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United States Federal Trade Commission Toyota Dispute Settlement Program Audit January - December 2002 Prepared by: Claverhouse Associates 937 Roxburgh Avenue East Lansing, Michigan 48823

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United States Federal Trade Commission

Toyota Dispute Settlement ProgramAudit

January - December 2002

Prepared by: Claverhouse Associates

937 Roxburgh Avenue East Lansing, Michigan 48823

Table of Contents

PAGE

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

I. COMPLIANCE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

II. DETAILED FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

III. FIELD AUDIT OF THREE REGIONAL AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

A PENNSYLVANIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

B. OKLAHOMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

C. NEW YORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

IV. ARBITRATION TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

V. SURVEY AND STATISTICAL INDEX COMPARATIVEANALYSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

VI. AUDIT RELATED REGULATORY REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . 56

VII APPENDIX/CODEBOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

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Introduction

This 2002 audit of Toyota's Customer Arbitration Process is performed pursuant to the 1975federal warranty law, the Magnuson-Moss Warranty Federal Trade Commission ImprovementAct and Rule on Informal Dispute Settlement Procedures, 16 C.F.R. Part 703 (hereafter referredto as Rule 703).

Claverhouse Associates, a firm specializing in arbitration, mediation, and program auditing,performed the audit, which was conducted under the supervision of Kent S. Wilcox, Presidentand Senior Auditor. The statistical survey was conducted by the Center for Survey Research, adivision of the Institute for Public Policy and Social Research at Michigan State University.

Arrangements to conduct the audit were initiated by an invoice submitted in early 2002. Claverhouse Associates coordinated field audits, statistical survey planning, and arbitrationtraining with the program’s independent administrator, The National Center for DisputeSettlement (NCDS). Hearings held in Toyota’s Regions for Pennsylvania, Oklahoma, and New York were includedin the on-site field inspections. Visits to these locations were arranged to coordinate withscheduled arbitration hearings. In addition, we audited arbitrator training conducted inGrapevine, Texas, June 20 - 22, 2002. Thus, field audits of the arbitration hearings andarbitrator training are sometimes conducted in the current calendar year rather than in the audityear but are assumed to reflect operations as they existed in the audit year (2002). Performingthe field audits during the actual audit year would require initiating the audit much earlier andusing a two-phased format: one commencing during the actual audit period and the other in thefollowing year, after all annual statistics had been compiled. All case files inspected weregenerated during 2002 as required.

1 There were, of course, discrepancies in some areas, as we have come to expect, but those weidentified are either of no real consequence or are very understandable and without significant regulatoryimplications. Discrepancies are detailed in the survey section of the report.

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SECTION I

Compliance SummaryThis is the second Claverhouse Associates independent annual audit of Toyota's sponsorednational third-party informal dispute resolution mechanism, called the Dispute SettlementProgram (DSP), as it is administered by the National Center for Dispute Settlement.

Overall Toyota’s Dispute Settlement Program Evaluation

Toyota's third-party dispute mechanism (Dispute Settlement Program), as administered by theNational Center for Dispute Settlement (NCDS), is, in our view, in substantial compliance withthe requirements of the Magnuson-Moss Warranty Federal Trade Commission ImprovementAct and Rule on Informal Dispute Settlement Procedures, 16 C.F.R. Part 703.

The three regions audited (Pennsylvania, Oklahoma, and New York) all administer thearbitration program(s) in compliance with Rule 703. Details of the field audits and any minorirregularities found are discussed in Section III of this report.

Our random sample survey confirmed the overall validity of the statistical indexes created bythe National Center for Dispute Settlement.1 Our original survey sample consisted of 750closed cases, of which we completed surveys for 303 customers. As we have found in otheraudits, surveyed customers tended to report favorably on the program when the results of theircases were, in their view, positive. Conversely, those who received no award, or received lessthan they expected, were more likely to report dissatisfaction with the DSP. As has been true inmost audits we have conducted for various programs, the few statistically significantdifferences between the figures reported by the DSP and the survey findings were deemed to beeasily understandable and do not suggest unreliable reporting by the program. For a detaileddiscussion, see the survey section of this report.

Arbitrators, DSP personnel, and regulators we interviewed at both the state and federaljurisdictions viewed training for arbitrators as an important component of the program. Thetraining provided for the DSP arbitrators advances many of the DSP objectives. Providing suchtraining is, in our view, consistent with the broad regulatory requirement for fairness. Thetraining component, in our view, comports with the substantial compliance requirements for afair and expeditious process pursuant to the federal requirements.

2 Our objective was to complete 300 interviews from our original sample of approximately 750. Experience demonstrates that completing exactly 300 is not likely. The precise sample size is discussedin detail in the Survey Section of this report.

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SECTION II

Detailed Findings This section addresses the requirements set forth in 16 C.F.R. Para 703.7, of Public Law 93-637(The Magnuson-Moss Warranty Act, 15 U.S. C. 2301. et seq.).

After each regulatory requirement is set forth, the audit's findings are recorded, discrepanciesare noted, and recommendations are made where appropriate.

This audit covers the full calendar year 2002. An important component of the audit is thesurvey of a randomly selected sample of 3032 Toyota Dispute Settlement Program applicantswhose cases were supposed to be closed in 2002 and found to be within the DSP's jurisdiction.

We analyzed several NCDS generated statistical reports covering the DSP operations in theUnited States. The reports were provided to us by Mr. Brian Dunn, Director of DisputeSettlement Services, National Center for Dispute Settlement, Dallas, Texas.

We performed field audits of the Toyota DSP as it operates in Toyota regions for Pennsylvania,Oklahoma, and New York. We also examined a random sample of current (i.e., 2002) casefiles for accuracy and completeness. A random sample of case files was drawn from all casefiles for the years 1999-2002 and inspected them to ensure that these records are maintained forthe required four-year period. In the areas covered by each region, we surveyed severaldealerships to see how effectively they carry out the information dissemination strategydeveloped by the manufacturer to assist them in making customers aware of the DSP.

In addition, we monitored arbitration hearings in Trevose, Pennsylvania; Tulsa, Oklahoma; andNew Windsor, New York, and interviewed arbitrators and DSP/NCDS administrativepersonnel.

To assess arbitrator training, we monitored the NCDS-sponsored training session held inDallas/Ft. Worth, Texas, in June of 2003. In addition to monitoring the training itself, weinterviewed the trainees (both before and after the training) and the training staff and reviewedthe training materials.

REQUIREMENT: § 703.7 (a) [ Audits]

(a) The mechanism shall have an audit conducted at leastannually to determine whether the mechanism and itsimplementation are in compliance with this part. All recordsof the mechanism required to be kept under 703.6 shall beavailable for audit.

FINDINGS:

This is the second (2002) Claverhouse Associates annual audit of Toyota's informaldispute settlement procedure program as it is administered by NCDS.

Records pertaining to the DSP that are required to be maintained by 703. 6 (Record-keeping) are being kept and were made available for our review.

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REQUIREMENT: § 703.6 (a) [Recordkeeping]

(a) The mechanism shall maintain records on each disputereferred to it which shall include: (1) Name, address, telephone number of the consumer; (2) Name, address, telephone number and contact person ofthe warrantor;(3) Brand name and model number of the product involved;(4) The date of receipt of the dispute and the date ofdisclosure to the consumer of the decision.

FINDINGS:

The information referenced in subsections 1 through 4 is available from the staff of theNational Center for Dispute Settlement, who provided us with access to all pertinentinformation, which is maintained as required. Our inspection of randomly selected casefiles for each of the three regions validated these findings. The inspections of case filestook place at the headquarters of the program’s independent administrators. Ourreview of randomly selected cases drawn from the four-year period 1999-2002demonstrated that the case files were maintained in 2002 as required.

DISCREPANCIES:

The few administrative irregularities found, while appropriately noted, arerelatively inconsequential and do not pose any serious undermining of theprogram's substantial compliance status. The DSP meets this regulatoryrequirement and any inconsistencies we found were of the minor andinconsequential variety likely to be found in any large administrative program. The minor inconsistencies are highlighted in the appropriate sections of thereport.

REQUIREMENT: § 703.6 (a) (5)

(5) All letters or other written documents submitted by either party; (6) All other evidence collected by the mechanism relating to the disputeincluding summaries of relevant and material portions of telephone calls andmeetings between the mechanism and any other person (includingconsultants described in 703.4 (b) ; (7) A summary of any relevant and material information presented by eitherparty at an oral presentation; (8) The decision of the members including information as to date, time andplace of meeting, and the identity of members voting; or information on anyother resolution;

FINDINGS:

Some case files contained, in addition to the various standard file entries, othercommunications submitted by the parties. Nothing in our findings suggests that anymaterial submitted by a party was not included in the file, and every indication is thatthe files were complete. We made no attempt, however, to validate the existence of"summaries of relevant and material telephone calls" and other such information sincewe had no way of knowing whether such telephone calls took place. This is also truefor documents such as follow-up letters. A review of this type may be theoreticallypossible, but it is not practical without having some objective measure against which tocompare the contents of the file. Even in the theoretical sense, such a review assumescustomers keep exact files of all correspondence, notes, and phone calls pertaining totheir DSP cases. To validate this dimension, the audit would entail retrieving all such

3 The warrantor’s intended actions are a basic part of the program and are generally applicable to allcases. All decisions rendered by arbitrator(s) will be honored by Toyota, thereby negating any necessityfor providing a document in each individual file.

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files as a first step. The obvious impracticality of that places such a review beyond thescope of the audit.

Information required in subsection 8 can be found on the Arbitration Data Entry formused by NCDS. This form also contains the essence of the decision along with mostother information pertinent to the case.

DISCREPANCIES:

None

The required records were all available, appropriately maintained, and properly kept. Any exceptions were merely incidental and have no significant bearing on theprogram's compliance with the regulations.

REQUIREMENT: § 703.6 (a) (9-12)

(9) A copy of the disclosure to the parties of the decision;(10) A statement of the warrantor's intended action(s); (11) Copies of follow - up letters ( or summaries of relevantand material portions of follow - up telephone calls) to theconsumer, and responses thereto; and (12) Any other documents and communications (orsummaries of relevant and material portions of oralcommunications) relating to the dispute.

FINDINGS:

The information set forth in items 9 and 10 is maintained as required.3 As such, theinformation was readily accessible for audit.

The information set forth in items 11 and 12 was not audited for accuracy andcompleteness because of the impracticality of such a review. The examination of thecase file contents revealed few instances of this type of information included in the file,and yet nothing indicated that information was missing.

DISCREPANCIES:

None

REQUIREMENT: § 703.6 (b)

(b) The mechanism shall maintain an index of eachwarrantor's disputes grouped under brand name andsubgrouped under product model.

FINDINGS:

4 This number is not aggregated in the statistical reports provided for the audit. We arrived at thisnumber by summing items (1- 4) listed on the DSP mandated statistical report.

5 The term “mediation” in the DSP context does not necessarily imply that a neutral third-partyassisted the parties in resolving a warranty dispute, but rather that the dispute was settled prior to anarbitrator rendering a decision.

8

These indices are maintained by Mr. Brian Dunn, Director of Dispute SettlementServices, housed at the NCDS headquarters in Dallas, Texas.

The audit includes a review and assessment of a data printout for the calendar year2002.

The Toyota DSP Statistics identifies 3,069 DSP disputes filed for 2002. Of these, 2,353were eligible for DSP review, and 716 were determined by the DSP to be out-of-jurisdiction. Of the in-jurisdiction closed cases, NCDS reports that 1,900 werearbitrated4 and 453 were mediated.5 There were 1,515 arbitrated decisions which werereported as “adverse to the consumer” per § 703.6 (E) representing 79.7% of allarbitrated cases.

The 2002 Toyota Master Model Report lists 23 brand categories. This report breaksdown the DSP cases associated with each brand category.

Indices are complete and consistent with all requirements. Some of the data included inthese reports are compared with the findings of our sample survey discussed in theSurvey Section of this report.

DISCREPANCIES:

None

REQUIREMENT: § 703.6 (c)

(c) The mechanism shall maintain an index for eachwarrantor as will show: (1) All disputes in which thewarrantor has promised some performance (either bysettlement or in response to a mechanism decision) and hasfailed to comply; and (2) All disputes in which the warrantorhas refused to abide by a mechanism decision.

FINDINGS:

Toyota reports that there were no such cases in 2002. Concerning subsection 2, theauditors are advised by NCDS that there is no reported incidence in which Toyotafailed or refused to abide by a board or arbitrator decision. As a matter of generalcorporate policy, Toyota agrees to comply with all DSP decisions. This information issupplied as part of Toyota’s Annual FTC -703.6 (c) (1) and (2) Report.

