The brief suspension of a Michigan car dealership over its handling of loaner vehicle sales is sparking debate over a decades-old state law: Regulators say the 1949 measure protects consumers, but dealers say it mandates unnecessary red tape.
The law requires autos titled and registered by dealerships to be sold as used, regardless of mileage or the amount of time a so-called courtesy vehicle has been available for use by customers. Regulators last week cited LaFontaine Chevrolet Buick GMC of St. Clair Inc., for example, for titling as new loaner vehicles that had been used for as little as about 500 miles or as much as 6,100 miles.
Laws on the sale of courtesy and demo vehicles vary widely state by state, and dealer lobbyists have been pushing lawmakers — so far unsuccessfully — to change Michigan’s law for several years to approximate rules in some other states.
Dealer associations in Michigan and other states said automakers encourage dealers to provide loaner vehicles while a car is being serviced and later incentivize dealers to sell the cars as new by offering new-vehicle deals and incentives for loaner vehicles under certain mileage.
“Under current manufacturer and lender definitions, vehicles utilized in manufacturer-approved rental or service loaner programs fully qualify as new vehicles,” LaFontaine Automotive Group spokesperson Max Muncey said in a statement last week. He added: “However, Michigan’s outdated titling laws still require such vehicles to be classified as used, even though they meet all qualifications for new vehicle incentives and warranties.”
James Fackler, executive vice president of the Michigan Automobile Dealers Association, said the association’s goal is to change Michigan law to allow loaner vehicles titled and registered by dealers to be sold as new if they fall under a certain mileage cap.
Michigan regulators have suspended two LaFontaine dealerships over the past year for selling used loaner vehicles as new. LaFontaine has said salespeople were upfront with customers about the condition of the courtesy vehicles, which a spokesperson said were sold at a discounted rate and received new-vehicle incentives and deals from the manufacturers.
“Importantly, there was no imminent threat to public safety, no systemic ‘scheme’ and absolutely no guest impact whatsoever,” Muncey said.
The Secretary of State’s Office has said the violations posed an “imminent threat to the health, safety or welfare of the public,” which is the legal threshold for the state to immediately suspend a dealership’s license.
The latest violations came last week at LaFontaine Chevrolet Buick GMC of St. Clair Inc., which reopened within days after paying a $25,000 fine and agreeing to continued probation. LaFontaine dealerships have been dinged previously and participated in mandatory training on how to comply with the law: check the “used” box instead of the “new” one on certain paperwork when selling loaner vehicles.
“Purchasers rely on dealers to fulfill their obligation by appropriately representing new and used vehicles and completing sales documents accurately and honestly,” Secretary of State officials wrote in the suspension of the St. Clair dealership. “Instead, the Licensee violated the trust of the public by offering for sale, and selling, used vehicles as new vehicles to consumers.
“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, which could later impact a future sale of the vehicle to a consumer who would not know they are purchasing a vehicle with two previous owners as opposed to one previous owner.”
Secretary of State inspectors last year flagged titling issues and put the St. Clair dealership, which is in China Township, on probation. A LaFontaine location in Livonia was also suspended last year over its handling of loaner vehicles. Both dealerships are under greater state supervision as part of deals with the state, and the recent violations in China Township were discovered during a probationary inspection.
As part of its latest agreement with the state, the China Township dealership also agreed to pare down its dealer tag allotment by nearly half, from 94 to 50 dealer plates.
Dealers vary in their handling of the Michigan law. Asked whether the Champion-Hargreaves Chevrolet dealership in Royal Oak has struggled with the law, General Manager Walt Tutak said, “Not really.” Tutak said a team at the dealership is responsible for checking titling paperwork, employees attend annual Secretary of State trainings, and the dealer conducts internal audits.
“We explain it in detail to our customers,” Tutak said of how loaner vehicle sales are handled under Michigan law.
Tutak said that over time, Michigan vehicle sales laws have led to consumer protections and more transparency. But he said titling a courtesy vehicle as new is more of a “paperwork” problem than a serious issue about the safety or quality of a particular vehicle.
“They’re a low-volume dealership,” Tutak said of LaFontaine, adding that staff “probably didn’t pay a lot of attention” when filling out titling forms, which he said could be an issue of “poor management,” high turnover rates among employees, or both.
Suburban Mazda of Troy explains its policy under state law on its website:
“The vehicle may be eligible for New Vehicle incentives offered when sold as a retail sale or lease,” according to Suburban Mazda’s website. “Michigan regulations stipulate that it must be sold as USED. All documentation of the transaction must reflect that it is a used vehicle. It cannot be sold as a new vehicle or demo once it has been titled to the dealership. The warranty start date is when the vehicle is placed into loaner service.”
Pennsylvania law mirrors Michigan rules, requiring courtesy vehicles to be sold as used and barring vehicles with more than 500 miles of usage — excluding mileage from driving the car to dealers or buyers — from being sold as new.
Pennsylvania Automotive Association spokesperson Melanie Stine said she has not heard of any compliance issues or complaints with dealerships about the law over the past two decades that she’s worked for the association.
Missouri operated under a similar law until 2019, when new legislation took effect allowing dealer tags to be used on loaner cars without titling the vehicles, allowing them to be sold as new. The state’s Republican-led House and Senate approved the law change with almost no opposition.
“It takes away confusion between the motor vehicle bureau, law enforcement and dealers,” Missouri Automobile Dealers Association Executive Director Doug Smith said.
Dealers in neighboring Ohio can legally sell demos as new as long as customers are informed about the vehicle history, according to a fact sheet the Ohio Automobile Dealers Association provided in response to an uptick of dealer questions about the law in the wake of the LaFontaine suspension last week.
“Even when a dealer titles a vehicle into the dealership’s name as part of a courtesy loaner program,” the Ohio dealer lobbying group wrote, “the vehicle retains its status as a new vehicle assuming that the dealership is titling the vehicle as a demonstrator vehicle.”
sballentine@detroitnews.com

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