A Review of the Changes to the NAAA Arbitration and Structural Damage Policy October 7, 2013

Corporate Speakers Frank Hackett National Auto Auction Association CEO Matt Arias National Auto Auction Association Co-Chair - Auction Standards Committee Paul Lips National Auto Auction Association Chairman of the Board

PRESENTATION Operator: Thank you for standing by, and welcome to this webinar powered by WebEx. During the presentation, all participants will be in a listen-only mode.

(Operator Instructions)

I would now like to turn the conference over to today's moderator, Chief Executive Officer Frank Hackett. Frank, please go ahead.

Frank Hackett: Good afternoon, everyone, and welcome to today's webinar. Our presenters today are the NAAA Chairman of the Board, Paul Lips, and the NAAA Auction Standards Committee Co-chair, Matt Arias, who will review the changes in the NAAA Arbitration and Structural Damage Policy.

There will be a question and answer session at the end of the presentation, using questions submitted through the Q&A or chat panel, located at the bottom right of your screen. You may submit a question at any time during the presentation. Please remember to click the send or submit button.

Matt and Paul will answer as many questions as possible in our allotted time. If your question was not answered, or you'd like additional information, you can contact Matt or Paul directly. Their e-mail addresses are located on the last slide.

For those of you who are not able to stay on for the entire program, today's PowerPoint presentation will be available at naaa.com today, and a recorded replay will be available tomorrow. And now, I'd like to turn it over to Matt.

Matt Arias: Thank you, Frank. And welcome, everybody. We're going to go over the background of the policy, and the policy changes. So, again, questions at the tail end.

So, we're changing the policy as of October 13th. The reason why we're changing is staying current. It's the name of the game. We're -- vehicle technology has changed and is changing always, so we want to make sure the policy is right down the middle between buyers and sellers and auctions [as the] intermediary. Federal and state laws, we want to make sure we're in sync with that as well. And just to make the policies fits within the business landscape as we know it.

The main policy -- as we go through this, you'll see the policy on the left hand side. This is the policy as we know it now. And I will walk you through some of the policy changes for the new policy and highlight some of the bigger things that have gone on.

So, rule number one. We really haven't done anything other than changed it to -- or worded it so that it is a lot easier to understand. Rule number one is always going to be there as following the federal, state, and local laws supersede these policies where applicable. That was something that -- we want to make sure that that was still in. So there's no real big change there.

The Auction Role in the Sale. No real changes there. Lot sales, outside sales. This was a general policy guideline. It's been removed. The lot sale is still considered an as-is, with the exception of any kind of agreement between buyer and seller, and if the auction is OK with that. That's going to be a local enforcement issue. Of course, all that before the car or before the lot, or whatever the lot sale is, before it sells.

No change to the auction VIN policies. We moved auction exclusions to the arbitration guideline. As you see that this policy has been trimmed down. It -- the policy as it stands now is about 18 pages without the Structural Damage policies. The new policy that's coming out with the Structural Damage policy is only 15. So it's a lot of housekeeping that we've done to the policy itself.

We moved the Additional Responsibilities for On-line Buyers to the Buyer Responsibilities section in the new policy. We moved the Government Inspection to the Auction Role in the Sale section.

Seller Responsibilities, there's no change other than aligning everything in the Seller Responsibilities area. We changed some of the words, from orally to verbally in rule number four.

Rule number five is new. It's the announcement of the presence of warning lights does not exempt the seller from arbitration responsibilities as defined by this policy. The issue or defect found to be the cause of the light may be arbitrated within the stated time period and dollar amount thresholds according to the appendix.

So what we're looking for is the root cause behind that light, that's causing that. If that is over $500, then -- and the vehicle is sold green-light, and it's within the time period, it is fair game for arbitration claims.

The sale light system is moved. It's behind the General Policies section in the new policy. The sale light system is still green, yellow, red, and blue.

Disclosure and discovery requirements have been moved in the Arbitration Guidelines. The four-by-two disclosure rule has been removed. The seller is responsible for the accuracy of the transaction information, so that takes care of that actual rule.

Towing packages and accidents hold rules are moved to the Structural Damage policy, were actually in the Structural Damage policy and it was just redundant, so we removed it out of the main policy.

We merged the seller responsibility -- we merged the Arbitration by Selling Channels into Seller Responsibilities and the Appendix One. We merged into -- from some more of the responsibilities, we moved them into Seller Responsibilities, the Buyer Responsibilities, where they were relevant, and the Arbitration Guidelines and -- along with the appendix.

Here are the Arbitration guidelines as the new policy will show them. No real changes with the exception of some wordsmith -- changed that in the Arbitration, as further subject to the terms and conditions of the auction. Just some more grammar changes.

