On-Board Diagnostic Service Info Rule

Background

Every driver is familiar with the little red light on their dashboards that warns them to "check engine" and take the car to the shop. What most people do not know, however, is that the mechanics behind that little red light have been the topic of an intense political dispute for over a decade. Automotive engineers call the computer chip hidden under the hood that detects mechanical problems the On-Board Diagnostic (OBD) system. An OBD system is a manufacturer-specific, embedded electronic device that detects a problem, notifies the driver with a dashboard signal, and informs a service technician of the specific mechanical flaw. Unlike personal computer companies, automobile manufacturers do not use a common digital language or standardized hardware. As a result, a technician must have the tools, software, and training-all of which must be supplied by the automobile manufacturer-to diagnose and repair a mechanical problem for a specific make, model, and year of a vehicle. For example, a driver with a 2001 Ford Taurus notices the dashboard indicator light go on and takes it to the neighborhood garage to be examined. But, the technicians tell the car owner to take it to the dealer to get it fixed because they only have the 2000 Ford Taurus tool to plug into the OBD system to learn what the problem is, let alone the updated know-how to repair it. The driver then has two choices: take it back to the Ford dealer which may or may not be reliable or affordable, or keep driving and hope for the best. In such a situation, consumer advocates grumble that car owners' choices are unjustly limited and automobile repair companies complain that the automotive industry is forcing them to turn down prospective customers. Similarly, environmental groups contend that drivers who choose to 'hope for the best' pose a serious threat to air quality.

The original 1977 Clean Air law gives federal money to states if they periodically inspect automobiles to make sure that their exhaust systems do not release pollutants beyond an acceptable maximum amount determined by the EPA. In addition giving states latitude in adopting a federal emissions regulatory standard, the law was the product of a compromise that gave California a privileged position in setting its own emissions policies because it needed to improve air quality more than most other states. The upshot of that compromise has had a profound effect on the regulation of the automobile industry. California tends to set national environmental regulatory trends for emissions standards, most of which are more strict than those set at the national level, because its automobile market represents such a substantial portion of the aggregate U.S. market. Vehicle manufacturers find it more cost effective to produce a line of cars or light trucks for the entire U.S. market that meets the more stringent California standards than to produce one line to satisfy California rules and another to comply with the more accommodating EPA standard. As a result, automotive industry regulatory battles are often pitched in both Washington and Sacramento, and the continuing controversy over OBD systems is no exception.

In the Clean Air Act of 1990, Congress expanded EPA vehicle emissions jurisdiction to require automobile manufacturers to install OBD systems in all cars and light trucks sold in the U.S. to minimize vehicle emissions. The 1990 Act, which also required manufacturers to supply service technicians with relevant maintenance and repair information, set in motion a series of conflicts among automobile manufacturers, dealers, independent service companies, parts manufacturers, consumer advocates, and environmentalists. Under the pre-1990 status quo, automobile manufacturers did not have any incentive to supply information on how to use OBD systems to any business other than their own franchised dealerships. In fact, manufacturers generally require dealers to maintain facilities-and buy service information and tools-to repair any model-year vehicle that would fall under a contractually agreed time period after its original sale. This time period usually coincides with the minimum amount of time and miles for guaranteed maintenance and repair under the warranty sold along with the car. Independent automobile parts and service companies, known collectively as the aftermarket industry, foresaw this loophole in 1990 as a competitive advantage for auto dealership service departments and pushed for a legislative solution. An aftermarket industry lobbyist maintains, "On-board diagnostic systems can be both good for the vehicle owner because it alerts them when there car has a problem and for the technician because it helps them diagnose and find the problem. However, the problem is that [technicians] need more information to understand those OBD systems to service emissions problems with the car, and it provides opportunities for the car companies to lock out access for independents." Consequently, then-Senator Al Gore (D-TN) and Representative Henry Waxman (D-CA) included a little-noticed amendment to require manufacturers to make OBD service information available to the aftermarket industry just as they do for franchised dealerships. Although OBD systems operate for other mechanical systems within automobiles such as the brakes or the transmission, the Gore-Waxman amendment to the Act's OBD installation requirement applied only to emissions service information. The task of requiring manufacturers to make OBD service information available was given to EPA because the authors proposed the amendment to make sure that vehicle emissions were properly monitored. But, regulatory authority over the installation of OBD devices was left to the Federal Trade Commission (FTC). Unimportant at the time, this jurisdictional distinction set the stage for the current political conflict over OBD systems.

