Used Car Industry Scams and Practices

The used car industry is a Billion dollar a day business. minimal regulations and enforcement has caused this industry to attract the dishonest and the deceitful. Many of the elements that make up the used car industry actually create a breeding ground for the unethical and the unlawful. The used car industry is not a cohesive unit; it is a collection of fragmented sub-industries. Dealers, auctions, re-conditioners, wholesalers, salvage yards, body shops and repair shops all play a part in the used car industry. Used cars are transported easily from state to state and regulations vary greatly from state to state. This ease of transportation and differences of state laws creates more opportunity to circumvent regulations and safeguards. Titles can be “cleaned”, odometer statements can be “altered”, mechanical problems can be “camouflage” and structural problems “hidden”. Once a used car is in the system, it can end up on any lot in the United States. Even the most honest dealers will become a victim and buy these vehicles. However, if the dealer discovers he bought a bad car, he just simply resells it at an auction. It’s the individual that takes the risks when buying a used car.  

The following industry alerts are from national and local reporters. We share this information about the used car industry to help used car buyers and financial institutions better understand the used car industry and its practices.

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Consumer Lawyer Couldn't Spot A Used Car Contract Snag
Automotive News

When Lynn Drysdale's fiancé found a good deal on a used Nissan pickup, she insisted on going along to the dealership.

Drysdale had reason to be suspicious. She's a Florida lawyer who practices consumer law, and she was preparing to sue the dealership as a result of claims that the store had duped customers into signing waivers that trapped them in unfavorable loans.

After combing the sales documents for potential loopholes, she gave her fiancé the nod to proceed. He signed the contract and drove the pickup home.

Three days later, the dealership called the fiancé to say the financing had fallen through and he would need to bring in a co-signer.

"I hit the ceiling," Drysdale says. "They had given him the contract in triplicate, and after he signed the contact and left the building, they stamped on the last page 'SUBJECT TO THIRD PARTY APPROVAL.'

Drysdale threatened to sue, and the dealership agreed to honor the original terms. She just says the ordeal shows how dealerships use spot delivery to dupe customers, even when they know they're likely to be caught.

"They know that these people are not going to qualify for the loans that they put them in," Drysdale says. "That's just part of the bait."

Just how common are problems with spot delivery? It's difficult to say. The Council of Better Business Bureaus doesn't break down consumer complaints about dealers based on type of complaint. Attorneys general in several states have warned consumers about spot delivery over the past few years.

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Dealers Hunt for Used Cars
Automotive News

For the first time in decades, new-car dealers are pounding the pavement in search of used cars to sell. They're critically short of stock at a time when used-car customers have begun to stream onto their lots.

With new-vehicle sales down so much, dealers will take in almost 4 million fewer used vehicles this year, says Paul Taylor, chief economist for the National Automobile Dealers Association.

"I haven't had a problem getting used cars for a long time," says Mike Stedem, who has stores in Florida and Louisiana. "Now it's a problem getting anything. Even average vehicles are bringing stupid prices at auction."

Dealers are paying a lot closer attention to used-vehicle sales, which have been rising since May and traditionally offer higher margins than new-vehicle sales.

"I can make more on a $2,500 used car than a $25,000 new car," says Bill Krouse, operating partner at Polar Chevrolet in White Bear Lake, Minn.

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State Farm Savage Title Controversy on 30,000 Vehicles
Austin American Statesman

Paula Garcia, a 73-year-old widow in Texas,  got a shock when she went to the county tax office in October to renew the registration on her Pontiac Grand Am.

The tax office told her the state of Texas had flagged her car as a totaled vehicle and she needed to turn in her title for one branded "rebuilt — salvage."

Her car was one of 9,451 wrecked vehicles in Texas that State Farm resold with an improper title from June 1997 through 2002. Nationwide, State Farm admitted selling at least 30,000 such vehicles.

Consumer Reports says rebuilt salvage vehicles can be worth half of the book value or less. Without accurate titles, the buyers almost certainly overpaid and didn't know about potential hidden damage or safety problems.

In January 2005, the attorneys general of every state but Indiana reached a settlement with State Farm. So far, the insurer has paid $41 million to nearly 17,000 vehicle owners, including $6.7 million to Texas consumers, although only 2,756 Texans participated in the settlement.