DISCREPANCIES:

None

REQUIREMENT: § 703.6 (d)

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(d) The Mechanism shall maintain an index as will show alldisputes delayed beyond 40 days.

FINDINGS:

According to Toyota DSP statistical index reports, as of December 2002, a total of 17DSP cases were delayed beyond 40 days. The Director of Dispute Settlement Servicesprovided a comprehensive report of all individual cases delayed beyond 40 days duringthe 2002 period of the audit. This report includes the customer's name, case filenumber, and the number of days the case has been in process as of the date of thegeneration of the report. Our analysis indicates that this report meets the aboverequirement. Our review, however, is not designed to test the accuracy of the report. We merely determine that the mandated report is being generated. At the same time,we found nothing during our assessment review that calls into question the accuracy ofany of the required statistical indexes.

DISCREPANCIES:

None

REQUIREMENT: § 703.6 (e)

(e) The mechanism shall compile semi-annually andmaintain statistics which show the number and percent ofdisputes in each of the following categories:

(1) Resolved by staff of the Mechanism and warrantor has complied;(2) Resolved by staff of the Mechanism and time forcompliance has occurred, and warrantor has not complied;

(3) Resolved by staff of the Mechanism and time forcompliance has not yet occurred;(4) Decided by members and warrantor has complied;(5) Decided by members, time for compliance has occurred,and warrantor has not complied;(6) Decided by members and time for compliance has notyet occurred;(7) Decided by members adverse to the consumer;(8) No jurisdiction;(9) Decision delayed beyond 40 days under 703.5 (e) (1) ;(10) Decision delayed beyond 40 days under 703.5 (2);(11) Decision delayed beyond 40 days for any other reason;and (12) Pending decision.

FINDINGS:

NCDS collects and maintains the information required by § 703.6 (e) in the DSPStatistics Report supplied to us by Mr. Brian Dunn, Director of Dispute SettlementServices.

. The information is available for inspection and is complete in all respects.

The figures reported in this index are analyzed in further detail in the Survey Section ofthis report.

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DISCREPANCIES:

None

REQUIREMENT: § 703.6 (f)

THE MECHANISM SHALL RETAIN ALL RECORDSSPECIFIED IN PARAGRAPHS (a) - (e) of this section for atleast 4 years after final disposition of the dispute.

FINDINGS:

(a) All of the information listed in the 12 subsections detailed in the previous section[§ 703.6 (e)] is maintained for the required four years. Any inconsistencies foundwould be addressed in the Survey Section of this report.

We inspected the collection of all case files for each region during our on-site visit tothe NCDS headquarters in Dallas, Texas, and inspected and evaluated a randomselection of case files from the four-year period for completeness. The files wereappropriately maintained and readily available for audit.

(b) The NCDS Director of Dispute Settlement provided us with the various 2002indices and statistical reports required by Rule 703. The corresponding reports for theprevious four years are not available from NCDS because they did not administer theprogram during that period. The records are probably available from Toyota directly.[Because our audit is related solely to the NCDS administration of the Toyotasponsored program, we made no effort to review any aspect of the program prior totheir involvement.] All records pertaining to the NCDS Toyota program are beingstored as required.

(c) [The two potential “non-compliance” categories] The information required bysubsection (1) is, when applicable, maintained by NCDS. Subsection (2) is notapplicable since Toyota, as a matter of corporate policy, always complies with DSPdecisions.

(d) [Complaints beyond 40 days] This information is stored on computer in the NCDSDallas, Texas, office and is housed with Mr. Brian Dunn, the Director of DisputeSettlement Services. Any required report can be obtained from Mr. Dunn. Theinformation is maintained as required.

(e) [Includes 12 categories of statistics] The information referenced in this section, aswell as any data pertaining to this requirement, is available from the NCDS Director ofDispute Settlement Services. The 12 categories of statistics to be maintained are beingkept as required.

DISCREPANCIES:

None

REQUIREMENT: § 703.7 (b)

6 The Toyota Dispute Settlement Program pamphlet actually refers here to the Toyota Owner’s ManualSupplement, but it appears they mean the Owner’s Warranty Rights Notification booklet. It’s a mereadministrative oversight, but customers could easily be confused. Fortunately the theoretical problem ismitigated by virtue of the second reference to a toll-free telephone number to Toyota’s CustomerAssistance Center where customers may obtain a Customer Claim Form.

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Each audit provided for in paragraph (a) of this section shallinclude at minimum the following (1) evaluation ofwarrantor's efforts to make consumers aware of theMechanism's existence as required in 703.2 (d);

(d) The warrantor shall take steps reasonably calculated tomake consumers aware of the Mechanism's existence at thetime consumers experience warranty disputes.

FINDINGS:

The essential feature of both regulatory requirements cited above is timing. In ourreview, therefore, we give emphasis to efforts that would inform customers and ensurethat they know about the existence of the DSP at all times, as well as examining themanufacturer's strategies to alert customers to the availability of the DSP when thecustomer's disagreement rises to the level that the regulations consider a "dispute."

Regardless of the excellence of a program, it is only effective if the customer knows ofits existence and can access it. The "notice" requirement seeks to ensure that theprogram is actually usable by customers by informing them of its existence and makingit readily accessible when they need it.

Toyota uses the following means by which to meet this important requirement:

! Toyota publishes a 32-page booklet, entitled Owner’s Warranty Information,that briefly explains, among many other things, the DSP process and how andwhere to file an application. The pamphlet is distributed in a variety of ways,but the principal method is by way of the dealer. Dealers are to provide thebrochure as part of the initial information packet given to new customers aswell as making them available in the dealership. Our random audits ofdealerships in the areas surrounding the field audit sites found no consistent andsignificant commitment by dealers to educate their employees to provide DSPinformation to customers making general inquiries about warranty-relateddissatisfactions or disputes.

! Toyota publishes a 51-page booklet, entitled Owner’s Warranty RightsNotification booklet, that contains state-specific, warranty-related regulatoryinformation (lemon law provisions) and an application form for accessing theDSP. The booklet provides useful and accurate information.

! There is a DSP pamphlet (one-page tri-fold) published by Toyota that isreasonably informative about the DSP and how to access it. The pamphletcross-references the Owner’s Warranty Rights Notification booklet as one oftwo sources for obtaining a Customer Claim Form.6 The Toyota DisputeSettlement Program pamphlet is not included in the information packet which isgiven to all new customers because the information is redundant as relates tothat which is included in the Owner’s Warranty Rights Notification booklet. Those interested in knowing about the program are referred to a toll-free

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telephone number where they can request a DSP pamphlet. This one-pagedocument is distributed primarily by the Toyota Customer Assistance Center.

Despite the manufacturer’s efforts, there remains a concern about DSPinformation dissemination at the dealership level where most warranty disputesarise.

In the Pennsylvania area we visited three dealerships.

Bobby Rahal Toyota6305 Carlisle PikeMechanicsburg, Pennsylvania 17050

Team Toyota Bus. T. 1 & 195Langhorn, Pennsylvania 19047

Faulkner Toyota 2425 Lincoln HighwayTrevose, Pennsylvania 19053

None of the dealership personnel we interviewed during our three Pennsylvaniadealership visits provided any useful information about the Toyota warranty disputemechanism when we asked about customer options when they are experiencingwarranty disputes. At one dealership, we talked to two service department personnel.The only positive note in our attempt to elicit DSP information from dealershippersonnel is that at least we weren’t provided with incorrect information. The dealers’performance in Pennsylvania is contrary to the underlying intent of federalrequirements of Rule 703.

We said in last year’s report that:

Clearly, one of the principal reasons that the annual independent auditrequirement was included in Rule 703 was to ensure that adequateconsumer awareness was provided for by sponsoring manufacturers. That the original draft of Rule 703 was modified so as to require thisaudit was an outcome fostered by manufacturers who complained thatthe proposed alternatives were too onerous and in fact, “draconian.”The Federal Trade Commission declined to mandate the national mediacampaigns and dealer incentives requirements, opting instead forvoluntary efforts by the manufacturers, or their agent dealers, whichwould then be audited annually to ensure compliance with the statedobjective of ensuring consumer awareness of the availability of theprogram. In any event, it is abundantly clear that no audit findings arecomplete without an evaluation of this aspect of the arbitration programsince it is specifically set forth in the administrative Rule requirements inthat section identified as the “Proceedings.” This extensive FederalTrade Commission commentary was promulgated as a fundamental partof the Rule, as is the case with all promulgated FTC Rules.

Because of the varied and heavy responsibilities of service managers, they were notalways available during our "secret shopper" visits to dealerships. It is predictable thatthe customers of dealerships whose employees are completely unaware of the DSP willbe less likely to be informed of the availability of DSP, a situation "at variance" withthe regulation's intent.

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Our dealership experiences in the Oklahoma area were mixed. One of the threedealerships we visited gave us accurate information about the DSP, showing us a DSPbrochure and pointing out the pages which included information about the program.Two dealerships, however, were of no help whatever and said they had no informationto provide to a customer with a current warranty dispute about options for getting arefund or replacement. These two dealers were willing to provide repair assistance, butvolunteered nothing about the DSP. In one instance, we went so far as to ask ifarbitration was an option. The response was that arbitration can be used only by goingthrough the dealer, an inaccurate statement.

In Oklahoma we visited the following dealerships:

Jim Norton Toyota9809 S. Memorial Tulsa, Oklahoma 74133

Riverside Toyota10338 East 11th StreetTulsa, Oklahoma 74128

Doenges Toyota1901 SE Washington Blvd.Bartlesville, Oklahoma 74006

Our dealer visits in New York were uniformly discouraging in terms of the program forDSP information dissemination. At none of the four New York dealerships we visiteddid employees appear to know about arbitration or the DSP program. Indeed, at onedealership we were told “There is no way, a customer with a warranty dispute, can get arefund.”

In New York, we visited the following dealerships:

Johnston’s Toyota 5015 Rt. 17MStreet New Hampton, New York 10958

Toyota of Newburgh2934 Route 9WNew Windsor, New York 12553

Geis Auto Mall (Toyota)Rt. 6 & Westbrook DrivePeekskill, New York 10566

Wappingers Falls Toyota1349 Route 9Wappingers Falls, New York 12590

There is a toll-free phone number to the Toyota Customer Assistance that offersassistance to customers in terms of the "making customers aware" requirement. Thisoffice is designed to facilitate an open line of communication between the servicingdealer, Toyota, and the customer. The toll-free line facilitates the DSP by providingDSP information to those who specifically request information about arbitration. Wecontacted the number and were referred to the glove box packet and the specific manualwhich contains a DSP application form. The primary objective of the Toyota CustomerAssistance Center is to keep the customer and Toyota working together to resolve

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warranty-related problems. This facet of the program operates consistent with §703.2(d) which allows:

703.2 (d)... Nothing contained in paragraphs (b), (c), or (d) ofthis section [ notice requirements] shall limit the warrantor'soption to encourage consumers to seek redress directly fromthe warrantor as long as the warrantor does not expresslyrequire consumers to seek redress directly from thewarrantor. The warrantor shall proceed fairly andexpeditiously to attempt to resolve all disputes submitteddirectly to the warrantor.

This part of the DSP received a rather varied assessment. The informationdissemination methods employed by Toyota together with the number of applicationsfiled in 2002 (3,069) demonstrate that, unquestionably, many Toyota customers weremade aware of the program, and for these customers, at least, access is obvious.

On the other hand, our dealer inspections in several parts of the country showed ageneral lack of knowledge on the part of the dealer service department employees aboutthe DSP, and in some cases, ignorance of its very existence.

As with most programs, our visits to dealerships suggested that customers who seekassistance from their salespersons are also unlikely to receive any useful informationabout the DSP. Few of the salespeople we interviewed appeared to have anyknowledge of the DSP or arbitration options in general.

We feel obligated to reiterate that the party who is in the best position to communicatewith customers at most junctures in the warranty repair context is the servicing dealer. Unfortunately, dealers who wish to ignore their role in facilitating "fair andexpeditious" warranty dispute resolution may do so with regulatory impunity,notwithstanding the many demonstrated efforts of Toyota.

We note here that manufacturer’s difficulties in complying with this requirement arerelated in some respects to uncertainty as to the regulation's intent about when thecustomer is to be informed. A better information dissemination strategy could bedeveloped if regulators provided manufacturers with an operational definition of thephrase, " ... at the time consumers experience warranty disputes."

DISCREPANCIES:

None, with the qualifier given immediately above as a caveat.