Let's see. We changed from Any vehicle may be arbi -- may not be arbitrated solely upon electronic data, vehicle histories -- the facilitating auction may investigate vehicle history based on information found in [EBVH] for information that may impact arbitration to what issues in line g.

A new change. We added, Auction is not bound by vehicle grades or types of scoring systems placed upon the vehicle. Buyers may only arbitration a vehicle based upon damage or defects that were present at the time of sale of the vehicle. We're hanging our hat on the [auto grade] or grade system -- will be more of a local thing. Quality control, the condition ports, or whatever is being used to grade.

Here are the buyer responsibilities. We left the -- there may be an auction -- charge of X, and it's auction choice, per mile for excessive mileage on returned vehicle to the auction.

Re-worded, The vehicle is not considered returned until received, inspected, and approved for return by auction management. Any vehicle returned must be in the same or better condition as when sold. Any vehicles delivered to and left on auction premises without auction approval remain the sole responsibility of the buyer. Buyer assumes all risk of loss. Vehicle must be returned in a timely manner, consistent with auction directions.

So [it’s setting] the right expectation and communication with the buyer when the vehicle's being returned, or where it's going to get returned, and giving that auction that it's going to be sent to a heads-up. That way they know to -- what to do with it.

We changed number nine. If a valid negotiable title is presented within 24 hours from time of notification, the transaction will stand. So, what you see on the screen.

The Title Arbitration policy has been merged where relevant into the Seller Responsibilities, Buyer Responsibilities, Arbitration Guidelines, and the appendix. And that's as you see it.

Grey market vehicles, their four-year rule has been removed. So a prior Canadian will require disclosure, no matter what year.

The appendix in the 2011 version is what you see highlighted in yellow with the red border. And it has been organized now into three distinct categories. So we have Major Components, Vehicle History Issues, and Other Issues. Now, to back up, to Major Components, you'll see that it's not as general as last -- or as the 2011 version is, but still leaves room. There is some highlighted issues, problem with airbags -- as you noticed that there is a disclosure requirement in the red light area.

On the Vehicle History Issues, the previous Canadian, as mentioned earlier, there's -- the four-year rule's been removed. The same goes for taxis, livery vehicles, police cars, and government vehicles. The year's been removed. Logo or decal misrepresentation -- keep in mind on red light vehicles as well. And that, again, from a CR point of view.

On the Other Issues, the vehicle accessory electrical problems -- this is new, and it is calendar year and up to four years old. So, a vehicle that is on the outside of that, any non-essential electrical that -- when talking to the vehicle itself, the drivability of the vehicle itself, is not subject to arbitration.

Moving on to the structural damage policy, this went through a pretty big change so I want to walk through these. We added -- of the overview, that This policy along with the main arbitration policy, will serve as the primary criteria for all arbitration.

There's a lot of structural information out there. This policy has been aligned with the OEMs' typical position statements on their structural components. So this is the criteria we're going to use to make our decisions and to arbitrate off of, and to hold buyers and sellers to it.

Puts some emphasis on the vehicle structure and has added the term macro to incorporate all the structure types that are out there. They all fit at least one of these. And added the word bonded to the unibody, for the sake of chemical bonds, not just welds or abrading, but chemical as well. So this will accommodate some of the newer vehicles that are basically glued together.

Some of the electrical vehicles, BMWs i3, i8, those are -- have a different bonding process, and then some of the Chrysler units as well. Some of their structural components are bonded in as well. Just off the top of my head.

Unibody on frame, we added the word unitized to make sure that the unibody portion and the structure below it are one system. And we moved the UVMS definition to the actual measuring portion of the policy.

Recommended disclosures -- the term frame damage or frame/unibody can be replaced by structural damage. Structural damage is the structure has damage. It's that easy to use.

Certified structural repairs or replacements -- this is the new disclosure, replacing the certified frame repaired. This is any type of repair to the structure or replacement to the structure that's within the OEM repair guidelines, and that it measures within the used vehicle measurement standard from NAAA.

The next one -- let me back up. Excuse me. The structural alternation -- structural alteration is any type of lengthening or shortening of the frame, lifting or lowering the vehicle by using the frame or incorporating the frame into that modification.

Any type of after-market accessories that have been installed to the frame in permanent nature, so welding, drilling new holes, making the existing holes that are -- that the frame was born with bigger, or elongating them. And that counts that the vehicle has the accessories still on it or if they've been removed.

Some other disclosure requirements put some emphasis on the idea of any/all existing permanent structural damage, using the kink versus bend rule. So any type of kinked metal is considered permanent and non- repairable by all OEMs. Any type of bend, and that is classified as a repairable type dent, so think seatbelt dents, things like that where there is no paint damage and the metal is not bent more than 90 degrees over a short distance.