After the 1990 Act was signed into law, the EPA set out to promulgate a rule that specified exactly how automobile manufacturers should go about giving OBD information to independent service technicians. Now that the dust had settled from the major sticking points in the Clean Air Act, manufacturers and car dealers began to realize that the Gore-Waxman amendment could have serious consequences for their businesses. EPA's original draft of the OBD Service Information rule was nothing more than a simple paragraph that required automotive manufacturers to make "preventative service information" available at an undefined "reasonable cost" to the aftermarket service industry. Then, foreign automakers, the Big Three domestic automobile manufacturers-Ford, GM, and Chrysler-and their respective dealers, represented by Blue Book publisher and political powerhouse National Automobile Dealers Association (NADA), demanded a more clear regulation. The pleas resulted in a long and drawn out language negotiation process to satisfy the needs of all industries affected. Two public hearings and several comment period extensions later, the marathon rulemaking process ended and the EPA issued a Final OBD Service Information rule in 1995.

Yet the OBD service information issue was far from settled. In fact, the rule was practically obsolete by the time it was issued. OBD service information issues were new to the EPA and to industry contributors while the rule was being developed. During in the first half of the 1990s, the legal and regulatory ramifications of OBD service information became more sophisticated, OBD technology became more advanced and less standard between manufacturers, and new industries recognized that the EPA regulation would affect their businesses. Almost immediately after the rule was finalized in 1995, the aftermarket automotive parts industry, chiefly represented in this instance by the Motor and Equipment Manufacturers Association (MEMA), sued the EPA to compel car manufacturers to make the same information that is available to their cousin industry, aftermarket service companies, also be made available to them. The aftermarket manufacturers, a subset of the whole aftermarket industry, produce mass-marketed "cheap parts" by reverse engineering car parts and reselling them through retail outlets and service stations. Vehicle manufacturers-who coincidentally compete directly with "cheap parts" companies by selling "official" replacement parts-submitted amicus curiae briefs to argue that the EPA would be exceeding its authority if it were to extend the service information rule to what has become known as "cheap parts" industry. The EPA concurred with the automotive manufacturers because it did not want to exceed its congressionally mandated authority nor did it wish to be accused of siding with one industry over another. The EPA successfully defended in court the fact that its 1995 rule applied only to aftermarket service companies. Following the "cheap parts" legal challenge, the Special Equipment Manufacturers Association (SEMA) also unsuccessfully sued the EPA in court for access the OBD Service Information. SEMA is a trade association of another subset of aftermarket companies that construct, install, and repair performance-enhancing parts as opposed to replacement parts. Specialty parts, then, replace functioning manufacturer parts whereas cheap parts replace malfunctioning original parts. The key difference is that SEMA companies do not necessarily compete directly with manufacturers in the parts market. The EPA again defended the rule, thus twice setting a legal precedent of taking the position that the 1990 Clean Air Act provision applied only to the independent service industry.

Nevertheless many other participants in the OBD Service Information debate felt that there was a need to refine the rule. The EPA received complaints from the Automotive Aftermarket Industry Association (AAIA) and other aftermarket representatives that the cost of service information, tools, and training exceeded "reasonable costs." As OBD systems became less standard between particular car and truck models, the marginal cost to an independent service shop to acquire a model-specific service manual, purchase a model-specific tool, and train employees on a model-by-model basis increased so much that it was no longer worth it to attend to customers with those specific models. Especially for high-end vehicle makes and models, the conditions for the aftermarket service industry essentially reverted back to the pre-1995 status quo. Simultaneously, aftermarket industry lobbyists turned to the California legislature to seek relief for the cost of OBD Service Information. On the last day of California's legislative session in 2000, Governor Gray Davis signed into law what had come to be known as "OBD-II." The new law expanded the OBD service information requirements in California by directing car companies to make all manuals and technical service bulletins Internet-accessible, supply tools, and offer training to all non-dealer service companies in the state. In light of these events, EPA proposed in May 2001 to revise the 1995 rule to address concerns raised in the two lawsuits, to investigate the rising costs of OBD information, and to account for changes anticipated by the California Assembly, which many participants viewed as more sympathetic than EPA to the aftermarket's concerns. Considering the trend-setting status of California, the second EPA rulemaking subsequently kicked into high gear. In July 2001, the EPA hosted public hearings in Ann Arbor, MI to understand the perspectives all groups involved in the issue. Groups were invited to submit formal comments to the docket by the end of August 2001. The EPA expects to publish a final, revised OBD Service Information rule in 2002, which coincides with California's anticipated final regulation.