REQUIREMENT: § 703.7 (b) (3)(I)

Analysis of a random sample of disputes handled by theMechanism to determine the following: (I) Adequacy of theMechanism's complaint and other forms, investigation,mediation and follow-up efforts, and other aspects ofcomplaint handling; and (ii) Accuracy of the Mechanism'sstatistical compilations under 703.6 (e). (For purposes of thissubparagraph "analysis" shall include oral or writtencontact with the consumers involved in each of the disputesin the random sample.)

FINDINGS:

7 We note that the Customer Claim Form solicits some information that raises questions, in our minds,about the purpose and applicability to the arbitration process. For example, “Are your loan paymentscurrent? Yes - No.” We are hard-pressed to see what this question might have to do with the arbitrator’sability to render a decision or on NCDS’ ability to process the matter. Moreover, § 703.5 (c) says: “TheMechanism shall not require any information not reasonably necessary to decide the dispute.”

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The FINDINGS for this section are arranged as follows:

(1) Forms

(2) Investigations

(3) Mediation

(4) Follow-up

(5) Dispute Resolution

FINDINGS:

1) Forms

The auditors reviewed most of the forms used by each regulated component of theToyota Dispute Settlement Program administered by the National Center for DisputeSettlement.

The many forms used by DSP comprise an important aspect of the arbitration program. The forms we reviewed are "user friendly," well balanced, and providing sufficientinformation to properly inform the parties without overwhelming them with non-essential paperwork. Overall, the DSP forms promote efficiency and assist the programin meeting the stated objective of facilitating fair and expeditious resolution of disputes. We found the forms used by NCDS’ DSP (Toyota) program that we reviewed wellwithin the regulatory expectations.7

DISCREPANCIES:

NONE

NCDS general policies for the Toyota DSP are set forth in the pamphlet provided toeach applicant for arbitration. Some additional policies are printed in the arbitratortraining manual and appropriately arranged in sections which are indexed by subjectmatter.

In summary, the numerous forms used by the DSP are in substantial compliance withthe federal regulatory requirements.

2) Investigations

This facet of the arbitration program is governed by section 703.5 [c] (Mechanism'sDuty to Aid in Investigation).

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Field audits, monitoring of arbitration hearings, and interviews with arbitrators andDSP staff found only a limited number of requests by arbitrators for technicalinformation, but such information is provided by Toyota on request.

We included arbitrator requests for Technical Assessment under this investigativecategory. In the past, arbitrators, in many arbitration programs have sometimes reliedinappropriately on the manufacturer’s technical experts’ intervention or onmanufacturer reports, losing sight of the fact that this information is provided bymanufacturer employees who, despite any expertise they may possess, are nonethelessa party to the dispute. Thus, their representations cannot generally be given the samevalue as that provided by an independent neutral source. Because this problem hassurfaced in many of our reviews of various automobile warranty arbitration programs,we believe it is important that the training of arbitrators continue to stress this as apotential problem that should generally be avoided. This will help avoid a problem thatmany such programs have experienced. Conflicts between the parties on questions offact may, in some limited circumstances, be best resolved by an independent inspectionconducted by a neutral ASE-certified mechanic.

The manufacturer provides cooperation inresponding to arbitrator requests for independent inspections. It appears to be rare for arbitrators torequest that the manufacturer provide a copy of aTSB and then delay action on the case pendingreceipt of the bulletin. Whether a TSB exists isapparently more likely to be central to anarbitrator(s) determinations than any informationcontained therein. The existence of a TSB mayincrease, in the minds of some arbitrators, thelikelihood that a customer's otherwise unverifiedconcern is real. The program would be well served by having TechnicalService Bulletins (TSB) included in the case file whenever the company knows thatthere is a Technical Service Bulletin that addresses the central concerns of thecustomer’s application to the DSP.

Occasionally, independent inspections are conducted to confirm or deny one party'srepresentations or to resolve conflicts between the representations of the parties. Ourmonitoring of arbitration hearings in the past suggests that many arbitrators do notunderstand the real purpose of these inspections, inappropriately viewing them as ameans by which to diagnose the vehicle's alleged mechanical problem rather than as ameans to resolve conflicts of fact between the parties. This orientation suggests thatarbitrators may inappropriately become involved in efforts to achieve customersatisfaction rather than seeing themselves as arbiters of disputes.

Arbitrators would be greatly aided by continued emphasis at arbitrator training on theappropriate use of independent inspections and technical assistance. The DSP hasdeveloped and implemented a national training program that, of necessity, addresses somany issues in a short period of time that it is understandable that arbitrators often losesight of some of the trainers’ admonitions. This underscores the importance of anefficient, on-going feedback loop that provides regular reminders from program staff toarbitrators.

17

Other areas to be investigated include:

number of repair attempts;

length of repair periods; and

possibility of unreasonable use of the product.

Customers provide some information on these subjects on the DSP application andToyota provides it on the NCDS form entitled, Manufacturer’s Response Form. Theforms, however, do not solicit the same information from all parties.

The customer application form does not, for example, ask for information about theissue of possible misuse or abuse of the vehicle. Customers should know that thepossibility of abuse or misuse of the vehicle may become a significant issue in thearbitrator’s decision process so that they can present information accordingly. The company reports may include information on this topic whenever they think it isappropriate, but the customer has no way of knowing that this is a subject they wouldbe well advised to address in the information they present to the board or an individualarbitrator.

In the event that misuse is asserted or suggested as a possibility in the ManufacturerResponse Form the customer is able to submit supplemental information challenging orexplaining his/her perspective on the issue. Rather than delay the process or put thecustomer in the position of having to present a response on short notice, customerscould be advised at the onset of the process that the issue might come up in thearbitrator(s)/board's deliberations. The fact that customers receive copies of thestatements from the company in advance of the hearings, allowing them the opportunityto challenge any such suggestion is not in itself sufficient to address our concern. Unfortunately, not all questions of possible misuse arise in response to theManufacturer Response Form. The subject of abuse or misuseof the product may only emerge during thearbitrator(s)/board's deliberations. Based on ourinterviews with arbitrators, an arbitrator maysuspect the possibility of abuse or misuse withoutits having been asserted in the paperwork. In suchcases, "misuse" may not be the primary ordeciding factor but can still be a significantfactor. Because of its secondary importance,however, it may not be detailed in the decisionand not necessarily reflected in the fairly briefcommunications announcing the board's orarbitrator’s decision. Thus, a customer who mayhave important rebuttal information on thesubject of suspected abuse would be unlikely tobe aware that it had become an issue.

FINDINGS:

The investigation methods used by the DSP arewell known to regulators and appear to beacceptable to them. Moreover, the processesenvisioned when Magnuson-Moss was enactedwere understood to be substantially abbreviatedin comparison to litigation. Ultimately, thequestion comes down to, "How much

8 Mediation does not necessarily imply the use of a neutral third-part mediator, but rather means thecase has been settled prior to the arbitrator rendering a decision.

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investigation is enough?" In our view, moreinquiries in the initial phase of the arbitrationprocess would enhance the process, but we areunwilling to assert that this concern threatenscompliance.

The methods currently employed by the DSPclearly result in a useful collection of pertinentinformation, but it is also clear that there isopportunity to gather significantly more valuableinformation at virtually no extra cost.

3) Mediation8

This facet of the arbitration program washistorically carried out exclusively by themanufacturer or its dealers. The NCDS/Toyotaprocess attempts to mediate the case prior toarbitration by having a trained staff personcontact the customer and Toyota where the factsas they receive them appear to warrant. Whenmediation fails to result in a settlement, thematter is arbitrated and a decision rendered.

The mediation function envisioned by rule 703 isgoverned, at least in part, by section 703.2(d)which allows:

... Nothing contained in this subchapter shall limit thewarrantor's option to encourage consumers to seek redressdirectly from the warrantor as long as the warrantor doesnot expressly require consumers to seek redress directly fromthe warrantor. The warrantor shall proceed fairly andexpeditiously to attempt to resolve all disputes submitteddirectly to the warrantor.

FINDINGS:

After a case is opened, the manufacturer generally intercedes in an attempt to resolvethe dispute to the customer's satisfaction prior to arbitration. Detailed records are keptas required by § 703.6. This information is contained in the case files maintained byNCDS.

This audit assesses the mediation function only in terms of its impact on therequirement to facilitate fair and expeditious resolution of disputes. All indications arethat the mediation function meets the minimum requirements for fair and expeditiousresolution of disputes. Mediation is voluntary and in no way is intended to impede ordelay a customer's access to arbitration. The degree to which performance of mediatedresolutions conforms with time limit requirements is reviewed in the survey section ofthis report.

4) Follow-up

9 Each facet of the DSP has Automotive Service Excellence (ASE) certified mechanics available toprovide independent inspections to resolve conflicts of facts as presented by the parties. ASE is a privateassociation that tests applicants to ascertain whether they possess a specified degree of expertise inautomotive mechanics.

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NCDS is responsible for verifying performance of decisions or mediated settlements.

When the customer accepts a settlement offer or an arbitration decision, NCDSmonitors the promised performance. NCDS logs the performance information into thefile. Once a decision mandating some action on the part of Toyota has been renderedand NCDS has received notice that the customer has accepted the decision, aperformance survey is mailed to the customer to determine that:

a) the promised performance has taken place, and

b) the performance that has taken place is satisfactory.

If the survey is returned, it is placed in the case file folder.

The recording of performance and maintenance of the DSP records were reviewed byour on-site inspection of case files in Dallas, Texas. For each region selected for theaudit, we reviewed a random sample of case files. The sample is drawn from thecomputer system maintained by NCDS.

NCDS has developed a policy to ensure that performance verification information ismaintained in an electronic case file which may be reviewed by anyone reviewing thecase file and, importantly, a note to that effect will appear in the hard copy case filefolder.

DISCREPANCIES:

None

5) Dispute Resolution

The DSP uses two arbitration formats. The two formats are: a) a board consisting ofthree arbitrators; or b) individual arbitrators. Customers may opt to use either format. Importantly, the board process is one wherein the decisions are made after consideringonly documentary evidence and excludes oral presentation. Of course, customers mayopt for a one-member (arbitrator) hearing, in which event oral presentations maybemade by the parties. When using boards, the “Members” (i.e., arbitrators) are eachprovided with a case file that contains pertinent facts gathered by the program. Thethree arbitrators include: a consumer advocate, a technical member, and a member ofthe general public. Two members constitute a quorum and the board relies ondocuments provided by the parties. The arbitrators meet to discuss the facts presentedto them and then render a decision. Most board decisions are arrived at by consensus,but sometimes the members resort to a vote to close the matter. The board may requestadditional information, usually in the form of an independent inspection conducted by aspecialist in auto mechanics. Occasionally, the board asks for Technical ServiceBulletin information, although technical questions can often be answered by the board'stechnical member.9

In both the DSP formats, hearings are open, as required by Rule 703, to observers,including the disputing parties.

10 Currently, NCDS arbitrators are provided a per diem allowance of $100.00 a hearing plusreimbursement for any mileage expenses incurred.

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The parties are sent copies of the case files before the board meets and are informedthat they may submit additional information if they choose to clarify or contradictinformation in the file. Any additional information is then provided to the board priorto its deliberations.

In most cases, the NCDS process involves a single arbitrator. In such instances, thehearing is conducted solely by the arbitrator with no administrative assistance. Moreover, it is typically held outside of an NCDS office so the only support services(e.g., copy or fax machines) are those that may exist at the place selected for thehearing. Most often the site selected is a Toyota dealership.

Decisions of the arbitrator(s) are binding on Toyota but not on the consumer.

FINDINGS:

The DSP's meeting process is in substantial compliance with the federal regulation andprovides for fair and expeditious resolution of warranty disputes. Overall, the programmeets the requirements of Rule 703.

We have noted continued improvement in awareness of important legal principles andvarious warranty doctrines among established board members who have been providedarbitrator training. Board members' increase in awareness of their scope of authority,the essential components of a decision, and factors that may be important whenconsidering whether to apply a mileage deduction in repurchase or replacementdecisions are clearly attributable to the professional training program NCDS providesfor its arbitrators.

Arbitrators are volunteers whose only compensation is a nominal per diem and mileageexpense allowance.10 Arbitrators are not required by the program to have anyestablished expertise in the complexities of automobile warranty law at the time of theirappointment. Fairness, as envisioned by state policy makers, however, requires thatarbitrators have some level of knowledge of the state and federal regulations that setforth the basic rights and responsibilities of the parties to a warranty dispute.

