A closer look at the Philippine Lemon Law

LEXUS Manila president Danny Isla

So it’s final. The dud that may lurk in your brand-new car (rare as it may be), has been given a lawful deadline of one year to show itself before you’re left to deal with it by your lonesome. That’s what the newly minted Lemon Law seems to suggest, as stated in Section 3 (h) of Republic Act No. 10642.

And, we quote the law: “Lemon Law rights period refers to the period ending twelve (12) months after the date of the original delivery of a brand new motor vehicle to a consumer or the first twenty thousand (20,000) kilometers of operation after such delivery, whichever comes first.”

There have been mixed reactions to the Lemon Law, specifically on that particular provision putting a time limit of one year. Some say the Filipino motoring public should be glad that, finally, there is a law supposedly to protect both buyers and sellers from motor vehicles with inherent defects beyond casa redemption. Others, however, harbor this reservation: What if the lemon car shows its true colors after one year?

AVID and HARI president Fe Agudo

This is just one of the many issues confronting the Philippine Lemon Law, now in its teething stage as its IRR (implementing rules and regulations) is being formulated.

The Philippine Lemon Law expressly states the given protection of 12 months or 20,000 km, whichever comes first. This means all factory defects that occur within a year from delivery of vehicle to the owner, or up to 20,000 km of mileage, would be covered by the law.

Tomorrow, Aug. 14, the first technical working group (composed of parties from the auto industry and consumers) responsible for the drafting of the IRR will meet.

“The IRR is meant to fill in the details of what is generally provided in the law and cannot go beyond what is already clearly stated such as the 12 months or 20,000 km. So, as far as the Lemon Law is concerned, the one year is already final and cannot be changed in the IRR,” stressed Chamber of Automotive Manufacturers of the Philippines Inc. (Campi) president  Rommel Gutierrez, who will be part of the working group.

CATS Motors chair Greg Yu

Gutierrez argued that the one-year period is justified. “It is within this period that defects or conditions which substantially impair the use, value or safety of a brand-new vehicle will clearly manifest.”

He pointed out that the written manufacturers’ warranty (of three to five years) that goes with the vehicle upon its purchase already gives substantial rights and protection to consumers. The Lemon Law, he points out, simply supplements this written warranty.

He added that “safeguards are in place under the Lemon Law, such as the four repair attempts which compel the dealers/distributors to do actual and continuous repairs, thereby ensuring that the rights of the customers are protected.”

Law is standard

Gutierrez also said that the Philippines’ own version of the Lemon Law adopts the internationally accepted provisions, including the one-year coverage.

ACEI marketing and sales chief Arnel Doria

But the one-year provision is not a hard-and-fast rule. Of the 51 US states listed in the Lemon Law summaries of carlemon.com, 30 of these have one-year coverage, 15 enforce a two-year coverage, three have a 18-month coverage, and one state has a 15-month coverage. Still, another state indicates a “warranty period plus one-year coverage,” and another state’s Lemon Law is effective throughout the whole warranty period of the vehicle. This is on top of the federal lemon law applicable to all states that may extend beyond the warranty coverage of the manufacturer.

Of the 30 states prescribing the one-year coverage, 18 of these indicated “warranty period or one year” with no mileage limit, while seven indicated 12,000 miles (19,200 km). Two indicated 15,000 miles (24,000 km) and one stated 18,000 miles (28,800 km).

Ferman Lao, Car Awards Group Inc. (Cagi) president, told Inquirer Motoring that it would be highly unlikely that a defect won’t manifest itself in the course of normal usage within the first year, or 20,000 km. But he also pointed out that he knew of cases of major factory defects in cars manifesting themselves on the second year or later.

CAMPI president Rommel Gutierrez

Lao is still relieved that the Lemon Law has been passed. “With the Lemon Law, consumers have a way of addressing defective cars.”

Leslie Sy, kotse.com online expert, maintained that the given protection of 12 months “is inadequate, given how some problems may occur later.”

