After the normal-to-severe service interval range calculation, consumers must then consider:

1.      Actual engine condition (age, prior maintenance schedule, recalls, technical service bulletins);

2.      Size and type of engine (standard, direct injection or hybrid);

3.      Choice of oil (conventional or synthetic);

4.      Type of gasoline (ethanol blend; i.e., all gasoline unless otherwise specified; diesel or pure gasoline); and

5.      Whether they adhere to owner’s manual “home” maintenance obligations.

One of the most common “home” maintenance obligations—checking oil at every fuel stop—is rarely, if ever, met. However, automakers have practical reasons for this requirement including that car engines are running hotter and consuming more oil as an ordinary function rather than failure, the prevalence of ethanol in gasoline which increases the risk of white sludge (a/k/a engine oil “mayonnaise”), rust, freezing water, and water-diluted fuel in the fuel tank (a/k/a “phase separation”) with resulting drop in octane, and the rapid increase in gasoline direct injection technology reliance fleetwide.

If consumers do not intend to engage in required and/or recommended maintenance on their own, which means there will be no eyes on the engine in between oil changes, then it is irresponsible for the legislature to confuse or pressure them into extending their oil change intervals or to suggest that their service providers are somehow acting with intent to defraud if they recommend otherwise.

Risks Associated with Extending Oil Change Service Intervals Too Far

Consumers cannot afford to blindly follow the longest service interval listed without regard for the many balancing factors and requirements factored into the automakers’ comprehensive interval recommendation scheme. The risks associated with extending oil change service intervals too far include excessive oil consumption, oil leaks, increased fuel consumption, emission systems premature failure, engine sludge, engine failure, loss of warranty coverage, and serious personal injury.

Moreover, fewer and fewer drivers have the expertise or interest in taking the steps necessary to become their own service advisor, and owner’s manuals are no consumer refuge in this regard. As previously mentioned, consumers ignore most classic maintenance responsibilities required by automakers even though such activities haven’t been commonplace among drivers since the 1980s. Seeing a motorist pop their hood at the gas station to check their oil at every fueling happens about as often as Leap Year. Yet that activity—with its irreplaceable factor of inspecting the engine throughout the service interval so that the consumer may intervene if mid-interval service becomes necessary—is inextricably linked to automakers’ oil change interval recommendations and accompanying warranty coverage.

One straightforward explanation of the punishment for failure to maintain minimum oil levels at all times comes from General Motors:

“Operating your vehicle with an oil level that is below the minimum level indicated on the engine oil dipstick can result in severe engine damage. Repairs resulting from operating an engine with insufficient oil are not covered under the terms of the New Vehicle Warranty.”

Who pays when consumers who, like most modern consumers, drive under severe conditions, don’t check their oil every time they fill up and then extend drain intervals with a sludge result? Consumers. Replacing a sludge-wrecked engine ranges in cost from $7,000 to over $55,000 depending on the make and model; $10,000 is the average. For that amount of money the consumer could have had complete, professional-eyes-on-the-engine service once a quarter for the normal life of the vehicle. Those are the real stakes for consumers. It’s not whether during the life of their car they might get one or two oil change services early, but whether they’re going to have a car for its normal life and without major engine oil or filter-related repairs or drips and leaks and excessive oil burning.

To add further complexity to making service interval recommendations, no recommendation can guarantee exact results in vehicle performance, which is why even automakers make no such claims. They routinely create addenda for their owner’s manuals as problems associated with original service interval recommendations arise. General Motors’ recent outreach to its customers with the 2011 model year GMC Terrain (2.4 Liter engine) is a perfect example. Those customers have been asked to bring their cars to a dealer for the purpose of having their oil life monitors reset to shorter oil change intervals. It is not a coincidence that the oil change interval resets always go shorter. And although the recalls come from automakers, many consumers actually find out about them and other engine problems from their local automotive service professionals.

Necessary Amendments

The Department of Finance reports that “the purpose of this bill is to align automotive repair shops' recommendations about oil changes to the recommendations included in the owner's manual of the customer's vehicle.” If that’s true, no further action on this bill is necessary, because the vast majority, if not all, of professional automotive repair providers already operate in alignment with owner’s manual requirements. However, the sponsor’s own testimony and Senate Rules Committee analysis on this bill make clear that the actual purpose of it is to reduce oil use and used oil-related pollution. TIA not only shares that goal but have been active environmental partners nationwide as evidenced by the millions of gallons of DIYer used oil collected annually since the early 1990s even in the 94% of states without collection incentives. It’s only where the sponsor’s legislative approach to pollution reduction smashes into consumer vehicle safety that we must part ways.

