SHADES OF GRAY: Selling and installing aftermarket exhausts, and the legal liabilities for dealers

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There are many black and white issues in the motorcycle industry: This motorcycle makes 134 horsepower. That motorcycle is not available in red. Yes, your credit application has been approved. No, it hasn’t been approved. However, there is a huge, gray area for dealers when it comes to selling and installing aftermarket parts, particularly exhaust systems.

The problem begins for many dealers who are not familiar with state and federal laws regarding modifications and is then compounded by the inconsistent enforcement of these laws. The end result is that many practices common in shops across the country are potential legal issues, forcing dealers to choose between customer wants and possible fines, and lost sales.

While many of the laws that regulate the aftermarket have been in place for years, there are some new rules that may seriously affect how parts -- and bikes -- are sold going forward.

Business owners should understand the laws that govern their marketplace. For aftermarket exhausts, this means reading up on federal laws written by the Environmental Protection Agency. The Feds mandate (in Code of Federal Regulations Part 86, Subparts E and F) that new on-road motorcycles are required to meet limits on specific chemical emissions and that all motorcycles built after 1985 meet a stationary noise limit of 80dB. Furthermore, under Section 203 of the Clean Air Act, it is illegal for any person to remove or bypass (“tamper” with) any piece of equipment that helps a vehicle meet the above standards. To eliminate confusion, manufacturers are required to use matching standardized labels on both the frame and exhaust of any motorcycle to meet these requirements.

The EPA uses these rules to ensure that manufacturers build compliant vehicles, and there are guidelines in place to ensure continuing compliance. However, once the bike is sold, the EPA cannot enforce these regulations. Instead, it is up to state and local governments to enforce the law.

By the letter of the federal law, it is illegal to manufacture, sell, or install any part that violates the above provisions. This includes selling modified bikes, building aftermarket exhausts that eliminate a stock exhaust catalyst, or installing a non-stock exhaust on a street bike.

But if the enforcement of federal laws is to be done at the local level, what ensures universal treatment of those laws? Under the federal regulations, states are allowed (and expected) to make their own laws and police their own roads. Therefore it is vitally important to research and understand not only the federal laws but state laws and local ordinances as well. For example, California just passed SB 435, which requires all street motorcycles built after 2012 to have EPA-labeled exhausts and includes rising penalties for noncompliance. To further confuse the issue, city ordinances cannot supersede or contradict state laws, as proven recently when a helmet law enacted by the City of Myrtle Beach, N.C., was rejected by the South Carolina Supreme Court.

It is fair to say that the federal laws are enforced inconsistently at best; the same motorcycle that violates the original EPA requirements may be ticketed in one state but not another. Of course, EPA rules do not apply to closed-course competition models. This leads to the standard approach that the aftermarket has taken in order to sell performance parts to an accessory-hungry public. By labeling a part with a statement claiming said part is for “closed-course use only,” the manufacturer sidesteps the certification issues -- in effect saying that the part does not need to conform to laws relating to vehicles on public roads. Of course, if that closed-course-only part is found on a motorcycle being used on a public road, then the law has been broken, according to EPA.

While the “closed-course” wording is a huge gray area that allows the aftermarket industry to continue as is, the practice creates a sticky situation. Besides the fact that the overwhelming majority of these parts end up on public roads, there is a question of who is ultimately responsible: the bike’s owner, the seller, the manufacturer? All three? Until there is a clear-cut legal procedure, manufacturers are unable to produce road-legal accessories that the aftermarket demands, and thus have no choice but to utilize the “closed-course” language to sell their product. Dealers need to meet customer demands, and thus are left with dilemma of accepting reduced sales or possibly incurring legal violations and fines.

Ultimately, it is for the customer to make an educated choice, as it likely the bike’s owner who will be getting the ticket. In other words, it is the dealer’s responsibility to make it the customer’s responsibility.