Our monitoring of arbitration hearings and interviewing of arbitrators in virtually allsuch programs has continually underscored the importance of on-going arbitratortraining. Without regular input and feedback mechanisms, arbitrators are occasionallyuncertain about their rights and responsibilities. Since the DSP hearings/meetings arerarely attended by people other than the parties and a Toyota representative, thearbitrators operate in a kind of self-imposed vacuum, without direct access to afeedback mechanism other than an occasional independent vehicle inspection report. Inaddition, because arbitrators are volunteers who usually participate in the DSP process infrequently, a mistake made at one hearing can easily become an institutionalized errorthat could subject the program to a possible compliance review. On-going trainingwould greatly alleviate these concerns for arbitrators.

In prior reports (i.e., non-Toyota NCDS) we made the following observation:

One final comment as regards dispute resolution concerns our reviewof case files including the written decisions. As in all programs acertain amount of “boilerplate” eventually creeps into formal

11 While state automobile warranty statutes vary in the manner in which they treat presumptivelanguage, it is nonetheless a general principle that statutory presumptions give guidance under a specificset of circumstances, while other circumstances are addressed by more ambiguous provisions. Forexample, most arbitrators, in this context, are concerned with whether a customer has experienced an“unreasonable” number of repair attempts or whether the manufacturer has had a “reasonable”opportunity to cure the vehicle’s problem. The operative question will likely be one of what constitutes“reasonable” in either situation. A statutory presumption can provide a bit more clarity under somecircumstances by establishing that given certain specific scenarios, reasonable will be “presumed” tomean just this or that. Other scenarios that lack such specific circumstances would not be afforded“presumed” status but it would still be reasonable to argue that the customer should be granted relief.

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decisions. Designed to save time and energy, such a procedure isentirely reasonable provided that the boilerplate itself is appropriateto the circumstances. We found some apparent boilerplate indecisions concerning denials of a customer’s request for a refund orreplacement to be troublesome. In one case, for example, we foundthe following:

Example 1

After reviewing the complaint(s) and hearing theproofs and arguments of the parties and taking intoconsideration the applicable warranty law of theState of Ohio, commonly referred to as the “LemonLaw,” and after due deliberations, I find and awardas follows: ...

Example 2:

The Customer’s [make and model struck asunimportant to this Toyota report] Truck does notqualify for coverage under the State of Ohio LemonLaw, because it does not meet any of thepresumptive standards..

The two examples cited above are problematic in at least two ways:

First, the initial example seems to suggest that it is reasonable for arbitrators to onlyconsider the state lemon law; however, it is very important for arbitrators to keep inmind their additional authority to award refunds and replacements under the moregeneral terms of the federal law.

Second, the other example suggests a misunderstanding of the nature of a statutorypresumption. Here, the language implies that the statutory presumption serves as aminimum threshold for awarding refunds or replacements, which is, of course,absolutely incorrect. Meeting presumptive standards is not a prerequisite forqualifying for “lemon law” relief or for qualifying for relief under federal warrantylaw.11 For this reason, the above cited language is exceedingly problematic and needsto be revised, at least where it is being applied as “boilerplate.” Note: Subsequent to thedrafting of the above comment, NCDS provided us with a copy of a document that theyhave sent out to their arbitrators addressing our concerns. The document is helpful, inour view, and serves as an important first step in ameliorating our concerns.

The NCDS program has informed us that they continue their efforts to address the“boilerplate” problem, including explanations provided at arbitrator training to ensurethat arbitrators understand that “Lemon Law” thresholds for establishing presumptionsdo not serve as a threshold for their awarding “buy back” relief. At our review ofarbitrator training in June of 2002, we confirmed that these efforts continue and arehaving some noteworthy effects.

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Overall, the DSP members demonstrate a clear commitment to providing fair andexpeditious resolution of warranty disputes.

DISCREPANCIES:

None

12 Where there were at least 50 or more case files, we reviewed them. Otherwise, we simply examinedall case files for the state.

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SECTION III

Field Audit of Three Regional Areas

I. Pennsylvania

A. Case Load and Basic Statistics

In Pennsylvania, NCDS handled 107 DSP cases in 2002 of which 23 (21.4%) were "no-jurisdiction" cases. There were 77 cases arbitrated (91.6% of in-jurisdiction cases), and7 (8.3%)% of in-jurisdiction cases) )were mediated. The average number of days forhandling a 2002 case in the Pennsylvania region was 32 days, the same as the numberof days for the nation.

B. Recordkeeping, Accuracy and Completeness

We requested a random sample of 50 case files drawn from all cases closed during theaudit period and examined them to determine whether they were complete andavailable for audit. Generally, the records were complete and available for audit.

The results of the inspection of the random sample of case file folders are detailedbelow:

§ 703.6 (a) (1-12)

(a) The Mechanism shall maintain records on each disputereferred to it which shall include:

1) Name, address and telephone number of the consumer.2) Name, address and telephone number of the contactperson of the Warrantor.3) Brand name and model number of the product involved.4) The date of receipt of the dispute and date of disclosureto the consumer of the decision.5) All letters and other written documents submitted byeither party.

FINDINGS:

The auditor examined the case file folders extracted from all 2002 "in-jurisdiction" casefiles.12 We examined each sample file with respect to the items enumerated insubsections 1 through 5, with the following results:

l) All case files contained the customer's name, address, and telephone number.

2) The requirement is met. The name and address of the warrantor's contactperson is included with the initial correspondence that the customer receivesfrom the program. In addition, the Regional office contact address and phonenumber is included in each Owner's Manual that accompanies all new vehicles

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when they are delivered. The contact person is so generally known as to notrequire it to be placed in each individual case file.

3) All case files inspected contain the make and vehicle identification number(VIN) of the vehicle. It is usually found in the customer application form, therichest source of information within most files, but the vehicle make and VIN isoften located in documents throughout the file. As a result, cases are seldom, ifever, delayed because the customer has failed to provide the VIN when filingtheir application.

4) All case files inspected contain this information.

5) Many files contained letters and additional documents, but since there is nostandard by which to measure this item, we determined this subsection to be"not applicable."

§ 703.6 (a) (1-12) [Continued]

6) All other evidence collected by the Mechanism relating to thedispute, including summaries of relevant and material portions oftelephone calls and meetings between the Mechanism and any otherperson (including consultants described in section 703.4(b) of thispart);

7) A summary of any relevant and material information presentedby either party at an oral presentation.

8) The decision of the members including information as to date,time and place of meeting, the identity of the members voting; orinformation on any other resolution;

FINDINGS:

All files for cases that were arbitrated contained the information required by sectionssix and eight. Oral presentations are a basic component of the NCDS program in thisjurisdiction, and section seven requires summaries of the oral presentations to be placedin the case file. In the case files we reviewed for this region, the record-keepingrequirements were met.

9) A copy of the disclosure to the parties of the decision.

FINDINGS:

Each applicable case file contained a copy of the decision letter sent to the customer. This letter serves as both the decision and the disclosure of the decision.

. 10) A statement of the warrantor's intended action(s);

FINDINGS:

The warrantor's intended action(s) and performance are inextricably linked. Thus, wevalidate this item in terms of performance verification. Performance verification is afunction carried out by NCDS. This office sends a survey to the customer followingreceipt of the customer’s acceptance of those decisions mandating some action on the

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part of Toyota to ask, among other things, whether any required performance has takenplace. Customers are asked to return the survey to the office of NCDS. As notedelsewhere, we found few returned survey forms in the case files. In the past, we havestated that the absence of performance verification forms in the case file does notconstitute a regulatory inconsistency since performance verification information maynot be available from the customer. By mailing a performance verification surveyNCDS goes as far as can be expected in determining whether arbitration decisions are,in fact, being performed. It seems entirely appropriate for the program to assumeperformance of the decision has taken place when the customer performance survey isnot returned. For those who may be skeptical about such important assumptions, itshould be remembered that even if a manufacturer engaged in a programmatic attemptto avoid performing arbitration decisions, that fact would, of course, emerge in thecontext of our national random survey of customers who have used the program.Performance verification status should and does appear in the case file as is indicatedby sections 11 and 12 below.

11) Copies of follow-up letters (or summaries of relevant andmaterial portions of follow-up telephone calls) to theconsumer and responses thereto; and

12) Any other documents and communications (orsummaries of relevant and material portions of oralcommunications) relating to the dispute.

FINDINGS:

Section 11 above is not applicable for purposes of the audit because there is nopractical means by which to verify the completeness and accuracy of such possibleadditions to the files. Section 12, however, appears to mandate that a summary form becreated whenever the arbitrator receives an oral communication that may have anybearing on the matter in dispute from either party. Of course, most suchcommunications come in the form of oral presentations by the parties at the hearing, inwhich case the communications are summarized in the arbitrator’s decision. Allsummaries are now included in the case file.

CONCLUSIONS:

The NCDS program’s record keeping policies and procedures, with the alluded tonecessary modifications, are in substantial compliance with the federal Rule 703requirements.

C. Case File Records (4 yrs. 1999-2002)

A random sample of 50 case numbers from the years 1999 through 2002 was drawnfrom NCDS’ data base program, and in our field inspection, we checked the samplecase files at the NCDS national office in Dallas to verify that they were beingmaintained per requirement § 703.6(f). In addition, a visual inspection was made of theentire four-year accumulation of case files as required by the same section.

The closed files are stored in a discrete area within in the NCDS office. The files weviewed appeared intact and were readily available for inspection. The random sampleinspection of 50 case files drawn from all cases in the four-year universe of casesvalidated the program's maintenance of these records as required.

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D. Arbitration/Hearing Records i. Case file folders

Most information that is required to be maintained is found on a series of formsfound in the case files maintained at the NCDS headquarters in Dallas, Texas.

ii. Arbitrator Biographies

The arbitrator biographies for the national program are available for reviewfrom the Senior Vice President of NCDS at their headquarters in Dallas, Texas.The biographies are thorough and current, and the list of arbitrators for eachdistrict includes the dates of their appointments.

E. Hearing Process

The arbitrator scheduled the hearing at the principal dealership in question afterconsulting separately with each of the parties. The hearing involved onearbitrator who briefly interviewed the parties and then took testimony. Thehearing was held at the Faulkner Toyota dealership of Trevose, Pennsylvania,2425 Lincoln Highway and began at 4:00 pm. The arbitrator was late due tobeing caught in heavy, slow traffic.

i. Physical Description of Hearing

The hearing was conducted in a room of insufficient size. Observers could nothave been squeezed into these quarters since it barely accommodated theparties. Attending was the customer, a Toyota servicing dealer’srepresentative, the auditor, and the arbitrator. A Toyota manufacturer’srepresentative attended via telephone. The customer, the Toyota dealer, and aToyota manufacturer’s representative all made oral presentations.

The hearing was generally efficiently conducted although the parties wereallowed to talk over one another on occasion. The customer was provided withan unfettered opportunity to present his case. The arbitrator appropriatelyinquired about what the customer was seeking in the form of relief since theapplication was not clear in that regard.

The audit included brief interviews with the customer and the Toyota dealerrepresentative following the hearing. The auditor did not discuss the hearingprocedures with the arbitrator following the hearing because of the delay in thehearing process and the lateness of the hour.

The arbitrator was unclear as to whether he needed to conduct a road test sincehe witnessed several non-verbal cues from the dealer that indicated that therewas no disagreement between him and the customer as to the vehicle’soperation and the existence of some brake noise.

ii. Openness of Meeting

The room was inadequate to accommodate any additional observers who mayhave wished to attend the hearing, but the arbitrator recognized that the meetingwas open to anyone wishing to attend.

iii. Efficiency of Meeting

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The hearing was efficiently conducted even though 40 minutes late.

iv. Hearing

This arbitrator appeared to be committed to the fair and expeditious resolutionof warranty disputes in the hearing process. It should be noted, however, thatthe arbitrator referred to the Toyota representative on the telephone by her firstname while all others were referred to by “mister” and their respective lastnames, suggesting more familiarity than was appropriate.

v. Board/Arbitrator Decisions

We reviewed numerous decisions for this region while conducting our on-sitevisit to the Dallas, Texas, headquarters of NCDS. In the compliance summary(Section I of this report), we discuss and will not repeat here the importantissue of boilerplate language. Otherwise, the decisions we reviewed weregenerally quite sound in both form and substance.

In addition, we reviewed the decision rendered in the case we monitored andfound it to be thorough, well reasoned, and complete.

CONCLUSION:

The DSP, as it operates in the Pennsylvania region is, in our view, in substantialcompliance with Rule 703. The NCDS administrative staff and the NCDS programdemonstrated a clear commitment to ensuring fair and expeditious resolution ofwarranty disputes. The administrative staff is clearly dedicated to the program's missionand demonstrates a high degree of professionalism.