This isn’t about regulating appliances that transport oil—it’s about vehicles that transport human beings, vehicles with combustion engines that pose serious financial and safety risks if not properly maintained. Service providers must continue to have the ability to schedule necessary maintenance via a case-by-case analysis so that consumers avoid breaking down on the side of the road, losing warranty coverage, decreasing the useful life of their vehicles, and increasing the likelihood of burning oil and fluid leakage. That means recommendations “in accordance with the maintenance schedule of the vehicle’s owner’s manual” as described in SB 778 must continue to include all of the factors related to the maintenance schedule; i.e., whether the consumer has normal or severe driving habits, the consumer’s driving conditions, and whether the consumer is meeting all of his/her maintenance obligations like checking oil at every fueling stop and refraining from speeding.

The combination of legislative “findings” and proposed text still suggest the sponsor’s intended written version of an oil change service interval recommendation would cite only, as in exclusively, the uppermost possible interval listed in an owner’s manual. As previously discussed, that would be inaccurate, dangerously misleading to most consumers, and promote increased oil consumption and leakage, which ultimately undermines the legislation’s purpose. In order to avoid that outcome, the legislation would need to include (1) the concept of historical driving conditions (“HDC”), (2) examples of acceptable ways to express oil change intervals on stickers and invoices, and (3) a prohibition on automobile manufacturers using oil change intervals as the reason for voiding engine or emission control warranties until 100 miles over the applicable severe or normal oil change interval.

A potential example of an oil change interval description is the following:

Normal 3,000 miles or 6 months – Severe 3,000 miles or 3 months

Your HDC = Severe

Additionally, two new problems associated with the recently circulated potential amendments must also be addressed. The first is a radical shift in policy to transform the legal status of maintenance-only facilities that change oil into “repair” facilities regulated by the Bureau of Automotive Repair (BAR). By seeking to eliminate the current exception for oil changes in the Automotive Repair Act of 1971, you are undermining a core principal of that Act, which is to protect and promote the consumer maintenance services historically associated with full service gasoline stations at the time the Act was written. Checking and changing oil was the hallmark of that maintenance category. Moreover, there is no evidence of rampant fraud or negligence to justify slamming maintenance-only service providers into repair regulation, which would destroy their highly effective business model. Perhaps a few supporters would enjoy that, but consumers would not.

Maintenance-only facilities provide the automotive services consumers need most, and they do it faster in more convenient locations and at less cost than typical repair industry competitors. BAR regulation offers nothing to a maintenance service model except fees, unnecessary procedures, and investigation and prosecution authority the agency already has under other state law. There’s no training or professional enhancements of any kind. And what was the original purpose of this legislation? Wasn’t it to reduce the amount of oil pollution in California? The business owners and employees you’re willing to turn upside down in the pursuit of this moving target legislation are the same people who have been collecting DIYer used oil from the public for decades. That is yet another reason why it benefits the state to have more professional service facilities, not less. The existing exception in the Automotive Repair Act for oil changes must remain intact.

Lastly, in recently amended subsection 9890(d), has omitted one of the major engine oil approving organizations, the European Automobile Manufacturers' Association (“ACEA”). Failure to include ACEA could easily result in faulty enforcement actions. TIA suggests that the Senate make the following or similar change to rectify the situation:

(d) For purposes of this section, “oil grade, performance standard and quality level” are defined as the viscosity grade and API Engine Oil Service Category recommended by the Society of Automotive Engineers (SAE), the International

Lubricants Specification Advisory Committee (ILSAC) Oil  Specification, the European Automobile Manufacturers’ Association (ACEA), or the automaker-specified standard.

For the reasons discussed, TIA must respectfully oppose SB 778, unless amended.

WOTC Has Much Riding on Ryan Task Force

In January, Speaker Paul Ryan organized six task groups of the Republican caucus to produce policy blueprints the GOP can run on—tax reform, poverty reform, national security, healthcare, national debt, and regulation. Those task groups are due to release their reports around the middle of June.

The tax reform and poverty blueprints can impact WOTC because Ryan is looking for bold initiatives, like a 20 percent tax rate on business income. To cut tax rates without increasing the deficit, some tax credits and deductions will have to be killed or capped and WOTC’s 10-year cost of nearly $20 billion makes it a target. 

Naturally, there would be 16 million jobs filled by unemployed workers over those ten years, almost 90 percent of them on public assistance—this is where WOTC’s anti-poverty role comes in. Having an income from work is still the main exit from poverty and gateway to opportunity in our society.   

Many in Congress are beginning to realize that ending business tax credits and deduction to pay for tax cuts doesn’t go very far, thus another source of revenue is needed for big cuts in tax rates without increasing the deficit—value-added and consumption (rather than income) taxes are being looked at seriously. WOTC supporters take no stand on this, but if it comes to pass, it can work in our favor.