Two years later, State Farm faces increasing fallout from the deal. According to lawyers who specialize in "lemon law" cases, people who didn't take State Farm's offer have filed more than 100 lawsuits against the company and the dealerships where they bought the vehicles, for not disclosing the damage.

She sued State Farm Jan. 18 under the state's Deceptive Trade Practices Act, alleging unspecified damages for its "unconscionable action" in failing to disclose the vehicle's true history. The suit is pending in Travis County Court No. 2.

Austin lawyer Joe Longley, an insurance and consumer specialist who represents Garcia, said payment under the 2005 settlement is grossly inadequate for wrecked vehicles that may have been worth as little as half what people paid. Further, the states' deal didn't include other parties, such as car dealers and the credit unions and banks that financed the vehicles, he said.

It is illegal in Texas to knowingly sell a car with an improper title, and it's a state felony if more than two cars are involved.

In late 2003, State Farm told state attorneys general that it couldn't be sure that tens of thousand of vehicles it had sold across the United States had the proper title.

State Farm never disclosed exactly how the wrecked vehicles got into the marketplace. State Farm did not become a "record" title owner of a vehicle it declared totaled. Instead, policyholders assigned the titles to State Farm. The company then reassigned the clean title to the purchaser at salvage auctions. The buyer made repairs and sold the vehicle to a dealership.

By selling the vehicle with a clean title, State Farm could make significantly more money than it could selling a salvage vehicle. State Farm officials didn't return calls seeking comment.

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Unwary Dealers get Katrina Cars
Automotive News

Up to 13,500 vehicles with titles branded as damaged by Hurricane Katrina have been moved to other states and now have clean titles.

Those vehicles were among 200,000 cars and trucks that were damaged when Katrina soaked New Orleans and other parts of Louisiana, Alabama and Mississippi in 2005. At the time, those vehicles had their titles branded as flood- or storm-damaged.

Approximately 20,000 to 30,000 damaged vehicles were moved to other states, according to a recently released survey by Experian Automotive. Forty-five percent of those vehicles were given new titles that do not indicate their flood damage, and that percentage may grow.

"As more vehicles move, more will get retitled over time," says Dave Nemtuda, director of AutoCheck solutions for Experian, a Chicago supplier of vehicle history data. "There is the propensity for that number to grow."

Those numbers send a worrisome signal to consumer watchdogs who fear that dealers and consumers may unwittingly purchase used vehicles damaged by Hurricane Katrina. They contend that a vehicle's title should indicate whether it has been salvaged.

Titles washed away.

17 states do not record the "salvaged vehicle" title designations for out-of-state cars and trucks.

Arizona Maine New York
Arkansas Michigan North Dakota
California Minnesota* Ohio
Illinois Mississippi Rhode Island
Indiana Missouri Texas
Kentucky New Jersey Vermont
* Minnesota does not carry forward "salvaged vehicle" designations for cars and trucks that are more than 5 years old

Title-washing

A title brand refers to words on a vehicle's title issued by a state motor vehicle department that note its condition. Vehicles damaged by Hurricane Katrina may carry one of several brands such as "Scrapped," "Junk," "Water Damage," "Salvage" or "Storm Damage-Katrina."

Flood-damaged vehicles generally are worth only half as much as used cars and trucks in good condition. Uscrupulous rebuilders sometimes repair salvaged vehicles, then obtain clean titles by moving them out of state.

They choose states that do not transfer the "salvage" designation from the titles of out-of-state vehicles. In some states, the rebuilders can obtain clean titles for rebuilt vehicles that pass an inspection.

To estimate the scope of this trend, Experian identified 200,000 vehicles in ZIP codes affected by Hurricane Katrina with titles indicating they were damaged in the storm. Then it traced those vehicles that were moved out of state and calculated the number that were given clean titles.

'A no-brainer'

In July, Sen. Trent Lott, R-Miss., introduced legislation to require insurance companies to help maintain a national database that identifies all vehicles the insurers have written off as a total loss. The information would be available to vehicle buyers.

The National Automobile Dealers Association endorsed the legislation. Congress took no action.

The legislation is "truly a no-brainer for consumer protection," says Dale Willey, the incoming NADA chairman and owner of Dale Willey Automotive in Lawrence, Kan.

He says: "I'm disappointed that Congress hasn't embraced it."