The aftermarket exhaust manufacturers do this by including detailed disclaimers about their products “closed-course-only” use, stating clearly that installation would violate federal law. Some dealerships create their own disclaimer that restates what most exhaust manufacturers already state: “I (name here) understand that the product I am purchasing from (dealer) is not street-legal and that will only be used in a closed-course environment.” While such a disclaimer helps, the dealer still must decide whether or not to install said part on a bike that might be about to get ridden home on public streets. (We recommend that you discuss a disclaimer or release of liability with your local attorney in your business’ state before simply adopting this practice.)

Many dealers we talked to for this article were unwilling to go on record with their shop’s practices; however, it is clear that some dealers choose to sell and some do not. One dealer principal who does not cross the “gray line” told us that about two-thirds of customer inquires walk because his shop is unable to install the desired parts. Furthermore, this particular shop loses between 30 and 40 percent of used bike sales because it will not sell illegally modified street bikes.

Another dealer (again, on condition of anonymity) acknowledged selling and installing aftermarket performance parts, but raised a valid question about selling parts like aftermarket exhausts to bikes that obviously will be ridden on the street: “How do I [in good faith] sell and install parts on a V-Star 1100 for ‘closed-course’ competition use?” he told us. “Don’t see a whole lot of them at the drag strip or local track, do you?”

While tongue-in-cheek, this response does sum up much of the problem of operating an entire segment of the motorcycle industry inside a gray area of the law.

Another concern when it comes to selling “closed-course” accessories for street bikes is the potential conflict with existing warranties. Many customers want to know if a newly added accessory like an exhaust or fuel controller will void their warranty.

We anonymously called several dealerships across the country and asked just that. The most common answer? A hazy “maybe.” We were typically told that a part "shouldn’t" violate the warranty as long as the part does not cause the failure in question.

In fact, two separate dealerships gave the exact same scenario as an example: using a motorcycle with both an aftermarket exhaust and fuel controller. If the bike develops a fault with the front wheel, the modifications shouldn’t matter at all, but if the ECU develops a problem, the finger will likely be pointed at the aftermarket electronics.

(From my experience at the dealer level, most manufacturers stand by this common line of reasoning, but a recent Wisconsin Supreme Court case -- Goudy vs Yamaha Motor Corp. USA and Team Winnebagoland -- found that the dealer may be held liable for not disclosing that aftermarket parts could void warranty coverage. Further legal action is pending in this case, but it should force dealers to consider the possible impacts to their customers and sales.)

Even though there are many ways to operate inside the gray fog of the aftermarket parts industry, a clearer and more permanent solution is required. In Europe, the motorcycle industry is governed by several European Union laws that clearly regulate stock and aftermarket exhaust emissions (Type Approval system, ECE R41.XX). There, OEM and aftermarket manufacturers have specific guidelines to create exhausts that are certified road-legal but which still satisfy customer expectations.

A similar law in the U.S. could create a more streamlined marketplace for both OEM and aftermarket manufacturers. Luckily, the Motorcycle Industry Council has worked with the Society of Automotive Engineers to create a new noise testing procedure. The test, SAE J2825, would allow easy verification of noise levels in real-world situations. If adopted as a testing procedure, a governing agency would have an easy way to enforce noise regulations and it would answer many of the questions raised by current standards. J2825 is currently being examined by several agencies, so stay tuned.

Unfortunately, the latest bill to be passed in California (SB 435), signed into law this past week by Gov. Arnold Schwarzenegger, does not bode well for riders across the country. And watch out: historically, California emissions laws developed by the California Air Resources Board tend to become federal law (for example: http://www.epa.gov/otaq/regs/roadbike/420f03045.pdf).

The majority of the laws which govern the aftermarket have been more or less unchanged for 25 years. While consistency can be a virtue, there are some sorely needed updates required to eliminate the gray area faced by dealers every day. In the meantime, following a few common-sense practices can help protect both sellers and buyers from violations and fines. Until the laws make common sense, that is.