Finally, a number of advocates are seeking to take the OBD service information one step further. Currently the various federal and state laws and regulations pertain only to OBD information that deals with emissions systems. But, because OBD computer chips assess all other mechanical systems in cars, aftermarket industry lobbyists and consumer protection advocates are trying to get Congress to make auto makers provide service information for transmissions, suspensions, air bags, etc. In August 2001, Representative Joe Barton (R-TX), member of the House Committee on Energy and Commerce, introduced HR 2735, the Motor Vehicle Owners' Right to Repair Act to make auto makers give car owners, not just service technicians, "all information necessary to allow the diagnosis, service, and repair of their vehicles." This new legislation confers OBD service information property rights to car owners with the idea that they buy the information when they buy the car and gives regulatory authority to the FTC rather than the EPA because it is so broad. The legislation was referred to the Energy and Commerce Subcommittee on Commerce, Trade, and Consumer Protection. An advocate familiar with the legislation anticipates the subcommittee to hold a legislative hearing on HR 2735 some time in 2002.

Participants

Proponents of making OBD service information more widely available include environmental organizations, consumer protection advocates, and the various factions of the automobile aftermarket industry. The all-encompassing aftermarket industry has distinctive subsets with common general interests but varying particular perspectives on the OBD issue. The aftermarket industry can be divided generally into auto parts manufacturers and retail-service categories. Auto parts manufacturers include automakers subsidiaries that sell original replacement parts such as GM-owned Mr. Goodwrench, Inc.; generic parts companies Napa Auto Parts, Inc.; and specialty parts producers such as Injen Technology Co. that makes advanced engine intake valves. Aftermarket retailers can also be divided into the commercial service that contract with franchise corporations such as AutoZone, Jiffy Lube, or Pep Boys, and the independent service industry that does not. Both commercial and independent retail-service shops may simply sell parts off the shelf or may provide installation and repair services and sell parts through the shop. Some, like Napa for instance, overlap between the two subsets of manufacturers and retailers because they make replacement parts and sell them in their retail outlets. Each of these distinct subsets have separate trade associations and coalitions that lobby on their behalf, but some are also represented by more than one. For instance, a specialty parts manufacturer is likely a member of both SEMA and of AAIA. Thus, sometimes over the course of the OBD debate these groups speak with a common voice, but other times they do not.

Likewise, opponents of expanding the OBD service information requirement are varied. First and foremost, auto manufacturers oppose the aftermarket's efforts because it increases their costs and makes their private technical engineering data publicly available. Engineering information makes them competitively vulnerable to other automakers and to generic parts manufacturers. Second, independently owned franchised dealerships oppose what they perceive as the aftermarket's encroachment on their service and repair businesses.

Arguments/Impediments

Proponents:

The aftermarket service industry primarily argues that the manufacturers' and dealers' information-sharing scheme limits consumer choice and inhibits fair competition. Aftermarket advocates point out that non-dealer service shops handle roughly 80% of the total repair and maintenance market, and that the dealers' 20% is mostly regularly scheduled maintenance performed under the new car's warranty. Thus, they support their consumer choice argument by demonstrating that vehicle owners overwhelmingly prefer non-dealer shops. Aftermarket advocates extend this argument to claim that the policy change will also promote clean air and automotive safety because drivers will be more likely to fix leaky exhaust systems and bad brakes if given more options to buy parts and service. Proponents also contend that OBD systems threaten fair business competition by driving them out of the parts and service market. Finally, consumer advocates support the aftermarket by claiming that the big, corporate automakers and their politically savvy allies-car dealers, who have a reputation for being influential and well known in their communities-work in tandem to see that consumers and local car shops alike are shut out.

Opponents:

In general, both automakers and car dealers argue that the EPA is exceeding its statutory authority under the 1990 Act and that the EPA is favoring industries. First, the statutory authority defense has been used as a legal argument in the two court cases so far. More importantly, auto industry lobbyists have also raised it during the rulemaking process to indicate that if a proposed rule includes language that goes beyond the intention of the Gore-Waxman amendment, they intend to fight it in court. Their hope is that the EPA will not go any further than what a court might decide or they risk being overturned on constitutional grounds. Second, they protest that the EPA seems to be siding with the aftermarket simply by proposing a rule change to account for their complaints. Or as one lobbyist put it, "We took great umbrage at the fact that [EPA is] trying to placate the aftermarket, actually specifying how much can be charged for the information...all the things that go way beyond the statute."