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Certified Dangerous: Used Cars' Airbags
 ConsumerAffairs.com

Scores of accidents where the airbags did not deploy, led reporters into a seedy world where unscrupulous individuals haphazardly rebuild severely damaged vehicles and then sell them as safe and "Certified" used cars, trucks, minivans, and SUV's.

 A rebuilder stuffed paper in a used   airbag to sell this car.

They learned these unsavory "rebuilders" often disable the airbags when they put the wrecks back together. And in some cases, they don't even bother to replace the deployed airbags.

These shady rebuilders conceal all signs of previous damage to the vehicles -- and their titles. Unsuspecting consumers who buy them have no idea they're getting a rebuilt wreck -- until it's too late.

The consumers we interviewed didn't have a pre-purchase inspection by a car expert, someone specifically trained to identify previous damage. And their vehicles have since been repaired, totaled, or crushed.

 

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Insurers & the Rebuilt Wrecks Scam
 ConsumerAffairs.com

Not long ago, the Senior Counsel for the Consumer Federation of America (CFA) testified before a U.S. House of Representatives subcommittee about the problem of wrecked and storm-damaged cars being rebuilt and sold as "certified" used cars.

"Each year, millions of severely damaged vehicles are not destroyed, but rather are sent by unprincipled insurers to auto auctions where they are sold to unscrupulous auto dealers and rebuilders," CFA's attorney Rachel Weintraub told the House subcommittee. "Unscrupulous insurers, auto dealers, auto auctions, and rebuilders pocket billions in ill-gotten gains from the fraudulent sales of prior damaged autos -- at the public's expense."

Weintraub said the scam works this way:

• A consumer wrecks a vehicle -- or it's damaged in a flood or other catastrophic event. The insurance company totals the vehicle, and pays the claim. The insurance company may or may not brand the title as "salvage." A salvage title reduces the vehicle's value by 50 percent;

• The insurance company sells the vehicle to a salvage auction. The auction gives the insurance company part of the profits from the vehicle's sale. A 2002 Consumer Reports investigation estimated that insurance companies recovered $2.5 billion a year from the salvage sales of wrecked vehicles;

• An unscrupulous rebuilder buys the wrecked vehicle and makes cosmetic repairs to conceal signs of previous damage. Rebuilders typically don't have the expertise to repair wrecked vehicles, are often unlicensed by the states, and sometimes are based in Mexico and other countries Another dangerous ruse? Rebuilders often disable the airbag systems or fail to replace the deployed ones. Air bags are expensive to replace; one airbag for a luxury car may cost as much as $2,000. Multiply that by six and the price tag quickly adds up.

• Rebuilders sell the wrecked vehicle to another auction, a dealer, or a curbstoner. Those are people who make repairs in their own shops or backyards, and then sell directly to consumers. If the title was branded as salvage, rebuilders try to erase all signs that the vehicle was damaged. That's called "washing" a title. Rebuilders wash the titles by sending them to states that don't recognize the salvage brands. They also use the correction fluid, Wite-Out, to conceal the vehicle's history or make a counterfeit title. "There is a large incentive to commit fraud," Weintraub testified. "A vehicle with a clean title can command a far higher price than one with a branded title."

• Rebuilders often advertise these damaged vehicles as "certified" used cars in mint condition. If consumers ask about the car's history, they're told the title is clean. Consumers can't confirm that information because they usually don't see the title before the sale. If they get a loan, for example, the lien holder gets the title.

Weintraub told House members this scam threatens the safety of hundreds of thousands of unsuspecting consumers nationwide.

"Consumers may unwittingly purchase a car that superficially appears in good working order, but has been previously severely damaged by serious collision or flood damage," she testified.

No one knows for sure how many rebuilt wrecks are on the market, but the Consumer Reports investigation estimated the industry "beats, bends, and bangs out as many as 400,000" annually that are five or less model-years old. And many consumer experts say that number is likely much higher.

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Consumer Complaints against Carfax
 ConsumerAffairs.com

Not very long ago, the only people who had access to automotive title histories were car dealers. A company called Carfax was the major supplier of those histories. Thanks to the Web, vehicle histories are now available to consumers as well as dealers. But nothing's perfect and Carfax has made its shares of enemies, as the complaints show below.
• "Unlimited" Service is not "unlimited"
• Inaccurate Report cost buyers
• Refund Policy is a scam
• Advertising Claims are misleading
• Lawsuit Challenges Carfax Claims

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Insurance Companies making millions not declaring salvage vehicles and selling them to auctions.  