Any type of improper or substandard repair -- or prior repairs not meeting the OEM repair guidelines, and that means metal work. Refinish only is Okay. Repairs not certified to be within the used vehicle measurement standard -- of course, a visual inspection will be required. Improper alterations to the structure -- again, lengthening or shortening the structure or any type of altered suspension that requires a structure to be modified from its OEM form.

After-market accessories, as mentioned before -- also, if a hole's been drilled and a bolt's been put back in or something to that effect, that does not count. It will require disclosure. Towing packages is -- the policy really hasn’t changed for the towing packages. It's been a rule last year as well, so any type of welding abrading to the structure is not good, or if the OEM holes are enlarged.

Access holes for -- typically used for PDR, any single hole that's larger than the size of a dime, basically five-eighths, will require disclosure. Hole -- a single hold under a quarter inch will not require disclosures, and multiple holes regardless of size will require disclosure. And in between a quarter inch and five-eights is up to the auction location, the inspecting auction. And they'll make that decision based on the location of that hole on the structural component, and the condition of that substrate.

A new rule added is corrosion. So, corrosion of structural components determined by one or more of the following. When the substrate loses its shape, the original bonds near the affected area are loose or no longer in existence, or the original thickness of the substrate has been reduced by more than 25 percent.

Tie-down damage -- just to reiterate, the rule is if more than one-inch in length, and that's where you measure from where the tear starts and stops. Damage due to improper jacking or lifting or contact with parking abutments and/or road debris, and that will -- as far as undercarriage, center section-type area, any type of permanent deformation of structural components will be a required disclosure. So, again, it's the kink versus bend rule.

Roof bows or braces that have been modified will require a disclosure, so that means if an after-market sunroof or there is any kind of repair on the roof where the braces underneath the skin of the roof will require that vehicle to be disclosed. Now if the repairs are within the OEM guidelines, then the Certified Structural Repair or Replacement Disclosure can be used.

Skins, by themselves, replaced do not require a disclosure in the Structural Damage policy. From a prior repair point of view, it might, depending on the year of the vehicle.

A new change -- C-pillar/quarter panel or cab panel may or may not be a structural component as per the vehicle manufacturer. So the reference -- there'll be a reference for that in the vehicle. If the quarter panel is not structural, then it will not be bound by the structural damage policy rule. If it is, then it will be.

The core support is not structural, as per NAAA, and from what I understand now, through some -- a potential change for next year was the core support but we found it less than one percent of the vehicles on the road have a structural component in that front section that would be the core support or the radiator support, so it's probably not likely.

Damage to the apron or other ancillary structural components, however, will require disclosure from -- if a core support's been replaced or if there's existing damage. So, a big emphasis on that inspection in the front. If anybody's been to the classes that we've had, we mentioned the hot spot is that right apron, left apron, and front rail. The most arbitrated component is the right apron, so.

Raised exhaust hangers are not a required disclosure under the policy. The facilitating auction has the right to complete a visual verification on the vehicle prior to measuring it electronically. Visual evidence supersedes any mechanical or electronic measurement.

The measurement guidelines have been changed for this new policy, so the vehicle structure must measure to a total tolerance of eight -- plus or minus eight millimeters of published specifications in length, width, and height, X, Y, and Z angles, and all control points that capture the front, center and rear.

So, two points in the front, four in the center as your base points, and then two in the rear. So, metrically, it has to measure to a distance no more than six millimeters, and then upper body measurements by themselves will not be adequate. They don't capture the entire car.

Buyers must arbitrate any or all structural misrepresentations as outlined in this policy within published timelines.

This is the new table for structural components. These are macro components. There might be some smaller components that won't need to be referenced, but [build] data from the OEMs. We removed the core supports, frame rail extensions, aka the ears, and rear body panel from this structural component column. They're not structural so it was confusing, so we removed it.

And we added the inner quarter panel assembly, which includes the wheel house panel/rear strut tower and wheel house extension lower. Of course, put an asterisk on the quarter or cab panel and the C-pillar and D- pillar for -- so that we can better understand if that structural component is actually considered structural by the OEM.

Here's the new art for the unibody frame -- structure, excuse me. You can see we added the inner wheel house, inner quarter, where it lines up. Unibody on frame as well, and ladder frame or permanent frame that make up your typical conventional frames have been merged into one picture.

And now I'll turn it over to Paul with any questions that have come in.

QUESTION AND ANSWER SESSION Paul Lips: Thank, Matt. Right now, we're sitting on just one question, so if anybody's on the line and they have questions, please submit those. And, Matt, I'll go ahead and start with this first one.

The buyer wants to cancel a sale due to an arbitratable item over $500 to repair, but the seller would rather repair the item and keep the deal together. Who gets their way?