He added: “I feel the length of protection should be longer, maybe equal to the car’s factory warranty. Why so long? Given a car something so heavily taxed by the government, it would just be ‘fair’ to compensate the common man with some extra consumer protection for the second most expensive thing one would be buying, after real estate.”

He then asked, “Why settle for a half-baked law? If it is going to get passed now, it should have the full protection as it was intended in the first place. It does not makes sense if the Lemon Law only protects car buyers for one year when the manufacturer’s warranty is two to three years or longer. The protection of the law should be at least the same or even longer.”

Sy, however, does concede that the Lemon Law is better than nothing.

Defect vs wear-and-tear

Auto industry veteran Arnel Doria, head of marketing and sales of Automobile Central Enterprise Inc. (ACEI), agrees with the law’s provision of just one year. “Twelve months is enough time for factory abnormalities to surface under normal usage.”

He also explained, “Factory defects should be differentiated from problems arising from wear-and-tear and misuse (usually defined in the warranty manual).”

Inquirer Motoring asked Doria a hypothetical question: What if a car owner only used his or her brand-new car for only 1,000 km during the year? Would the infrequent of use be enough for any major defect covered by the law to surface?

TCCCI president Albert Arcilla

“If a car is driven only 1,000 km/year, that is abnormal, which can already cause problems to the vehicle: brakes getting stuck, lubricants getting acidic, tires getting misshapen, batteries being drained, and so on,” quipped Doria. These problems would not be covered under the terms of “normal use.”

Doria, however, urged the IRR working committee to clearly classify defects (which the law covers) as against the term of “wear-and-tear.”

Doria stressed that wear-and-tear are usually not covered by warranty, especially if they are accelerated and/or as a result of abnormal usage. Consumables such as tires, batteries, lubricants and fluids are usually covered by third-party warranty and not by the car distributors.

“I believe a lot of issues will be addressed by the formulation of the IRR,” said Doria.

All is fair for manufacturers

Danny Isla, Lexus Manila president, and  Albert Arcilla, TCCCI president, agree to the one-year period.

“Each manufacturer already offers certain warranties and guarantees attached to the car that are specifically identified in the warranty booklets and form part as direct and indirect obligations of the manufacturers and dealers to the clients. These warranties, together with the pre-existing laws on consumer protection, generally provide a recourse for our clients,” Arcilla said.

Arcilla added: “I feel the law is progressive and objective in the sense that it provides a platform for all parties to present the facts and issues to an independent body for a fair and objective resolution. Every manufacturer and dealer would want to ensure that we provide the quality and standards expected of our products.”

Fe Perez-Agudo, Association of Vehicle Importers and Distributors (Avid) chair and president of Hyundai Asia Resources Inc. (Hari), told Inquirer Motoring recently that the organization recognizes the importance of the Lemon Law in protecting the rights of consumers.

“Avid is optimistic that the law will provide the needed balance between consumer protection and the rights of automobile importers, dealers and manufacturers against baseless and capricious claims; and that it will be efficiently implemented to reinforce the rights and obligations of each party, consistent with the basic principles of due process,” said Agudo.

Greg T. Yu, CATS Motors chair, said that “a well-crafted law that is fair would prevent abuses and would ensure that prices would be kept reasonable. At the same time, the rights of consumers will also be protected.”

Auto insurers’ POV

The Philippine Insurers and Reinsurers Association (Pira) told Inquirer Motoring that it welcomes the passage of RA 10642.

It cited, among others, the extended warranties. In a statement, it said: “Manufacturers or car owners buy extended warranty covers from insurance companies as protection from breakdowns that may arise after the warranty of the vehicle had elapsed. With the Philippine Lemon Law in place, it may be wise for insurance companies to review their policies and for manufacturers and car owners to consider the importance of this risk management tool.”

Pira’s technical committee, which focuses specifically on motor car insurance, is now studying the other implications of the Philippine Lemon Law on the industry.