13 There was one case reported as “pending,” which accounts for the apparent missing case when theother categories are summed and compared with the total number of cases reported.

14 See 16 C.F.R., § 703.6 (f)

15 Since there were only 19 Oklahoma cases reported for 2002, we simply examined them all.

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II. Tulsa, Oklahoma

A. Case Load and Basic Statistics

In Oklahoma, NCDS handled 19 DSP cases in 2002 of which 6 (31.5%) were "no-jurisdiction" cases. There were 11 cases arbitrated (84.6% of in-jurisdiction cases), and1 case was mediated.13 The average number of days for handling a 2002 case in theOklahoma Region was 31 days as compared to 32 days for all regions combined

The Oklahoma field audit includes a review of a hearing held in Tulsa, Oklahoma, andinterviews with the principal people involved in the hearing. In addition, we reviewedcases files for the region, which are stored at national headquarters of the NationalCenter for Dispute Settlement (NCDS), in Dallas, Texas.

During our on-site review at the Dallas, Texas, headquarters, we visually inspected thewarehousing of all DSP case files for the required four-year period.14 The four-yearaccumulation of case files was available for inspection, where applicable, per allregulatory requirements.

We requested a random sample of 50 cases drawn from all cases closed during the auditperiod and examined all the cases provided15 to determine whether they were completeand available for audit. These files were reviewed for accuracy and completeness. Thefindings of that review are set forth below.

The staff at NCDS were efficiently housed and provided with up-to-date equipment.

B. Recordkeeping Accuracy and Completeness

§ 703.6 (a)(1-12)

(a) The Mechanism shall maintain records on each dispute referred to it which shall include:

1) Name, address and telephone number of the consumer;2) Name, address and telephone number the contact personof the Warrantor;3) Brand name and model number of the product involved;4) The date of receipt of the dispute and date of disclosureto the consumer of the decision;5) All letters or other written documents submitted byeither party.

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FINDINGS:

We examined the case files extracted from all "in-jurisdiction" regional case filesclosed during the audit period. We reviewed these files for the items enumerated insubsections 1-5 with the following results:

l) All case files contained the customer's name, address, and telephone number.

2) The requirement is met. The name and address of the warrantor's contactperson is included with the initial correspondence that the customer receivesfrom the program. In addition, the manufacturer’s contact address and phonenumber is included in each Owner's Manual that accompanies all new vehicleswhen they are delivered. The contact person is so generally known as to notrequire it to be placed in each individual case file.

3) All case files inspected contain the make and vehicle identification number (VIN) ofthe vehicle. This information is generally found in the customer application and in anumber of other documents in the file. As a result, cases are rarely delayed simplybecause the customer fails to include the VIN in the application.

4) All case files inspected contain this information. Not all cases necessitate a decisionletter, but where a decision was rendered, the appropriate notification letter waspresent.

5) Many files contained letters and additional documents, but since there is no standardby which to measure this item, we determined this subsection to be "not applicable."

§ 703.6(a)

6) All other evidence collected by the Mechanism relating tothe dispute, including summaries of relevant and materialportions of telephone calls and meetings between theMechanism and any other person (including consultantsdescribed in section 703.4(b) of this part;

7) A summary of any relevant and material informationpresented by either party at an oral presentation;

8) The decision of the members including information as todate, time and place of meeting and the identity of membersvoting; or information on any other resolution.

FINDINGS:

All files for cases that were arbitrated contained the information required by sectionssix and eight. Oral presentations are a basic component of the NCDS program in thisjurisdiction, and section seven requires summaries of the oral presentations to be placedin the case file. It is NCDS policy that the arbitrator conducting the hearing mustsummarize all significant information presented orally by either party during any facetof the hearing. We noted such language in the case files we reviewed in Dallas, but wedid not allocate sufficient time to conduct a qualitative review of that portion of eachcase’s decision. We offer no judgement then on whether these summaries areconsistently detailed and/or accurate depictions. At the same time, we saw noparticular reason to question the sufficiency of this method.

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9) A copy of the disclosure to the parties of the decision.

FINDINGS:

All files for cases that were arbitrated contained the required information.

10) A statement of the warrantor's intended action(s);

FINDINGS:

The warrantor's intended action(s) and performance are inextricably linked. Thus, wevalidate this item in terms of performance verification. Performance verification is afunction carried out by NCDS. This office sends a survey to the customer followingreceipt of the customer’s acceptance of those decisions mandating some action on thepart of Toyota to ask, among other things, whether any required performance has takenplace. Customers are asked to return the survey to the office of NCDS. As notedelsewhere, we found few returned survey forms in the case files. In the past, we havestated that the absence of performance verification forms in the case file does notconstitute a regulatory inconsistency since performance verification information maynot be available from the customer. By mailing a performance verification surveyNCDS goes as far as can be expected in determining whether arbitration decisions are,in fact, being performed. It seems entirely appropriate for the program to assumeperformance of the decision has taken place when the customer performance survey isnot returned. For those who may be skeptical about such important assumptions, itshould be remembered that even if a manufacturer engaged in a programmatic attemptto avoid performing arbitration decisions, that fact would, of course, emerge in thecontext of our national random survey of customers who have used the program.Performance verification status should and does appear in the case file as is indicatedby sections 11 and 12 below.

11) Copies of follow-up letters (or summaries of relevant andmaterial portions of follow-up telephone calls) to theconsumer, and responses thereto; and12) Any other documents and communications (orsummaries of relevant and material portions of oralcommunications) relating to the dispute.

Section 11 above is not applicable for purposes of the audit because there is nopractical means by which to verify the completeness and accuracy of such possibleadditions to the files. Section 12, however, appears to mandate that a summary form becreated whenever the arbitrator receives an oral communication that may have anybearing on the matter in dispute from either party. Of course, most suchcommunications come in the form of oral presentations by the parties at the hearing, inwhich case the communications are summarized in the arbitrator’s decision. Allsummaries are now included in the case file.

CONCLUSIONS:

The NCDS program’s record keeping policies and procedures are in substantialcompliance with the federal Rule 703 requirements.

16 The four-year requirement includes the year 2002, but 2002 files are examined separately as part ofa more thorough inspection of each file's contents.

17 The dealership employee assisted at the onset of the hearing by setting up the telephone connectionto the Toyota manufacturer’s representative and then left the hearing.

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C. Case File Records (4 yrs. 1999-200216)

§ 703.6 (f)

(f) The Mechanism shall retain all records specified inparagraphs (a) through (e) of this section for at least 4 yearsafter final disposition of the dispute.

A random sample of case numbers from the years 1999-2002 was drawn from NCDS’data base program, and in our field inspection, we checked the sample case files in theNCDS headquarters office to verify that they were being maintained (i.e., stored) perrequirement § 703.6(f). In addition, a visual inspection was made of the entire four-year accumulation of case files required by the same section. The closed files are storedin a discrete area within the NCDS office. All records for the audit period (2002) andfor the four-year period (1999 through 2002) were complete and readily available foraudit. The random sample inspection validated the apparent completeness suggestedby the visual inspection.

D. Program Records

i. Case file folders

Most information that is required to be maintained is found on a series of formsfound in the case files maintained at the NCDS headquarters in Dallas, Texas.

ii. Arbitrator Biographies

The arbitrator biographies for the national program are available for reviewfrom the Senior Vice President of NCDS at their headquarters in Dallas, Texas.The biographies are thorough and current, and the list of arbitrators for eachdistrict includes the dates of their appointments.

E. Hearing Process

i. Physical Description of Hearing (i.e., Meeting)

The DSP hearing was held at the Jim Norton Toyota dealership, 9809 S.Memorial, Tulsa, Oklahoma, on May 19, at 9:00 a.m. The meeting room wasnot of adequate size for accommodating anyone who wished to attend as anobserver. The parties included the customers, a Toyota manufacturer’srepresentative via telephone, a Toyota dealer customer relations employee,17 thearbitrator, and the auditor.

ii. Openness of Hearing

18 At the same time, the arbitrator’s demeanor suggested to the auditor that it was the Toyotarepresentative who was really in charge of the hearing. The problem was substantively harmless to theultimate disposition of the case, but there was a definite “appearance” problem. As a result of discussionswith the arbitrator, it appears that the issue was a one-time incident with no regulatory implications.

32

This arbitrator said that she allows all observers at DSP meetings (hearings)although the room used for the hearing was too small to allow observers.

iii. Efficiency of Meeting

The arbitrator’s case file was complete with all requisite documents. Thearbitrator demonstrated that she generally knows how to properly conduct ahearing.18 She addressed the parties, giving a brief overview of the process, butfailed to provide a case opening statement setting forth the particulars of thedispute and the customer’s requested relief.

The meeting began at 9:00 am as scheduled.

iv. Hearing

The hearing was, with only one exception, properly conducted. Both partieswere afforded an uninterrupted opportunity to present their versions of the case.Following each party’s presentation, the other party was given an opportunityto clarify or challenge, as was appropriate. The arbitrator conducted a test driveat the conclusion of the hearing and informed the parties that the hearing wasconcluded without necessitating a reconvening of the parties after the test drive.

Unfortunately, the arbitrator left unchallenged a facet of the hearing in whichthe Toyota manufacturer’s representative asked the customer a question in across-examination manner about whether some facet of the case was includedon the claim form and then proceeded to dictate to the arbitrator that anysubject not detailed on the Claim Form could not be discussed during thehearing. This was problematical in two respects: first, the manner in which thisinterchange took place left a clear impression that the manufacturer’srepresentative as one of the disputing parties is actually empowered todetermine what evidence is allowable at the hearing and what is not; and,second, cross-examination is a style of communication that is inconsistent withthe NCDS hearing model. The first aspect of this matter is the more significantof the two, because it undermines the appearance of fairness. Clearly, thearbitrator is the person who determines what evidence is to be allowed in anygiven hearing. Neither of the disputing parties is empowered to make suchdeterminations at the hearing. Certainly, the manufacturer would not find itacceptable for the customer to make such determinations.

In this case, the arbitrator should have informed the parties that what is or is notto be discussed at the hearing is for her to determine, and the parties shouldsimply present their own cases. As a matter of objective fact, hearings ofteninclude discussions of subjects that are not detailed in the case file. Forexample, if it were to surface during the hearing that the customer’s use of thevehicle was primarily commercial, it would undoubtedly result in a claim bythe manufacturer that the case, in their view, is out-of-jurisdiction, even thoughthat defense had not been included in the case file paperwork. In addition, anon-dealer repair done in a remote location while the customer was on vacationmay not be detailed in the case file, but whether the fact is relevant, is a matterfor the arbitrator to decide.

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v. Board/Arbitrator Decisions

We reviewed this case’s decision and a sample of decisions for the region whileconducting our on-site visit to the Dallas, Texas, headquarters of NCDS. In thecompliance summary (Section I of this report), we discussed problems withsome boilerplate language which, while important, need not be repeated here.The decision in this case was consistent with the regulatory requirements withthe qualifier discussed above.

Conclusion:

The DSP, as it operates in the Oklahoma region, is in “substantial compliance”with Rule 703. The NCDS administrative staff demonstrated a clearcommitment to ensuring fair and expeditious resolution of warranty disputes.The administrative staff is clearly dedicated to the program's mission andgenerally demonstrates a high degree of professionalism. The arbitratordemonstrated a commitment to fair and expeditious resolution of warrantydisputes.

19 See 16 C.F.R., § 703.6 (f)

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III. New Windsor, New York

A. Case Load and Basic Statistics

The New York Region generated 189 cases in 2002 of which 57 weredetermined to be "not-in-jurisdiction" cases. The program also reports 24mediated cases and 108 arbitrated cases. The average days for handling a2002 case for this Region is 33. This compares with an average of 32 dayshandling nationwide.

The New York Regional field audit includes a review of a hearing held in NewWindsor, New York, and interviews with the principal people involved in thehearing. In addition, we reviewed case files for New York, which are stored at national headquarters of the National Center for Dispute Settlement (NCDS), inDallas, Texas.

During our on-site review at the Dallas, Texas, headquarters, we visuallyinspected the warehousing of all DSP case files for the required four-yearperiod.19 The four-year accumulation of case files was available for inspectionper all regulatory requirements. In addition, the staff at NCDS were efficientlyhoused and provided with up-to-date equipment.

We requested a random sample of 50 cases drawn from all cases closed duringthe audit period and examined the cases provided to determine whether theywere complete and available for audit. Files were reviewed for accuracy andcompleteness. The findings of that review are set forth below.