Matt Arias: That's not outlined in the policy. That's a nexus -- that's a negotiation amongst the auction that's facilitating the arbitration and the transaction, and agreement between the buyer and the seller. If -- and almost the nature of the repair itself. So if it's something structural or something with prior repairs or, you know, the -- doesn't necessarily fit that buyer's deal, then, you know, we'll have to work that out. That's a good question.

Paul Lips: Okay. So it's that gray area that's up to the auction to interpret the policy and to work with the buyer --

Matt Arias: Well, I mean, if it's a mechanical -- if it’s -- unless (inaudible) and, I mean, there's a lot of factors that go into that. Just to kind of -- since we're waiting for another question, would be if it's mechanical, you know, how long can that repair take? You know, where's it going to get done? Is it going to be used -- you know, is it an after-market part? Is it -- you know, who's doing the work?

You know, if the buyer has a customer on the hook and is going to be -- you know, lose that buyer, you know, that obviously has a factor because he bought it in good faith and it was misrepresented. You know, that's a tough deal to hold together, especially with, you know, prior repairs because, you know, that scares a lot of people away. Is that it?

Paul Lips: Next question. Would a convertible top be arbitratable on a vehicle older than four years?

Matt Arias: Inoperative top?

Paul Lips: I would assume that's what it is.

Matt Arias: Yes, okay. I think that's -- I've been asked this before, too. If it's inoperative, first off, if we know it's inoperative and it's -- by way of, you know, we drove it. There's no way, you know, and if it was sold in-lane. Okay, so, let me back up.

On-line, I could see the seller having the, you know, playing the plausible deniability rule or law. You know, sir, I don't know. I didn't know. If we know that we could replicate that -- that, oh, we know when we drive it that that top just absolutely doesn't work, it's stuck, or whatever the case is, then we may hold that seller accountable. I mean, if it, you know, is a straight omission and trying to hide behind the electrical rule, that's not going to happen. I wouldn't recommend it.

Paul Lips: Okay. Next question. With the full disclosure requirements for both the seller and buyer, would you recommend the use of a crash data retrieval tool to verify the vehicle condition and close the gap in the vehicle history reporting, which relies upon reported accidents?

Matt Arias: There are some pretty sticky rules around EDRs, event data recorders. And there's an investment that needs to be made at the auctions, and the tools are not exactly the cheapest. And, you know, it -- while it gathers enough information about the event itself, it doesn't necessarily give away any kind of customer, although if you were to combine it with other reports, you probably could, maybe ISO records and things like that.

The arbitration policy fits just fine, because what the EDR does, what the event data recorder does is, it tells you, you know, for the most part what happened. But we arbitrate the effects of that. So if it's a crash, the arbitration policy, from a mechanical point of view, a safety point of view, and a structural point of view captures all of that. So if we can -- if it's incorporated into it, that's -- it's Okay. I'd rather have more information than none.

But there are some -- you know, depending on the state, there’s some rules, too. I mean, some of the stuff is protected by law and we might not have authorization to pull that data.

Paul Lips: Okay. I've got a structural damage question for you. Why are the roof supports considered structural?

Matt Arias: Why are the -- oh. Well, they -- the front section, right over the A-pillar and right over the C- pillar area are very structural, just for the sake of supporting that upper body. The vehicle -- you know, the best way to describe it is a little noodle, if it doesn't. It'll -- it needs to have some sort of upper structure, especially for roll-overs. Head and neck protection, things like that.

Paul Lips: Okay. If an ABS system was an option on a vehicle, is it considered to be an accessory?

Matt Arias: An ABS system?

Paul Lips: Yes.

Matt Arias: An accessory. No. That's a little bit more specific to -- especially the operation of the vehicle. I wouldn't count that as an exempted vehicle, electronics deal. So that's -- that ABS from a safety point of view is just not working properly, that can be a problem.

Paul Lips: Okay. If a suspension item on a vehicle is over $500, can it be arbitrated?

Matt Arias: A suspension item?

Paul Lips: Yes.

Matt Arias: If it alters the way the vehicle drives, if it -- if, from a structural point of view, of course. On -- if it changed the frame. But from -- a suspension by itself, if it created a defect, if it affected the drivability of the vehicle negatively, then of course.

Paul Lips: Okay. A question on Canadian vehicles: Do the Canadian vehicles need to be converted to miles from kilometers?

Matt Arias: To sell in the United States? Yes.

Paul Lips: Okay. Another question on the four-year electrical system items. Are sunroofs and convertible tops included in that?

Matt Arias: Yes. Unless very, very obvious inoperative, that the sellers knew about.

Paul Lips: Okay. So if it was -- if the seller didn't know about it, then it's not arbitratable. But if the seller knew about it and didn't disclose it, then it would be.