An investigation shows that Farmers Insurance, State Farm Insurance, and other Insurance companies are selling totaled vehicles to auctions without declaring the vehicles were once totaled. This story was originally reported last November where vehicles, totaled by Farmers for flood damage, were sold with clean titles.

Austin’s KVUE had a follow up story. Clara Tuma, an investigative reporter for KVUE, reported that a local car buyer purchased a used vehicle not knowing the vehicle was once declared “totaled” by State Farm Insurance. State Farm was caught selling 32,000 vehicles to auctions with out declaring that the vehicles were once totaled, creating millions of dollars in profits.

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Most in survey wouldn't pay more for certified used vehicle
Automotive News

Most buyers of used cars and trucks from dealerships place no value on used-vehicle certification and won't pay extra for it, a new study concludes.

J.D. Power and Associates released its 2005 Used Vehicle Sales and Certification Study in May. The study surveyed more than 15,000 people who bought 2000-model through 2005-model used vehicles last year.

Certified used vehicles have factory warranties. They are late-model vehicles without major damage. They get special inspections and reconditioning. Automakers that operate certified pre-owned programs use certification as a marketing tool.

But two-thirds of the Power survey respondents who bought nonluxury used vehicles from dealerships said certification was of no value to them. Three-fourths said they would not pay more for a certified vehicle than for a noncertified vehicle of similar make and model.

Among customers in the study who bought used luxury vehicles from dealerships, 56 percent said they placed no value on used-vehicle certification.

The percentages of respondents who disdained certification were only slightly lower than those measured in the 2004 Power study.

Todd Wilson, J.D. Power's director of automotive retail research, says automakers' efforts to market certification programs are not connecting with consumers.

"Demand is not being created for certified used vehicles," Wilson says.

The U.S. industry sold 541,759 certified used vehicles from January through April 2005. That was a 5.7 percent increase from the year-ago period.

Norm Olson, sales operations manager of Toyota Certified Used Vehicles, disagrees with some conclusions of the Power study. Consumers value the fact that Toyota Division certified vehicles are covered by a manufacturer's warranty and are inspected to meet factory standards, he says.

"The word that really resonates is 'factory,' " Olson says. "That puts a lot of value in the product. (Consumers are) absolutely willing to pay more for that. If they weren't, we wouldn't be in business today."

The Power study offers some good news for marketers of certified used vehicles. Consumers who value used-vehicle certification are willing to pay more for it than previously, Wilson says. Such buyers of used luxury vehicles who were included in the survey said they would pay an average of $1,476 more for a certified used luxury vehicle than a comparable noncertified one. That figure was up from $1,385 in the 2004 study.

Buyers of nonluxury vehicles who said in the 2005 study that they valued certification said they would pay, on average, an additional $1,020 for it, Wilson says. That's up from $961 in the 2004 study.
 

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Suit says Ford's certified program is bogus
 Automotive News

A California lawsuit alleges that Ford Motor Co. deceives consumers when it says its certified used vehicles get especially rigorous inspections.

The suit was filed last month in Los Angeles. It asserts that dealership inspections of Ford certified vehicles are no different from those given to other used cars and trucks.

Buyers of certified Ford vehicles pay about $1,080 more, on average, than they would for comparable used vehicles that are not certified, the suit says.

The suit demands that Ford stop advertising its certified vehicles as specially inspected. It also wants the automaker to repay with interest what the suit calls the improper price premium for certification. California buyers of Ford certified vehicles since June 23, 2001, would qualify for the refund.

 See link for story http://www.autonews.com/article.cms?articleId=53743

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Thieves target auto identification
USA TODAY

Could your car be 'cloned?' Since last July, about 600 vehicles with duplicated VIN numbers have been seized.

The thieves are stealing identification numbers of luxury cars and sport-utility vehicles to put them on stolen automobiles, in effect laundering the hot cars so they won't be easily traced. Stolen vehicles with legitimate IDs are much easier to register at state motor vehicle departments.

Since last July, about 600 vehicles with duplicated vehicle identification numbers (VINs) have been seized, says Ivan Blackman of the National Insurance Crime Bureau. The bureau is a non-profit fraud investigative service funded by insurance companies.