B. Recordkeeping Accuracy and Completeness

§ 703.6 (a)(1-12)

(a) The Mechanism shall maintain records on each disputereferred to it shall include:

1) Name, address and telephone number of the consumer;2) Name, address and telephone number the contact personof the warrantor;3) Brand name and model number of the product involved.4) The date of receipt of the dispute and date of disclosure tothe consumer of the decision;5) All letters and other written documents submitted byeither party.

FINDINGS:

We examined a sample of case files extracted from all "in-jurisdiction" case files closedduring the audit period. We reviewed these files for the items enumerated insubsections 1-5 with the following results:

l) All case files contained the customer's name, address, and telephone number.

20 Some cases do not result in a decision. The case may end in a mediated settlement that came aboutafter the case had been received by the DSP but prior to the hearing to decide the matter.

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2) The requirement is met. The name and address of the warrantor's contactperson is included with the initial correspondence that the customer receivesfrom the program. In addition, the manufacturer’s contact address and phonenumber is included in each Owner's Manual that accompanies all new vehicleswhen they are delivered. The contact person is so generally known as to notrequire it to be placed in each individual case file.

3) All case files inspected contain the make and vehicle identification number (VIN) ofthe vehicle. This information is generally found in the customer application and in anumber of other documents in the file. As a result, cases are rarely delayed simplybecause the customer fails to include the VIN in the application.

4) All case files inspected contain this information. Not all cases necessitate a decisionletter, but where a decision was rendered, the appropriate notification letter waspresent.

5) Many files contained letters and additional documents, but since there is no standardby which to measure this item, we determined this subsection to be "not applicable."

§ 703.6 (a) [continued]

6) All other evidence collected by the Mechanism relating tothe dispute, including summaries of relevant and materialportions of telephone calls and meetings between theMechanism and any other person (including consultantsdescribed in section 703.4(b) of this part;

7) A summary of any relevant and material informationpresented by either party at an oral presentation;

8) The decision of the members with information as to date,time and place of meeting, the identity of members voting; orinformation on any other resolution;

FINDINGS:

All files for cases that were arbitrated contained the information required by sectionssix, seven, and eight.

9) A copy of the disclosure to the parties of the decision.

FINDINGS:

All applicable case files contain a letter from the arbitrator announcing his/herdecision.20

10) A statement of the warrantor's intended action(s);

36

FINDINGS:

The warrantor's intended action(s) and performance are inextricably linked. Thus, wevalidate this item in terms of performance verification. Performance verification is afunction carried out by NCDS. This office sends a survey to the customer followingreceipt of the customer’s acceptance of those decisions mandating some action on thepart of Toyota to ask, among other things, whether any required performance has takenplace. Customers are asked to return the survey to the office of NCDS. As notedelsewhere, we found few returned survey forms in the case files. In the past, we havestated that the absence of performance verification forms in the case file does notconstitute a regulatory inconsistency since performance verification information maynot be available from the customer. By mailing a performance verification surveyNCDS goes as far as can be expected in determining whether arbitration decisions are,in fact, being performed. It seems entirely appropriate for the program to assumeperformance of the decision has taken place when the customer performance survey isnot returned. For those who may be skeptical about such important assumptions, itshould be remembered that even if a manufacturer engaged in a programmatic attemptto avoid performing arbitration decisions, that fact would, of course, emerge in thecontext of our national random survey of customers who have used the program.Performance verification status should and does appear in the case file as is indicatedby sections 11 and 12 below.

11) Copies of follow-up letters (or summaries of relevant andmaterial portions of follow-up telephone calls) to theconsumer and responses thereto; and

12) Any other documents and communications (orsummaries of relevant and material portions of oralcommunications) relating to the dispute.

Section 11 above is not applicable for purposes of the audit because there is nopractical means by which to verify the completeness and accuracy of such possibleadditions to the files. Section 12, however, appears to mandate that a summary form becreated whenever the arbitrator receives an oral communication that may have anybearing on the matter in dispute from either party. Of course, most suchcommunications come in the form of oral presentations by the parties at the hearing, inwhich case the communications are summarized in the arbitrator’s decision. Allsummaries are now included in the case file.

CONCLUSIONS:

The Toyota DSP record keeping policies and procedures are in substantial compliancewith the federal Rule 703.

C. Case File Records (4 yrs. 1999-2002)

§ 703.6 (f)

(f) The Mechanism shall retain all records specified inparagraphs (a) through (e) of this section for at least 4 yearsafter final disposition of the dispute.

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The older case files are stored at the NCDS headquarters office in Dallas,Texas. The closed files are stored in a discrete area within the NCDS officeand are available for review.

D. Program Records i. Agendas and Minutes of Arbitration Hearings

The four-year accumulation of case files is kept in one location and wascomplete and readily available for audit. The DSP arbitrator completes aseparate form for each hearing and a copy of this form is maintained at theNCDS headquarters office. Information included in each case file includes: a)meeting place, date, and time; b) arbitrators' names; c) customer name and casenumber; and, d) the decisions and reasons.

ii. Arbitrator Biographies

Arbitrator resumes are maintained at the headquarters office of NCDS inDallas, Texas. The resumes are complete and current. The list of arbitrators alsoindicates the dates of their appointments.

E. Hearing Process (i.e., Meeting)

The arbitrator scheduled the hearing at the principal dealership in question afterconsulting separately with each of the parties. The hearing involved onearbitrator who briefly interviewed the parties and then took testimony. Thehearing was held at the Classic Toyota of Newburgh,2934 Route 9W South,New Windsor, New York, on May 13, 11, 2003, and began at 10:00 am asscheduled.

i. Physical Description of Hearing

The hearing was conducted in room of inadequate size but was reasonablyarranged for the purposes of the hearing. Attending were the customers, aToyota manufacturer’s representative, a Toyota servicing dealer’srepresentative, the auditor, and the arbitrator. The customer, the Toyota dealer,and a Toyota manufacturer’s representative all made oral presentations.

The hearing was inefficiently conducted insofar as the parties were talking overone another as the arbitrator made a series of inquiries lacking any logicalsequence. In addition, the customer was not provided with an unfetteredopportunity to present their case. The arbitrator also began to inquire duringthe hearing about what the customers needed from Toyota to resolve theirconcerns, which was followed by similar inquiries of Toyota. The similarity toclassic mediation models was quite apparent. The arbitrator’s ill advisedattempt to mediate during the hearing was predictably unsuccessful. Finally,after reviewing her notes and allowing the parties to banter back and forth, thearbitrator turned to the customers and asked, “So, you’re not willing to acceptToyota’s offer?” The customers gestured in the negative. The arbitrator thenmade one final inquiry: “Is there anything else either of you can think of toresolve this, or do I make a decision?” This action suggests that the arbitratorhas not received, or not understood, instructions from NCDS about currentpolicy concerning the hearing process.

The audit included interviews with the customer and the two Toyotarepresentatives following the hearing. The auditor did not discuss the hearing

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procedures with the arbitrator following the hearing because the arbitratorappeared to be unusually troubled by the auditor’s presence.

ii. Openness of Meeting

The room was inadequate to accommodate any additional observers who mayhave wished to attend the hearing, but the arbitrator recognized that the meetingwas open to anyone wishing to attend.

iii. Efficiency of Meeting

The hearing was a veritable model of inefficiency.

iv. Hearing

This arbitrator appeared to be committed, but lacking critical informationpertaining to the fair and expeditious resolution of warranty disputes in thehearing process.

v. Board/Arbitrator Decisions

We reviewed numerous decisions for this region while conducting our on-sitevisit to the Dallas, Texas, headquarters of NCDS. In the compliance summary(Section I of this report), we discuss and will not repeat here the importantissue of boilerplate language. Otherwise, the decisions we reviewed weregenerally quite sound in both form and substance.

We have reviewed the decision rendered in the case we monitored and,notwithstanding the hearing process, it is thorough, well reasoned, andcomplete. It seemed, however, to lack an important discussion as to why thearbitrator did not believe the after-market electronic components that had beeninstalled were not the likely cause of the dash-light signal dysfunction. Still, thefacts before the arbitrator were sufficient to support the decision.

CONCLUSION:

The DSP, as it operates in the New York area, is in substantial compliance with Rule703. The NCDS administrative staff and the NCDS program demonstrated a clearcommitment to ensure fair and expeditious resolution of warranty disputes. Theadministrative staff is clearly dedicated to the program's mission and demonstrates ahigh degree of professionalism. The staff, however, will need to de-brief the arbitratorin order to rectify the aforementioned deficiencies. This type of oversight andcorrection is a common facet of program maintenance common to all programs and isnot a threat to the program’s compliance status.

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SECTION IV

Arbitration Training

There is no specific language in Rule 703 requiring the training of arbitrators. Thereare, however, several general requirements for ensuring that the program do whatever isnecessary to provide customers with an opportunity for fair and expeditious resolutionof warranty disputes.

Arbitration training is currently seen by many as a fundamental to ensuring that aprogram is fair to all sides, and some recent state regulations require arbitrator training. Consequently, programs have initiated the training process even in states that do notspecifically require it. Because such training has become a basic part of the DSP, it isincorporated into this report as part of the program's efforts to provide for fair andexpeditious resolution of disputes.

FINDINGS:

The arbitration training session we monitored was conducted at the DFW Lakes Hiltonin Grapevine, Texas, June 20 - 22, 2003. As noted in the introduction, certain facets ofthe audit are conducted in the year following the audit period; otherwise, there wouldsometimes be no means available for review.

This national training was conducted by NCDS staff. One presenter dealt primarilywith legal matters, another with hearing process issues, and an NCDS staff personaddressed program procedural issues. These presentations were augmented by thetrainees’ being given several opportunities to engage in role playing exercises.

Training has begun to stress that in scheduling hearing sites the program typically takesadvantage of applicable dealerships for holding hearings with the important caveat thatusing the dealership is not required if either of the parties objects. Moreover, it isemphasized that, where necessary, the program will pay for alternate space.

The importance of reviewing the basic facts of the case at the beginning ofdeliberations was discussed, including each dimension of the customer's complaint aswell as the degree to which the parties are in disagreement on central facts. Presentersalso discussed the importance of addressing each dimension of the customer's concernswhen writing the decision.

Trainees engaged, at various intervals, in practical problem solving centering aroundscenarios that are likely to arise within the DSP program. Role-playing material wasappropriately interspersed among lecture material with emphasis on conducting the arbitration hearing. Indeed, there was more time allotted for practical application thanwas true in the past.

There was a detailed discussion concerning common problems associated withrepurchases and replacements of automobiles, including the issue of applying mileageoffsets and how to handle demonstration vehicles with more than a few miles registeredon the odometer at time of purchase.

The presentation of the legal issues was professional and accurate. Particular emphasiswas given to this critical subject area this year, and the result appeared to be verypositive as regards trainees’ understanding of their role. An additional feature this yearfocused on the importance of arbitrators’ neutrality and the related issue of making

21 Also addressed was the Act’s related administrative rules commonly known as Rule 703.

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appropriate disclosures. Emphasis was given to disclosures that may be important butare not necessarily disqualifying.

Overall, the training appears to have left trainees with an opportunity to develop a goodgrasp of their responsibilities as arbitrators. As was true at last year’s training, traineeswere presented with information that makes it clear that customers who purchase avehicle with a substantial non-conformity that the manufacturer fails to cure in areasonable number of attempts should probably receive the relief they are entitled tounder the terms of the Magnuson-Moss Warranty act or the appropriate stateautomobile warranty statute.

The invaluable role-playing demonstrations have become a standard feature of NCDStraining. Some of the trainees simply observe while a major component of traininginvolves trainees themselves in role play exercises.

An important and thorough presentation centered around the Federal Magnuson-MossWarranty Act21 and its relationship to the Uniform Commercial Code. Our fieldexperience suggests that some greater emphasis on the arbitrators’ scope of authorityand the related available remedies under federal law would also be beneficial.

An appropriate degree of emphasis was given to writing decisions and providingadequate underlying rationales for those decisions. This included a careful presentationon leased vehicles and the sometimes complicated differences between providing reliefto these cases as opposed to providing relief in cases in which vehicles are purchasedoutright.

Also discussed was the appropriate use of independent technical inspections and theirlimitations. Emphasis was given to the arbitrator’s duty to not accede his or herauthority in relation to the independent inspection but to simply accept the independentinspection report as yet another piece of evidence.

There was a useful discussion of Toyota’s warranty parameters and how they fit intothe process. This discussion was sufficiently detailed to give arbitrators enoughinformation without overwhelming them with minutiae.