Matt Arias: Yes. Correct.

Paul Lips: Okay. This is a question regarding warning light announcement. Are the commercial customers aware of the change, as many expect a light announcement to suffice regardless of the dollar amount or the root cause of the issue.

Matt Arias: I can't speak for all commercial customers, but customers that have been in front of me and have tuned in to our webinars, and have been updated.

Paul Lips: Yes. I think -- I would also just probably add that's probably the job of all of the member auctions to make sure that we're communicating with the customer at that sale or at an auction, and make them apprised of the new policy and the details.

Matt Arias: Oh, sure.

Paul Lips: Another question on quarter panels. Has there been a decision as to which quarter panel repairs are arbitratable?

Matt Arias: Well, at the structure -- if the quarter panel's structural, so the rules right now, if the quarter panel's been replaced, then it requires a disclosure. So if the quarter panel -- you know, moving into the new policy, if the quarter panel is considered structural, and it's been replaced, or there is so much damage that it requires replacement and it got -- and the damage spread into other areas, like the C-pillar, or the floor, or in a rocker, or in a wheel house area, then we would be requiring a disclosure for, you know, anything that would be considered -- if it has existing damage structurally.

Paul Lips: Okay. Question on airbags. Is it required to announce a previous airbag deployment?

Matt Arias: If the airbag has been replaced back to OEM specifications and -- then no. But -- and I think this might be, whoever asked the question, quite possibly from data history that said previous airbag deployment. That is a great indicator for maybe some structural damage, for the sake of airbags deployment with sufficient forward deceleration, which means it stopped really, really, really fast. And quite possibly there is a crash related with that, and some prior repairs, maybe, as well.

But by the airbags being replaced, by itself, just as long as it's back to OEM specifications, then there's no warning lights or anything that would -- a defect that's over $500, then, no. No disclosure required.

Paul Lips: Okay. Another question on -- relative to electrical systems and the four model years old. I think this is probably something we're going to maybe need to add some more clarification on, with the, you know, the most common theme here.

So, any car over four years old cannot be arbitrated for anything electrical? That includes windows, doors, and sunroof?

Matt Arias: Yes, if it's not -- if it's not to the -- directly tied to the operation of the vehicle, that is correct.

Paul Lips: Okay. Now another question on frames. In one part of the policy, it appears that tie-down damage wasn't covered. But then right after it, it lists that it has to be one inch or over.

Matt Arias: Yes, it's -- I mean, it's in there. One inch. You measure from where the tear starts to where the tear stops.

Paul Lips: Okay. Where's the best place to find information about what manufacturers consider structural, i.e., a quarter panel. Is it structural or not?

Matt Arias: There's a website, kinkorbend.com. And then there's the individual OEMs that is subscription- based, but you'll have to get a subscription to all of them. Kinkorbend.com is a -- they've put it all together into one website where you can plug in the information and it'll tell you what kind of structure the car is and if the quarter panel is structural or not.

Paul Lips: Okay. How should the auctions address oil leaks? What would be considered excessive?

Matt Arias: Well, this definitely needs some clarification and may be something for the Standards committee to discuss for next year. The military actually has a really good classification system, of classes of leaks. So, class one through three, and the overall vehicle needs to be reviewed with that as far as mileage as well.

So, a class one leak would be wet -- let me back up -- or dry seepage, where a leak could happen but it's not active. Class two would be wet but not dripping. And then a class three would be dripping.

So seepage on a vehicle with 20,000 miles, probably an issue, and hopefully covered by warranty. But seepage on a car with 120,000 miles, definitely falls into maybe more of a normal wear and tear situation. Of course, dripping on any type of vehicle is bad. And wet but not dripping, assuming there is fluid in, you know -- for whatever it is, still in the reservoir, it may be considered a normal thing, depending on an inherent issue or not. But definitely something to look at harder. But of course, you've got to factor in vehicle condition and mileage.

Paul Lips: Okay. This, I guess, I think, is more of a recommendation for the Standards committee. And before I even ask the question I can tell you that it is something the Standards committee is going to look at. We've just been asked if we would take a look at the -- possibly bringing back the white light in the future. And that is something we're going to look at this next year.

Matt Arias: Yes.

Paul Lips: And then a question on the four-year rule. How are you counting the four-year rule? Is it counted from the current year or current model year? For example, will 2010 or 2009 be the cutoff for next week?

Matt Arias: Do we -- I think it's calendar year. Do we go -- do we have a model year and calendar. So I think it's -- it is '09? Well, it's 2013 models, 2014 models, and then four years back. So '09.

Paul Lips: Okay. So, if it's a '13, then it's -- if that's the current model year for a vehicle, then it would be '13, '12, '11, '10, and '09. So it's really current model year plus four back.

