I hope that everyone is staying safe out there, and I wish everyone continued health and wellbeing. It seems that with every passing day, the COVID-19 pandemic throws another curveball our way. Just as we started to see automobile sales climb, many dealers are facing new concerns about low vehicle inventory. Because of this, dealers are trying to find creative new ways to bolster inventory levels, which ultimately led to a large increase in recent Hotline call volume about our old friend, the 7,500 Mile Rule. This article will revisit the ins and outs of the 7,500 Mile Rule, which may prevent dealers from acquiring used vehicles or taking vehicles in on trade.
What is the 7,500 Mile Rule?
The 7,500 Mile Rule is administered by the California Air Resources Board (CARB) with the help of the Department of Motor Vehicles (DMV) and the Bureau of Automotive Repair (BAR). The rule mandates that all new vehicles must be factory equipped with an emission system approved and certified by CARB to meet California’s strict emissions standards. A dealer cannot import, deliver, purchase, rent, lease, acquire, or receive a new motor vehicle (or new motor vehicle engine) for use, registration, or resale in California unless it is California-certified. [Health and Safety Code §§ 43151-43153]. There are a few exceptions to the rule, but none of them directly apply to dealers.
For this law, there is a conclusive presumption that a vehicle is a new vehicle if there is an odometer reading of fewer than 7,500 miles. [Health and Safety Code § 43156(a)]. This means that a vehicle with less than 7,500 miles cannot be legally brought into California unless the vehicle is California-certified.
How Do We Determine if a Vehicle is California-Certified?
The simplest way to check if a vehicle is California-certified is for someone with proper training at your dealership to examine the Vehicle Emission Control Information (VECI) label located under the hood. All vehicles manufactured in the U.S. since 1968 are required to have a VECI label. However, there is generally no standardized language for VECI labels, so dealers must take care when examining them.
If a vehicle has a label showing that it meets California emission standards, the vehicle is considered by the DMV as a “California Vehicle” and can be registered in California regardless of odometer reading. Similarly, if a vehicle has a label showing that it meets both U.S. EPA and California emission standards (i.e., a 50-State Vehicle), it can be registered in California regardless of the odometer reading. However, if a vehicle has a label only showing that it meets U.S. EPA standards, it is considered a California Noncertified Vehicle (a CNCV or, formerly, a 49-State Vehicle), and cannot be registered by your dealership if it has less than 7,500 on the odometer. [DMV VIRP Manual 12.040]
Examining a VECI label should be a standard practice at your dealership, especially for all low mileage used vehicles with odometer readings under 7,500 miles.
When Are the 7,500 Miles Determined?
Some dealers believe that so long as a vehicle has 7,500 miles at the time of sale, they do not run afoul of the 7,500 Mile Rule. Unfortunately for them, they are sorely mistaken, and they could be on the hook for significant penalties. Rather, the vehicle must have 7,500 miles or more on the odometer “at the time it is first acquired, purchased, imported, delivered, rented, leased or received by . . . a California established place of business. The odometer reading at the location and on the date the vehicle was purchased, imported, delivered, rented, leased, acquired or received . . . shall determine compliance.” [13 CCR § 151.00(a)(1)(A)]. In other words, you cannot acquire a vehicle with under 7,500 miles and then drive it until it reaches an odometer reading of 7,500 miles or more to bypass the rule. The regulation specifically states: “The new motor vehicle shall not be driven or sold to circumvent this law.” Accordingly, the vehicle must have an odometer reading of 7,500 or more at the time your dealership acquires it to comply with the rule.
What Happens if a Dealer Attempts to Register a Non-Compliant Vehicle?
The DMV can, and will, refuse registration to a non-compliant vehicle. [13 CCR § 151.00(a)]. Upon refusal, the DMV will place a “VLT Stop” on the vehicle record, which will prevent future registration attempts.
Dealers should make it a practice to run a KSR on a used vehicle that does not have a California title before acquiring it. We have had reports in the past from dealers informing us that someone else previously tried to register a non-compliant vehicle (i.e., a CNCV with under 7,500 miles) with the DMV, causing the DMV to have already placed a VLT Stop on the vehicle.
Similarly, it is imperative for a dealer not to perform a smog check on a nonresident vehicle having less than 7,500 miles unless the dealer is certain that the vehicle is a compliant vehicle. Enforcement of the 7,500 Mile Rule is based on automatic notifications sent to CARB triggered upon an attempt to smog test or register a non-certified vehicle. In the recent past, CARB has filed a number of enforcement actions against dealers for violating the 7,500 Mile Rule, and I anticipate that similar enforcement actions may again be on the rise due to dealers’ current need to increase vehicle inventory.
What are the Penalties for a Violation?
A dealer who violates the 7,500 Mile Rule is subject to a $10,000 civil penalty per violation. [Health and Safety Code § 43154(a)(2)]. Aside from a hefty civil penalty, a violation can also further expose your dealership to DMV audits and your dealer license to administrative action by the DMV.
Questions?
We know that these times are hard, and everyone everywhere has been affected by this global pandemic. We are all in this together, and this too shall pass. Hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or [email protected]. We are here to answer any questions you may have.