More specifically, automakers defend the practice of limiting the availability of service information as a means to better monitor vehicle operations, especially for those under warranty, and as their right to protect their intellectual property. First, automakers claim that they have invested a great deal of resources in improving the safety and cleanliness of vehicles on the road, with a great deal of success. The Auto Alliance, a trade association of domestic and foreign vehicle manufacturers, points out on their website that "a Washington-to-Dallas journey in a 2000 car is less polluting than a Baltimore-to-Washington commute in a 1966 car." The auto industry claims that, because they invested in this technology, that they are in the best position to monitor cars to see that they are working properly. In addition, they respond to the aftermarket by contending that, as the original designers, they are more qualified to maintain vehicles, especially in the later stages of a vehicle's life expectancy. If the auto industry can only monitor 20% of the market mostly during the early stages, then they cannot improve upon their technologies and maintain vehicles' optimum environment and safety standards.

The automakers next argument is that service information is proprietary and that forcing them to make more widely available at a prescribed "reasonable cost" threatens their ability to recover costs of their intellectual property. They do not oppose making the information available as mandated by the 1990 Act, but they do oppose any effort at establishing a system of price controls for OBD service information. They claim that to do so would give the aftermarket manufacturing and service companies a competitive advantage because they do not need to invest in the research and development to engineer parts, but rather can use OBD manuals as blueprints to reverse engineer parts. While patent laws would still apply to the sale of generic parts, car manufacturers fear that aftermarket companies would price them out of the parts and service market.

Car dealers claim that the aftermarket is seeking to take their repair and maintenance business away from them. Moreover, car dealerships, unlike independent shops, are under contract to buy all OBD service manuals and tools, thus do not have the luxury of specializing. The franchise relationship with the dealer, then, drives their costs up. Thus, more liberal OBD service information regulations would give the aftermarket an even further competitive advantage.

Venues

Over the life of the OBD service information dispute, participants have seen action in a number of state and federal venues. At the federal level, the original place the issue was raised was in Congress in 1990. Because the Clean Air Act was such a major piece of legislation, the Gore-Waxman amendment passed with little notice or fanfare. Next, the EPA spent four years to issue the original regulation and has proposed revising it by 2002. Lastly, the first rule was twice challenged in federal court and any new regulation will likely have the same fate. At the state level and given California's unique stature in the world of vehicle emissions policymaking, the state legislature was also an important venue. After the California law passed the Assembly, the state's environmental regulator, the California Air Resources Board (CARB), was charged with the responsibility of working out its details by 2002. Advocates familiar with the issue also expect the California law to be challenged in state or federal court.

Lobbying Activities and Tactics

As varied as the OBD information participants are is as varied as the tactics used. In Congress and the California Assembly, only a handful of trade associations and coalitions have engaged in grassroots lobbying. During development of the California law, the state's car dealers trade association organized meetings with legislators during a recess. The state's aftermarket advocates countered by getting service stations and auto parts retailers to contact Assembly members. In Washington, AAIA and the Coalition for Auto Repair Equality (CARE) plans to encourage its member company employees to contact their representatives to educate them on how service information availability will impact competition and consumer choice in the aftermarket industry. Additionally, CARE anticipates coordinating a customer education campaign. Companies will distribute information and pre-printed postcards in their stores so customers can encourage their members of Congress to sponsor HR 2735.

However, most advocacy activity is performed by policy experts, automotive engineers, professional lobbyists, and regulatory and litigation lawyers because OBD systems are highly technical. Since the 1990 Clean Air legislative effort, participants-as independent companies, trade associations, or formal coalitions-directly lobbied decision makers in each venue. The EPA has hosted a total of three hearings for automakers, car dealers, and aftermarket industry representatives testified. Also, per the Administrative Procedures Act, the EPA was required to receive formal written comments and meet with advocates to formulate a public docket that can later be used in court. Most participants plan to similarly lobby CARB as it develops the California regulation. Automobile and parts manufacturers and trade associations also retain and employ attorneys to litigate complaints and submit amicus curiae briefs. Finally, CARE has lobbied members of the House Energy and Commerce Committee to cosponsor HR 2735, and most other groups plan to do the same as it progresses through Congress.