Finally, the training session provided a clear discussion of issues surroundingjurisdiction of the program to hear and decide cases. In this program, the NCDS staffmakes a preliminary determination, but where customers disagree with the initialdetermination, the matter is presented to the program’s three-member panel for theirreview and final determination.

CONCLUSION:

The NCDS arbitrator training program for the Toyota DSP continues to be a good onethat operates in substantial compliance with Magnuson-Moss and Rule 703. Therewere several important additions to the training program in 2002, and these werecarried over into this year’s program. The entire program clearly demonstrates acommitment to high quality training.

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ARBITRATION TRAINING RATING SYSTEM

1) Adequacy of training materials VERY GOOD

2) Accuracy of informational materials VERY GOOD

3) Thoroughness of material VERY GOOD

4) Quality of presentation VERY GOOD

5) Apparent understanding and likely comprehension of the information GOOD

6) Utility of materials for later referencing EXCELLENT

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SECTION V

Survey and Statistical Index Comparative Analyses

TOYOTA DISPUTE SETTLEMENT PROGRAM PROGRAM INDICES

The Federal Trade Commission (FTC) regulates informal dispute resolution programs, such asthat operated by Toyota, under FTC Rule 703.6(e). The rule mandates disclosure of statisticsabout the outcomes of warranty disputes and warrantor compliance with settlements andawards. The purpose of this section of this audit is to verify the statistics provided by Toyotafor the year 2002.

A consumer who wants to have a warranty dispute settled by the Dispute Settlement Program(DSP) must: (1) be the owner of a vehicle that meets certain specified age and mileagerequirements; and, (2) agree to forego any legal action while the case is open with the DSP. If acustomer applies to the program but does not meet these requirements, the case is considered tobe “out-of-jurisdiction.” Cases that are “out-of-jurisdiction” are counted as “closed.” Aconsumer who is not satisfied with the jurisdiction decision of the program can request that thecase be reviewed by the board, but the board is not obligated to hear the request.

If a consumer who files with the DSP is able to reach an agreement with Toyota prior to anarbitration hearing, the dispute is said to have been “mediated” or “prior resolved” by the staff.If the consumer and Toyota cannot reach an agreement, the case is arbitrated by the DSP.Arbitration cases can result in the granting of an award requiring Toyota to repair or replace thevehicle or, to issue a cash reimbursement. On the other hand, the consumer may receive anadverse decision in which there is no award of any kind.

FTC regulations require arbitration decisions to be rendered within 40 days from the date theDSP office receives the application. Manufacturers must comply with both mediated andarbitrated decisions within 30 days of the decision.

FTC Rule 703.6(e) requires warrantors to report statistics (also referred to as indices) in 13areas. These include such things as: the number of mediated and arbitrated warranty disputesin which the warrantor has complied with a settlement or award; the number of cases in whichthe warrantor did not comply; the number of decisions adverse to the consumer; the number of“out-of-jurisdiction” disputes; and the number of cases delayed beyond 40 days. In addition toquestions designed to assess the validity of DSP statistics, our survey includes questions thatallow consumers to evaluate various aspects of the program.

To determine the accuracy of the DSP’s warranty dispute statistics and to gather evaluationinformation about the program, Claverhouse Associates contracted with the Survey ResearchDivision of the Institute for Public Policy and Social Research (IPPSR) to conduct a survey of arandomly selected sample of consumers throughout the U.S. who filed disputes with the DSPduring 2002. The primary focus of this survey is to determine whether consumers’ recollectionsor records of what happened in their cases match the data compiled by the DSP. The question isnot whether an individual’s recollections match the data in the DSP’s records but ratherwhether the aggregate proportion of consumers’ recollections agrees with the outcomesreported to the FTC.

22 This is the sampling error when the responses divide roughly 50-50 on a given question and when thereare 303 cases, given a 95 percent confidence interval (i.e., there is a 1-in-20 chance that the actualproportion in the population falls outside the range of 50±5.5 percent). The magnitude of the sampling erroris determined partly by sample size (a larger sample size yields a smaller sampling error) and also, to someextent, on how evenly responses are divided among alternative answers.

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ABOUT THE STUDY

The Claverhouse study is based on 303 respondents from a sample of 738 cases randomlydrawn from the universe of 2,272 cases closed in 2002. A customer who had filed more thanone case was asked to refer to the most recent case in answering the survey.

The data was collected through a mailed, self-administered questionnaire. IPPSR usedmethodology designed by Professor Donald Dilman of the University of Washington, anationally known expert in the field of self-administered questionnaires. Since its inception,IPPSR has used this methodology for all of its self-administered survey projects.

The initial mailing on March 18, 2003, contained the survey, a cover letter, and a postage-paidreturn envelope. The cover letter explained the purpose of the survey and the random selectionprocess. It also explained that participation was voluntary but encouraged the recipient toparticipate. On March 25, 2003, a combination thank-you and reminder postcard was sent tothe entire sample.

Each respondent was assigned a unique number to allow the project staff to monitor the statusof each survey. Thus, IPPSR staff was able to determine who had returned completedquestionnaires and which questionnaires were returned by the post office because of invalidaddresses.

On April 22, 2003, IPPSR staff mailed another questionnaire to those who had not returnedcompleted questionnaires. Of the 738 questionnaires, 303 were returned completed; thecompletion rate for the study was 41.1 percent. The questionnaire data were entered, proofed,and coded by IPPSR staff.

A threat to the validity of any sample study is non-response bias. That is, if there is anysystematic reason that certain consumers selected for the study are unavailable or choose not toparticipate, the results can be biased. For example, if those who did not receive awards weremore likely to refuse participation than those who did receive awards, the study wouldunderestimate the percentage of decisions adverse to consumers. The practices of sendingfollow-up postcards, second mailings, and reminder phone calls are designed to ensure highcooperation among those selected to participate. Because the sample of 303 cases is a simplerandom sample, the sampling error is ±5.2 percent.22 The number of responses varies fromquestion to question, not only because, for example, some questions refer to mediatedsettlements and others to arbitrated cases, but also because not all respondents answered allappropriate questions.

Method of Resolution

Table 1 compares the method of resolution of disputes in the Claverhouse sample with thefigures reported to the FTC. Since the Claverhouse survey contained only in-jurisdiction cases,out-of jurisdiction cells in the Claverhouse section of the table are blank, and the subtotal(representing in-jurisdiction cases) is equal to total disputes. In this case, we compare only FTCin-jurisdiction cases with the Claverhouse sample. The method of resolution reported by theClaverhouse sample conforms to the DSP numbers. The difference between the 12.2 percent ofcases mediated in the Claverhouse sample and the 19.2 percent of cases mediated in the DSPfigures is statistically significant at the 95 percent confidence interval. Likewise, the differencebetween the 87.8 percent of cases arbitrated in the Claverhouse sample and the 80.8 percent ofcases mediated in the DSP figures is statistically significant at the 95 percent confidence

44

interval. This difference might occur if those customers whose cases were mediated were lesslikely to participate in the survey than those whose cases were arbitrated.

Table 1Method of Resolution of Warranty Disputes

Comparison between Claverhouse Survey and DSP Indices 2002

Resolution

Claverhouse DSP

Number Percent NumberPercent of

in-jurisdictioncases

Percent ofall cases

Mediation 37 12.2% 453 19.2% 14.8%

Arbitration 266 87.8% 1,900 80.8% 61.9%

Subtotal(in-jurisdiction)

303 100.0% 2,353 100.0% 76.7%

Out-of jurisdiction - - 716 - 23.3%

Total disputes 303 100.0% 3,069 - 100.0%

Mediated Cases

FTC Rule 703.6(e) requires the reporting of the proportion of mediated settlements with whichwarrantors have complied, the proportion with which warrantors have not complied, and theproportion in which the period for compliance has not yet passed. Since our universe of casesfrom which the sample was drawn includes only closed cases, we do not include cases in whichthe time for compliance has not yet passed. Although 37 of the surveyed consumers stated thattheir cases had been mediated, only 34 reported on the timing of warrantor compliance.

Table 2Outcomes of Mediated Settlements

Comparison between Claverhouse Survey and DSP Indices 2002

Mediated Settlements Claverhouse DSP

Percenta

(Number)Percentb

(Number)

Warrantor has complied within the compliance period

64.7%(22)

75.0%(339)

Warrantor has not complied 20.6%(7)

25.0%(113)

Warrantor complied but not withinthe compliance period

14.7%(5)

0.0%(0)

Total Mediations100.0%

(34)100.0%(452)

a. Only 34 respondents answered this question. Percentages are percentages of those who replied.b. This percentage is a percentage of mediated cases.

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DSP indices show that the manufacturer complied with 75.0 percent of the mediationagreements within the mandated time frame. The difference between this figure and the surveyresult of 64.7 percent is significant. The second two categories in the table require anexplanation. The survey asks the respondent whether compliance occurred within thecompliance period, but the DSP information reports only compliance or non-compliance. If we,therefore, combine the survey category “warrantor complied but not within the complianceperiod” with “warrantor has complied within the compliance period” to get a sum of cases inwhich the warrantor has complied, we find that 79.4 percent (27 of 34) of survey respondentsreport warrantor compliance with the settlement and 20.6 percent report non-compliance. Thedifferences between these percentages and those reported by the DSP are not statisticallysignificant.

Table 3 shows the mediation settlement outcomes reported by the survey respondents. Thirty-five respondents answered this question.

Table 3Specific Outcomes of Mediated Settlements

Claverhouse Survey

Outcome Number Percent

Extended Warranty 9 25.8%Cash Settlement 7 20.0%Paid for Repairs 6 17.1%New Vehicle 6 17.1%Other 6 17.1%Nothing 1 2.9%

Total 35 100.0%

When asked about their level of satisfaction with the mediation outcome, 34 of the 34respondents whose cases were mediated answered the question. Of these, 76.5 percent weresatisfied (26.5 percent were initially not satisfied, but the manufacturer or dealer eventuallyperformed to their satisfaction). Four respondents (11.8 percent) were dissatisfied and pursuedthe case by contacting the DSP. Another four respondents (11.8 percent) said they were notsatisfied and pursued their cases by other means.

Arbitrated Cases

Before the survey questionnaire presented detailed questions about arbitrated cases, it askedrespondents about the process leading to their hearings. Respondents were first asked whetherthey remembered receiving the forms on which their claims were stated. Of the respondentswho answered this question, 91.5 percent said that they recalled receiving the forms. Inresponse to a question about how accurately the forms stated their claims, 42.5 percent said theforms stated their claims “very accurately”; 43.0 percent said “somewhat accurately”; and, 14.5percent said “not very accurately or not at all accurately.” Of those who said their cases werestated very accurately, 57.8 percent received an award from the arbitration process, whereasonly 10.0 percent of those who said their claims were stated not accurately at all received anaward (see Figure 1).

Respondents were then asked whether they had been notified of the time, place, and date of thearbitration hearing. Of the respondents who answered the question, 97.6 percent said they hadbeen notified, and 81.5 percent said that they had attended their hearings.

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Insert fig 1

47

FTC Rule 703.6(e)4-7 requires warrantors to report the proportion of arbitration decisions withwhich they have complied, the proportion with which they have not complied, and theproportion for which the date of compliance has not yet passed. They must also report theproportion of decisions adverse to the consumer.

Table 4Outcomes of Arbitrated Cases

Comparison between Claverhouse Survey and DSP Indices 2002

Outcome Claverhouse DSPPercentage(Number)

Percentage(Number)

Arbitration Award Granted and Accepted Case decided by board and warrantor has complied

87.9%(58)

90.3%(348)

Case decided by board and warrantor has not complied

12.1%(8)

9.6%(37)

Total – Award Granted and Accepted100.0%

(66)100.0%(385)

Arbitration Award Granted/Not Accepted16.5%a

(14)0.0%a

0

Arbitration Decision Adverse to Consumer64.9%b

(148)79.7%b

(1,515)Total Arbitrated Decisions 228c 1,900

a). Percentage of awards granted.b). Percentage of all arbitrations.c). Includes only cases for which there was no missing data.

In the comparisons involving awards granted and accepted, the differences between surveyresults and DSP indices are not statistically significant. The percentages of cases in which anaward was granted and accepted and the warrantor has complied and those in which thewarrantor has not complied are statistically the same. Of those consumers who reportedreceiving an award, however, 16.5% reported that they had rejected the award offered; thewarrantor reports no such cases. The difference is statistically significant. In addition, in theproportion of cases in which the arbitration decision was adverse to the consumer (i.e., theconsumer received no award), the difference between the survey results (64.9 percent of thosewith arbitrated cases report adverse decisions) and the DSP indices (79.7 percent of allarbitrated decisions adverse to the consumer) is significant. We do not consider this important,however, because the difference is in favor of the consumer. All respondents whose cases werearbitrated were asked whether they had pursued their cases further after the arbitration decision.Of those who replied, 26.4 percent (65) of survey respondents with arbitrated cases replied thatthey had pursued their cases further after the decision. Table 5 shows by what means theypursued their cases.