Matt Arias: Yes.

Paul Lips: Got it. Okay.

If there is an item that is subject to arbitration, then the buyer should have the opp -- oh, sorry. That was a clarification. One of the opinions out there was that the buyer should have the upper hand when returning a vehicle with an arbitratable item, where the seller chooses to repair rather than bring -- taking the vehicle back. So that was -- that was one of the opinions out there on the question that was --

Matt Arias: Well, yes. And to that, let's -- you know, when we -- arbitration is such a -- it's not what we do, right? We mediate. And we try to mediate an equitable resolution for everybody. And instead of, you know, an upper hand, you know, really sounds like fixed pie, right, as far as the negotiation. And it's not really that. It's mutual gain.

So we're trying to find a way, one, to keep the car sold. But if it's just not realistic, then we won't. And the vehicle was sold -- you know, the bottom line was the vehicle was sold with an issue that wasn't represented properly. And we don't know the backstory of knowing it or not knowing it. You know, we're not police, you know. And, you know, we need to be sympathetic to the buyer's situation, of course, but realistic with the situation, too.

So, I mean, if it's a quick, easy fix, you know, I mean, the guy -- you know, an overpaid situation, of course there's some underlying assumptions, but mutual gains, not fixed pie.

Paul Lips: Okay. If a unit receives a PSI and the air conditioning works, can it later be arbitrated, you know, three days later, for the air conditioning? I think it's subject to the terms of the PSI. If it was a -- and the PSI policy at the individual auction that performed it.

Matt Arias: That's correct.

Paul Lips: And then, a clarification on the eight millimeter rule. UVMS is cumulative or is it eight millimeters for each point measured?

Matt Arias: Each single point. And that means if -- if I'm measuring the front rail, there's a length, a width, and a height. Each one of those measurements are by themselves. So if it's high by nine millimeters, it's out of spec. If it's long by nine or forward nine, that's how that works.

Paul Lips: Okay. Is a missing catalytic converter eligible for arbitration?

Matt Arias: If it's over $500 and it was sold under the green light. And if there's any kind of local or state law, so, you know, if it doesn't fit, you know, California, it is probably a lot different than maybe another state.

Paul Lips: Okay. If a vehicle is purchased at one particular auction with no structural announcement, and then sold through another auction with no announcement, and the vehicle does not have frame damage, is the vehicle subject to arbitration based on being a non-ethical sale?

Matt Arias: Well, it was sold at the -- at Auction A with frame damage --

Paul Lips: Yes.

Matt Arias: And then the buyer went and turned into a seller at another auction and didn't disclose that?

Paul Lips: Yes. And the vehicle does not have frame damage. So it was mis-announced at the first auction.

Matt Arias: Oh. Well, I mean, each transaction is separate. So if the seller did not announce structural damage, and the vehicle truly doesn't have structural damage, and it's been confirmed by the Auction B, so to speak. And let's say the data history caught up to it. It was announced structurally at Auction A, and the buyer, the new buyer is upset about it? Then they'll have to un-ring that bell.

But, I mean, you know, electronic data can be removed. So, it would require inspection, of course.

Paul Lips: OK --

Matt Arias: It's not necessarily -- it's not unethical, because if the guy stole it at an auction, because the auction, you know, gave it structural damage, or it was sold under structural damage and it doesn't have it, then, you know, that's -- I'm sure the seller of that first part, the seller at A would be upset.

Paul Lips: Yes. And, you know, there's individual timeframes with each transaction, too.

Matt Arias: Yes, there's that, too. I mean, if --

Paul Lips: Yes, that came up with the questions we were receiving at NIADA, where a vehicle was purchased at an auction, and then a month later -- you know, with a structural damage announcement, sold a month later at a second auction without the announcement, and it doesn't have frame damage, can you back to that first sale? You really can't, because the timeframe's been expired.

Matt Arias: Right.

Paul Lips: A question on the structural damage policy. To be clear, frame and unibody damage is out, and structural damage is the new announcement. And, Matt, I'll take a stab at it. I think, you know, that's definitely where we'd like to go. But we also understand that the vehicle history reporting agencies may pick up announcements differently than how they're announced at auction. And also there's going to -- it's going to take time for the system to catch up, as well as for sellers and buyers to catch up with the new lingo. So it's not --

Matt Arias: Correct.

Paul Lips: -- like you can just flip a switch.

Matt Arias: No, yes, that's it, 100 percent. Frame/unibody is kind of a -- I mean, it's an accepted announcement because everybody gets it, but to your point, yes. It's going to slow weaning.

Paul Lips: Okay. A question on an arbitration. If an arb is submitted and it requires a vehicle to go to a certified dealer, who is responsible for the costs associated to diagnose, depending upon the outcome?