Blackman says there have been at least 10 arrests since January in connection with VIN thievery.

From Michigan to Florida and New York to Iowa, thieves are trolling through mall parking lots, car dealer showrooms and Internet auction sites in search of identification numbers belonging to cars that are similar in make, model and year to recently stolen vehicles. (Related story: Identity theft hits road)

The difficult-to-detect scams have turned car theft "from a street crime into a white-collar crime," says Dennis Schulkins, a State Farm insurance claim consultant.

Many cars with altered VINs are sold to other criminals. But unsuspecting auto auction houses, car dealers and consumers also have been duped — meaning that the car you buy from a reputable dealer might eventually be tracked down by police as a stolen car.

In those cases, insurance companies cover any losses, which ultimately are passed on to consumers in the form of higher rates and fees.

In March, Florida Attorney General Charlie Crist announced arrests in a two-year investigation, dubbed Operation Road Runner, that cracked a car theft ring allegedly responsible for "cloning" more than 250 cars worth $8 million.

The Florida car thieves enlisted the help of corrupt title clerks to allegedly forge signatures of owners of cars whose VINs were stolen to apply for a duplicate title. Cars stolen with phony identification aren't detected until an insurance company, the insurance crime bureau or the police discover that there are two or more vehicles with the same VIN that are registered to people in different places.

The insurance crime bureau learned of cloned cars three years ago when a wave of cars coming into the USA had the same VINs as cars that were still in Canada.

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Upside down, and sinking fast
 Automotive News

More trade-ins these days are worth less than the amount buyers still owe. The result: A growing debt load that many experts see as an industry time bomb.

 

 

Debbie Sanders Bird, a finance officer at Graff Chevrolet in Grand Prairie, Texas, signed a customer last month to a $46,911 loan over 96 months, $18,136 over the invoice price of a Chevrolet Suburban.

The customer was upside down when she entered the dealership - that is, she owed thousands more on her trade-in than it was worth. And her new Suburban will keep her that way for years.

The deal was another in a rising tide of upside-down deals that is troubling the auto industry.

About 30 percent of all customers walk into showrooms upside down, according to one estimate. And that means that the nation's multiyear string of strong auto sales is being propped up increasingly by longer loans and staggering consumer debt.

The debt level hasn't hurt new-vehicles sales yet. But rising interest rates could change that quickly, economists and auto finance executives warn.

Paul Taylor, chief economist for the National

Automobile Dealers Association, predicted at the NADA convention this month that soaring federal deficits will fuel a 1 percentage point rise in interest rates during each of the next two years. When rates rise, monthly payments go up, disqualifying buyers with marginal credit.

Longer loan terms make things worse. One prominent analyst says the average term has reached a record 63 months. The longer the loan, the longer it takes to build equity.

Edmunds.com Inc., an auto-consumer Web site company in Santa Monica, Calif., says 30 percent of new-vehicle buyers nationwide were upside down in 2003, an increase from 24 percent in 2002.

To qualify for car loans, Edmunds.com says, vehicle buyers are rolling an average of $3,700 in old debt into their next purchase, a figure that has more than doubled since 2000.

At the same time, down payments have shrunk from 15 percent of the purchase price to less than 5 percent over the last decade, a record low, Edmunds.com says.

"Consumers are just delaying the time bomb for a couple of years," says Bob Kurilko, vice president of product development and marketing at Edmunds.com.

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'60 Minutes' to focus on dealer reserves
Automotive News

Another TV news show may be about to lower the boom on car dealers.

CBS' "60 Minutes" is preparing a report on the hot topic of dealer reserves, a term used to describe the commission dealerships earn by arranging financing for their customers.

The segment, expected to be broadcast in early February, will focus on a class-action lawsuit filed by consumers last year against Covington Pike Toyota, a Memphis, Tenn., dealership owned by UnitedAuto Group Inc.

The suit alleges that the dealership violated the Consumer Protection Act because customers were not told that the dealer receives a commission when it arranges car financing, and were not told what that commission rate is.

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Consumer group: Auto loan rates marked up!
 By Earle Eldridge
USA TODAY

A consumer-lobbying group Monday accused automakers and banks of encouraging car dealers to mark up interest rates on loans to buyers and splitting the difference, which could range from $400 to $5,000.