On the poverty front, the GOP is more solid than ever behind the principle that able-bodied persons should work as a condition for receiving federal benefits. Applied sensibly (not deny benefits to people legally entitled to them), WOTC dovetails with this philosophy because research shows it’s the most cost-effective way to increase hiring of safety-net recipients and others among the chronically unemployed.

Almost all WOTC-targeted workers are registered with a government agency and receiving government benefits, and almost all are work-ready—the supply of these workers isn’t the problem, demand in the labor market for them isn’t enough for various reasons. Boosting employer demand via WOTC is the answer to hiring more people who know poverty and slack work, and have few skills to offer but are highly motivated. 

Today, 12.5 million people ages 18-64 live in deep poverty, which means below 50 percent of the poverty line. According to recent research, 373,000 households with children are living in extreme poverty—defined as less than $2 per person per day, not counting welfare, food stamps, or rent subsidies. On top of this, there are a half-million veterans and 655,000 people with disabilities unemployed and looking for work. Boosting employer demand by extending WOTC to more employers such as private non-profit firms, and making it work better for firms which have excess credits, can yield more job opportunities for these workers.

Nevertheless, within the GOP, WOTC is too often seen as a benefit to food service employers, and so far neither Speaker Ryan nor Ways and Means Chairman Brady have taken a position on including WOTC in their poverty reforms. WOTC supporters have been working to change that image, most recently by getting the Department of Labor to issue a special report showing WOTC hires span every economic sector and aren’t concentrated in food service, which accounted for 17.5 percent of total hires in FY 2013. The highest concentration was 30 percent in sales, 22 percent in production occupations, 19 percent in administration, 5 percent in healthcare, and 2 percent in maintenance.

As of March 31, 2015, the entering wage for 75 percent of WOTC workers was under $10 an hour, so it’s clear most WOTC jobs are going to employers who have large numbers of entry-level positions. Still, 22 percent of WOTC workers are going into manufacturing jobs—in more than in food service—where they are making wages above $10 an hour.

Call attention to Speaker Ryan’s plan to announce far-reaching blueprints in the areas of tax reform and poverty, and that WOTC is important to the success of these plans because of solid evidence than a tax expenditure is less costly than direct expenditure to stimulate hiring of public assistance recipients and other unemployed workers, that WOTC’s 1.6 million certified hires a year achieves the goals set by Congress and more can be done with permanent authority, that research shows the government saves twice the cost of the program when workers move off public assistance, and WOTC has an excellent record of preventing waste, fraud, and abuse.

With simple reforms, WOTC can be made to work even better for the poor and disadvantaged who are out of work. To cover more of the low-income unemployed, WOTC should be expanded to include able-bodied Medicaid recipients, disconnected youth, food stamp recipients above the age of 40, everyone receiving Social Security Disability Income, and residents of urban and rural areas of concentrated poverty defined by the Census Bureau. 

The growing number of good jobs of private non-profit employers in healthcare and education shouldn’t be excluded from WOTC—let’s make all private non-profit employers eligible for WOTC and allow them to claim the credit against FICA, with Treasury reimbursing the Social Security trust funds. As the cost to the Treasury is the same, allowing employers to claim the credit against FICA if they have excess credits or no taxable income will motivate many firms, especially small businesses, to start reaching out to WOTC-eligible workers in their hiring.

At 1.6 million hires a year, WOTC demonstrates it can scale up without increased cost per hire or increased fraud or abuse because it’s administered by State Workforce Agencies who certify each worker eligible for the credit. Funding the Federal government provides the States for WOTC administration has been held to around $19 million for the past decade, so the average administrative cost per hire has fallen significantly due to increased productivity from electronic processing. Despite rising workload, SWA’s continue to reject nearly as many employer requests for certification as they approve, continuing WOTC’s excellent record against waste, fraud, or abuse.  

WOTC is a national program delegated to the States for implementation, so it’s already in line with Speaker Ryan’s concept of delegating more responsibility for poverty programs to the States. With congressional authority, States can be given the flexibility to define additional target groups to support their anti-poverty programs, for example, states with larger populations of homeless, Native Americans, or youth exiting foster care, under Treasury regulations.  

WOTC’s history has been one of continued evolution to meet the most pressing needs for family income and wider opportunity and can be an even more flexible instrument consistent with Speaker Ryan’s concept of states becoming centers of experimentation and catalysts for what works to cure poverty.

Kindly review these talking points and let us have your comments or criticism by return mail or 703-687-4566. Don’t delay—catch up with your congressman and try to talk to him personally, its election year and he’s ready to listen. Don’t forget the bottom line: ask him or her to co-sponsor H.R. 2754, the Reed/Rangel bill to make WOTC permanent.