Matt Arias: Again, that's a local -- that's going to be a local issue. Any kind of diagnosis of third-party, or any kind of fee, for that matter, to verify is going to be -- any kind of costs incurred are going to be on the seller if the issue's found to be verified, the claim is verified. And if not, then it's on the buyer

Paul Lips: Okay. A question asking for some more specifics on the electronic list.

Matt Arias: Okay.

Paul Lips: That was it.

Matt Arias: Oh.

Paul Lips: What's involved in the electronic rule?

Matt Arias: Anything that's not directly tied to the safe operation of the vehicle. That's not. So a pixel on a nav screen, for example. Sunroof that doesn't work. That's in its closed tribal position. Window doesn't go up or down. Things like that.

Paul Lips: Okay. What is the recommended announcement for a repaired unibody car with prior structural repair but no UVMS report available?

Matt Arias: Structural damage. You can't say certified if you can't certify it.

Paul Lips: I think you've already answered this one, but I'm going to ask it again. To clarify the eight millimeter rule, UVMS is cumulative side-to-side or eight millimeters for each point measured?

Matt Arias: Single point. It's not cumulative.

Paul Lips: Okay. When are the new structural posters available showing the changes to the rules?

Matt Arias: Those are being shipped. They should be hitting auctions now.

Paul Lips: And if you don't receive yours, Frank, if you can answer, what should an auction do?

Frank Hackett: Just call us and we'll ship them out. But they should all be at the auctions by now. If you haven't received them, then give us a call and we'll ship them right out.

Paul Lips: Or maybe who's ever receiving your overnight packages has them locked away in a corner of their offices, and hasn't handed them out yet.

Matt, when a rocker panel is rusted, how rusted does it need to be to be considered structural damage?

Matt Arias: If it fits the criteria that we've outlined in the structural damage policy from a required disclosure, then that'll do it. So, you know, any kind of delamination that's more than 25 percent. If, you know, it doesn't hold its shape by way of the bond. So, spot welds are pulled away or they're loose and no longer in existence, then that's all fair game.

If there's not -- it there's a hole where metal used to be, you know, which is common right there at the C -- at the bottom of the C-pillar dogleg where water gets kicked up, or debris, you know, that will require disclosure.

Paul Lips: Okay. Now that the four-by-two section is complete gone, is it required to be announced by the seller? Or is it now the buyer's responsibility to know?

Matt Arias: Well, there's a lot of -- there's a lot of information that is available to the buyer. You know, the header information of the vehicle, the VIN decode, you know, equipment that's outlined in the transaction, depending on the auction company how deep they take it, the condition report, and there's so much information.

The seller's required to make sure that's accurate. And if it's not, then the seller's on the hook. And the buyer is also expected to know what they're buying.

Paul Lips: Okay. Are all upfitted vehicles, for example, utility body trucks, considered structural damage, or would it be altered?

Matt Arias: Well, it depends on what the alteration is. So, if, you know, lengthening or shortening, or, you know, modifying, yes, structural alteration would work. But, you know, structural damage is more so if the vehicle's in a collision severe enough to misalign the structure.

Paul Lips: Okay. Now we have a question for clarification on the word arbitrary. What are the parameters for parking damage and jack damage to be considered arbitrary?

Matt Arias: Well, any permanent deformation, so kinking or bending of structural components. So a kink - - a bend would be, you know, it looks ugly, but it's not -- it doesn't compromise the structural integrity of the vehicle. Of that particular portion of the vehicle, rather. A kink will, though.

So if jack damage, for example, and the jack pushes that structural component. Let's say it's, you know, a piece of a floor pan, and it's -- usually it's anywhere from two inches straight vertical deflection, it'll start to crown the metal around it from the depression, and pull welds or separate panels or create a kink in that area. So you have to -- it's reviewed on a case by case basis.

You know, of course there's signs of kinks by the way of exposed metal, corrosion, or surface rust, depending on what level of -- when you catch the damage. And any kind of bend -- of course, all of that should be documented from a CR point of view or post (inaudible) point of view because, you know, it's part of the inspection.

Paul Lips: Okay. Does NAAA plan to publish which quarter panels are or are not considered structural?

Matt Arias: Right now, I think we're just -- I think the reference is what's being used. As this evolves, you know, maybe -- as vehicle technology evolves there may be a need for a, you know, a different list. But right now you can access it at kinkorbend.com.

Paul Lips: Okay. The way paint works disclosure is worded, I have heard many locations interpret this to mean only a vehicle that is current year with three panels or more with paint work can be arbitrated. Can a two-year-old vehicle with one panel painted be arbed?

Matt Arias: Yes.