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Table 5Methods of Pursuing Cases

Claverhouse Survey

Method Number PercentContacted an attorney/legal means 25 34.2%Contacted a government agency 17 23.3%Recontacted the DSP 21 28.8%Worked out a solution with the dealer/manufacturer 10 13.7%

Total responses 73a 100.0%

a. Respondents could state more than one method; therefore, the number of responses exceeds the number ofrespondents.

Delays to Decisions

Under FTC Rule 703.6(e)9-13, warrantors must report the proportion of cases arbitration caseswere delayed beyond the 40 days allocated for arbitration decisions. They must also report thereasons for such delays in three categories: (1) consumer made no attempt to seek redressdirectly from the manufacturer; (2) consumer failed to submit required information in a timelymanner; and (3) all other reasons.

DSP figures report only 17 cases (0.9 percent of in-jurisdiction cases) delayed beyond 40 days,whereas survey respondents reported 21.5 percent of cases delayed beyond 40 days (see Figure2). This percentage difference is statistically significant. Such a finding is not unexpected,however, because the survey asks the recall of very specific information about an event thatmay have occurred a year or more ago. Only 33.0 percent of respondents attempted to give anexact date on which they had filed their cases; whether these dates were correct or not isunknown. Most respondents (66.3 percent) attempted to provide only a month and year inwhich their cases were filed.

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In addition, only 39.5% of respondents attempted to provide a complete date for reaching amediated settlement or receiving an arbitration decision. Consumer recollections on whethertheir cases were delayed beyond 40 days may, thus, be in error. Secondly, the consumer maynot be using the same specific information about when a case is “opened” as does the DSP. TheDSP considers a case opened when the forms are received in the office and processed.Consumers, on the other hand, may see their cases as having been “opened” when they mailedthe forms or even when they first experienced problems with the vehicle. Furthermore, theymay not see the case as closed if they are not satisfied with the decision. Therefore, we do notconsider this difference in percentages to be a concern. Table 6 shows the reasons for delays asreported by the DSP indices and by survey respondents. Forty-three respondents answered thequestion about reasons for delayed decisions.

Table 6Reasons for Delays in Decisions

Comparison between Claverhouse Survey and DSP Indices 2002

Reasons for Delays in Decisions Claverhouse DSPPercentage(Number)

Percentage(Number)

Customer failed to submit required informationin a timely manner

7.0%(3)

18.2%(2)

Arbitrator requested additional information ortests

20.9%(9)

0.0%(0)

All other reasons 72.1%(31)

81.8%(9)

Total arbitrated cases delayed beyond 40 days 100.0%(43)

100.0%(11)

The differences between survey results and DSP indices on the topic of reasons for delays arenot significant in all instances. This is largely because the numbers are too small to derivemeaningful comparisons. In addition, one category on the survey questionnaire (“arbitratorrequested additional information or tests”) does not appear on the DSP indices. This categorymay be subsumed under “all other reasons.”

Consumer Attitudes Toward the DSP’s Informal Dispute Settlement Procedures

At the beginning of the questionnaire, respondents were asked how they had learned about theavailability of the Dispute Settlement Program. The responses are summarized in Table 7. Theywere given a number of possibilities and asked to circle all those that were applicable. A totalof 212 respondents provided 293 answers.

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Table 7How Consumers Learned about DSP Availability

Claverhouse Survey

Source of Information Number PercentToyota Customer Complaints/Toll-free number 94 44.3%Owner’s manual/warranty information 93 43.9%Toyota dealership 54 25.5%Friends and family 15 7.1%Brochures/other literature 11 5.2%Attorney or other legal source 10 4.7%Previous knowledge of the program 8 3.8%Media (TV, Newspapers, etc.) 4 1.9%Other (Internet, Better Business Bureau, etc.) 4 1.9%

Total 293a --b

a. These figures represent responses, not respondents, because respondents were allowed to supply more than one answer.b. Percentages represent the percentage of respondents giving each answer; because respondents could give more than one answer, a total would be meaningless.

The Toyota Company and the dealership were the most likely sources of information about theDSP program. Of those giving this response, 67.7 percent said that the dealer or manufacturertalked with them about the program; 26.4 percent said they were given reading material; only2.0 percent said they were shown a poster or other material posted in the showroom or repairarea.

Survey respondents were also asked about the materials and forms they received from the DSP.Of those who said they recalled receiving the materials, 66.4 percent reported the materialswere very clear and easy to understand; 28.5 percent said they had had some problems, but theforms were still fairly easy to understand; 5.1 percent said they were difficult to understand orgave other answers.

In our experience, ease of understanding the forms correlates with the consumers’ overall levelof satisfaction with the DSP program as expressed when they are asked to rate the overallprogram on a scale from A to E. Those who find the forms easy to understand generally givethe program higher overall grades than those who find the form somewhat difficult or verydifficult to understand. We were somewhat surprised to find that not to be the case in thissurvey. The differences in grades awarded did not vary significant among the three groups.

Respondents were asked to rate the DSP staff on several aspects of performance by assigning agrade of A, B, C, D, or E. Table 8 shows the respondents’ ratings.

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Table 8Survey Respondents’ Ratings of DSP Staff

Claverhouse Survey

Performance Item Graded Awarded by Respondents

A B C D EObjectivity and fairness 30.4% 11.3% 8.6% 21.0% 28.8%

Promptness in handling your complaintduring the process 45.6% 23.4% 16.5% 5.0% 9.6%

Efforts to assist you in resolving yourcomplaint 28.2% 12.7% 12.0% 16.2% 30.9%

Respondents were then asked to give the DSP program an overall rating using the same gradingscale. They responded as shown in Table 9.

Table 9Survey Respondents’ Overall Rating of Program

Claverhouse Survey

A B C D E

26.5 10.0 8.8 17.3 37.3

We then analyzed these overall grades to see whether those whose cases were mediated gradedthe program differently from those whose cases were arbitrated and whether those whoreceived awards graded the program differently from those who did not receive awards. Weconsidered those who gave the program an A or a B to be generally satisfied with the programand those who gave the program a C or a D to be generally dissatisfied/

Of the respondents who said their cases were mediated, 57.9 percent were generally satisfiedand 26.3 percent were generally dissatisfied. Of the respondents who said their cases werearbitrated, 32.8 percent were generally satisfied and 59.7 percent were generally dissatisfied. Inpart, however, this reflects the large proportion of those whose arbitration decisions offer themno relief because consumers find it difficult to separate their evaluations of the program fromthe outcomes of their cases.

As we might expect, those respondents who received favorable arbitration decisions were morelikely to give the DSP program high grades than were those who received adverse decisions. Ofthose who received awards and accepted them, 76.5 percent were gave the program a grade ofA or B. Of those few (13) who received awards and rejected them, only 7.7 percent gave theprogram an A or B, while 84.6 percent gave the program a D or an E. Of those who received noaward, 10.8 percent one gave the program an A or B, and 81.7 percent gave it a D or E. Asdemonstrated in Figure 3, those whose cases were mediated were slightly less likely to besatisfied with the program than those whose cases were arbitrated and received an award. Ofthose arbitration cases in which the consumer received no award or received an award andrejected it, very few gave the program a grade of A or B.

Another measure of consumers’ satisfaction with the DSP program is whether or not they

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would recommend it to others. Of the 265 respondents who answered this question, 41.1percent said that they would recommend the program to others experiencing warranty problemswith their vehicles. Of the remainder, 23.0 percent said it would depend on the circumstances,and another 35.8 percent said they would not recommend the program. If we break the totaldown by case type, however, a slightly different picture emerges (see Figure 4). A majority(64.9 percent) of consumers with mediated cases said they would recommend the program,whereas an even larger majority (78.9 percent) of those consumers whose cases were arbitratedand who received and accepted an award said they would recommend the program to others. Avery small percentage (7.7 percent) of those whose cases were arbitrated but received no awardsaid they would recommend the program, as did slightly more (17.1 percent) of those whoreceived an award but rejected it. Table 10 summarizes this data.

Table 10Would Consumer Recommend the DSP Program to Others?

Claverhouse Survey

Method of Resolution and Outcome Yes No Depends onCircumstances

Mediated 64.9% 13.5% 21.6%Arbitrated Award Granted and Accepted 78.9% 9.9% 11.3% Award Granted and Rejected 7.7% 9.9% 11.3% No Award Granted 17.1% 55.3% 27.6%

Finally, survey respondents were asked for comments and suggestions about DSP programchanges or improvements; 216 of them did so. Their comments are summarized in Table 11.

Table 11Consumer Suggestions for Program Improvement

Claverhouse Survey

Suggestion Number Percent

Arbitrators should be more consumer oriented 85 39.4%Did a good job, no complaints 31 14.4%Better initial review of cases by staff and arbitrators 21 9.7%Better follow-up to enforce awards/settlements 16 7.4%Dealers/manufacturers need to be more responsive toconsumers, more consumer oriented 13 6.0%

Speed up the process for quicker decisions 12 5.6%Make program better known/more advertising 7 3.2%Better qualified mechanics for inspections/repairs 7 3.2%Have better/more representation at hearings 6 2.8%Awards/settlements should be more fair 5 2.3%More personal contact with DSP staff/arbitrators 5 2.3%Have more program locations 4 1.9%Allow for more information about history/problems of car 3 1.4%Less paperwork/easier to understand forms 1 0.5%

Total 216 100.0%

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CONCLUSIONS

On the basis of the comparison of our survey results with the DSP indices, we conclude that theDSP indices are accurate for most of the important components of the warranty disputeresolution program. The major area in which there is a significant difference between thesurvey results and DSP indices is the proportion of arbitrated cases delayed beyond 40 days.This is a common finding in our research. We believe that the difference is adequatelyexplained by the recall factor (i.e., consumers can rarely recall a specific date for the opening oftheir cases) and by the fact that the DSP’s definition of a case’s opening date and theconsumer’s definition are not the same. The other significant difference between survey resultsand DSP indices is in the category of consumers who received an award in the arbitrationprocess but rejected the award. Of those survey respondents who reported receiving anarbitration award, 15.5 percent said they rejected the award; DSP indices report no such cases.It is interesting to note that 84.6 percent of the consumers who report rejecting their awardswere offered repair of the vehicle as the award; all asserted on the initial page of the surveyquestionnaire that they had already experienced at least 9 repair attempts.

Overall, consumers appear to be moderately satisfied with the DSP program, with 36.5 percentgiving the program a grade of A or B. As we have come to expect, those who received andaccepted awards and those whose cases were mediated tended to give higher grades than thosewho received no award or those who rejected their awards. On a second measure of consumersatisfaction, whether the consumer would recommend the DSP program to others, overall 41.1percent said they would, 35.8 percent said they would not, and 23.0 percent said it woulddepend on the circumstances. Again, consumers answers to this question tend to correlate withthe outcomes of their cases. It is quite difficult for most consumers to separate their evaluationsof the program itself from their personal outcomes. Thus, the survey results ultimately reflectthe fact that a relatively small percentage of consumers whose cases were arbitrated receivedany award at all; DSP indices report that 80.5 percent of arbitration cases resulted in adversedecisions (i.e., consumer received no relief).

It is also noteworthy that when survey respondents were asked to make comments orsuggestions about the program, 45.8 percent of the comments related to a “lack of customerorientation” among dealers, the manufacturer, and arbitrators.

In summary, we conclude that the Toyota National DSP indices are in substantial agreementwith the survey findings. The discrepancy noted in the “delay of arbitration” area is of noregulatory concern for reasons already stated. The discrepancy noted in the area of rejectedarbitration awards is one we cannot explain.

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SECTION VI

Audit Related Regulatory Requirements

REQUIREMENT: § 703.7 (c)(3)(I)

A report of each audit under this section shall be submittedto the Federal Trade Commission, and shall be madeavailable to any person at reasonable cost. The Mechanismmay direct its auditor to delete names of parties to disputes,and identity of products involved, from the audit report.

A copy has been supplied to the Federal Trade Commission consistent with thisrequirement.

REQUIREMENT: § 703.7 (d)

Auditors shall be selected by the Mechanism. No auditormay be involved with the Mechanism as a warrantor,sponsor or member, or employee or agent thereof, other thanfor purposes of the audit.

The audit was conducted consistent with this requirement.

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SECTION VII

Appendix/Codebook