Paul Lips: And what would be the basis for that arbitration.

Matt Arias: Repair costs.

Paul Lips: So only if it's an inadequate repair?

Matt Arias: Yes. Well, no, because that's subjective. But if -- I mean, it's more of a -- it has it, so it needs to be disclosed, versus a quantitative $500 or not because, you know, any one panel painted is not going to be $500, you know. A hood, you know, at best, with the labor rates that we used, at a wholesale labor rate is maybe $250. But it --

Paul Lips: More than likely it won't qualify under the $500 rule.

Matt Arias: Right. Yes. They won't. Single panel paints won't. But it's the existence of prior repair by itself. So it's -- it either has it or it's not. It's similar -- you know, it's not as damaging, so to speak, as structural damage, but it kind of follows that same guideline. It either has it or it doesn't. But there's a cutoff by way --

Paul Lips: So the policy requires disclosure of all prior repairs.

Matt Arias: Right.

Paul Lips: Okay. One of our participants is looking in kinkorbend.com right now for a Chrysler 300. But the website only goes back to model year 2010 and 2011. They're looking for a 2006. Any other resources that they could go to?

Matt Arias: Build data from the OEM, but -- yes, I ran into one and they -- I sent them an e-mail. And they had the information pretty quick. So, either it's the model -- I actually had the wrong model in there, because there's -- I looked up an Audi S4 and I -- instead of clicking sedan, I clicked something else and it wouldn't give me information. So the error was on my part.

So I would look at -- check the right model, but then, yes, you could send them an e-mail and they'll spit it back to you pretty quick.

Paul Lips: Okay. On the four-year electrical rule, does that include nav systems?

Matt Arias: Yes.

Paul Lips: Okay. If a seller's disclosure is linked from a simulcast system, and it's available at the time of the simulcast sale, would it be considered disclosure under the online arbitration policy rules? And the -- you know, the spirit of our policy, the last version as well as this new one coming out, was that the seller's disclosure could be in multiple places, the condition report, the announcement.

Matt Arias: Yes.

Paul Lips: Any of the disclosures on-line. So it would be considered disclosure.

Matt Arias: Yes. Yes, it's considered condition -- it's part of the umbrella of condition information.

Paul Lips: Okay. Now we're going to get really deep. What components of an air ride suspension system are covered under the policy, specifically regarding both the electrical rule and the wear item rule?

Matt Arias: They're wear items. They're expensive wear items, which, you know, is not good, but, you know, the electrical -- it is tied to the -- I mean, if it's -- it's a wear item, period. Right? But if it's high mileage and it's broken, and it's over $500, then that is something that will require disclosure, because it's a mechanical problem.

If it's leaking or inoperative by way of worn out, and it's high mileage, then -- or high year mileage, then we'd consider that a wear item and not something that requires disclosure. If it's broken or defective -- like I said earlier, regardless of mileage, we would count that. So it kind of depends on the condition of the vehicle. Of course, year for the vehicle.

Paul Lips: Okay. Will clamp marks on the frame constitute frame damage?

Matt Arias: No. Clam marks by themselves are a strong indicator, but they're just an indicator. So if the vehicle was clamped, the likelihood of it being pulled is high, but not always.

If a shop pulls a vehicle on the -- the, you know, an EZ Liner or whatever they have, and they clamp it down, and they set up and measure, and for whatever reason -- and the vehicle doesn't require to be pulled, or the estimate wasn't approved by the insurance company or the customer, then they'll unclamp it and take it off. And they won't do any work to it.

So, you know, that -- in that instance, there's clamp marks, but no structural pulling or repairs or replacements or maybe no, even, damage.

Paul Lips: Okay. And we need to ask one last question here, and then we'll turn it back to Frank. The -- Just another question on the four-year rule. We talked about the 2013 models. It'll be 2013 model year plus four years back, which would be '12, '11, '10, and '09. And just to clarify then, for 2014, the four years back would be '13, '12, '11, and '10.

And I would say, yes, that's the answer to that. Yes, there would be 2014 plus those four years.

Yes. Okay. And I know there are a few more questions out there, but we are running short on time, so I'm going to turn it back over to Frank Hackett.

Frank Hackett: Thank you, Paul and Matt.

Well, we're out of time today. And I'd like to thank all of you for attending. Again, if your question was not answered or you'd like additional information, you can contact Matt or Paul directly.

Our next webinar is scheduled for December, so watch for your e-mail invitation. The next Auction Standards training class is set for December 4 and 5 at Manheim Riverside, California. You can register by going to naaa.com. On behalf of Matt, Paul, and all of us at NAAA, we want to thank you for joining us today.

Operator: Ladies and gentlemen, that concludes today's web conference. You may now disconnect your lines. Thank you and have a wonderful day.