Automakers blasted the accusation as false, saying they reap no financial benefit if a dealer charges a customer a higher interest rate.

The National Automobile Dealers Association defended dealer markups as reflecting ''fair compensation for providing a retail finance service.''

In a report, the Consumer Federation of America described a markup practice ''encouraged by all of the auto industry's leading captive finance companies and top auto lending banks.''

It says ''dealers subjectively hike the car loan rates of buyers'' even though buyers think they are getting the best rate.

''Most of these undisclosed markup charges are kicked back to the dealer by the lender, with the lender retaining the remainder,'' the federation's report says.

The report cites loans financed by General Motors, Ford Motor and Nissan.

Loans from those automakers were studied by academics as part of more than a dozen lawsuits in several states. The lawsuits accuse automakers, banks and car dealers of unfairly marking up finance rates, particularly to minority buyers.

All three automakers say dealers take a loan application from a customer, attach a finance rate, then shop the application to lenders. The bank or automaker willing to pay the dealer the most to buy the loan gets it.

''The dealer sets the customer (interest) rate, and they shop the financing,'' says Dan Jarvis, a spokesman for Ford Credit. ''We are bidding on the loan, and we are in competition with other lenders.''

The Consumer Federation wants automakers and lenders to pay dealers a flat fee for sending them loan customers.

Read full article from Consumer Federation of America.

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NHTSA details odometer fraud

WASHINGTON -- Despite the passage of state and federal laws against the practice, used-car odometers are being rolled back at the rate of about 450,000 a year, a government study has found. The National Highway Traffic Safety Administration estimated the rollbacks cost consumers more than $1 billion a year.

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Drawbacks on Certified Used Cars
From USA TODAY  

Despite the many benefits associated with manufacturer-certified used cars, consumers still need to be careful. Consider these potential drawbacks:

  • Although a certified pre-owned vehicle is less expensive than a new model, it usually costs several hundred to a few thousand dollars more than a non-certified version. Manufacturers don’t offer these programs to be nice — they want to increase the resale values of their off-lease and fleet cars. According to Tom Kontos, Adesa Corp.’s vice president of industry relations and analytical services, “Every dollar spent on reconditioning yields manufacturers’ between $1.25 and $2.00 in resale value”.

  • There are no industry standards to certify vehicles. Just because a car is certified, does not necessarily mean that is it better than a non-certified used car.

  • While most experts will tell you that certification adds value to the retail price of a used car, it does not contribute to its eventual resale value.

  • Some financial institutions — outside of the dealership — won’t realize that a certified used vehicle is worth more than a standard used car, so you may need to convince the lender to loan you the additional amount.

  • Certification offers no guarantee that you will have fewer problems with the used vehicles.

Note: Beware of independent used car dealers that "Certified" their cars. These non-manufacture's certified cars can be wolfs in sheep's clothing!

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Big 3 models' residual values tumble
 From Automotive News

The rebate wars have eroded the residual values of Big 3 cars and trucks.

According to Automotive Lease Guide, 3-year-old Big 3 vehicles that came off lease this year retained just 39 percent of their sticker prices. That's a sharp decline; a 1997-model Big 3 vehicle returned after three years was valued at 45 percent.

A sizable gap has opened between the residual values carried by the Big 3's vehicles and those carried by the vehicles of their foreign rivals. Three-year-old foreign vehicles retain 47 percent of their sticker prices, showing little change in recent years.

That's one reason General Motors, Ford Motor Co. and the Chrysler group sharply has reduced their reliance on leasing. All three companies have switched their focus to 0 percent financing and generous rebates.

But the factors that caused the Big 3's low residual values - high rebates, 0 percent financing and heavy fleet sales - seem likely to persist.

The Big 3 continue to lose market share to the imports, upping the need for heavy incentives. Ford, GM and the Chrysler group already have begun to offer substantial rebates on newly introduced 2004-model cars and trucks.

 Here are some automakers' average residual values based on vehicles returned in 2003 after a 36-month lease.   

COMPANY

AVERAGE RESIDUAL VALUE

Honda, Acura

52.20%

Toyota, Lexus

49.00%

Nissan, Infiniti

45.00%

GM

40.10%

Chrysler group

39.20%

Ford

38.70%

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Vehicle History Reports Said to Instill False Confidence
NBC News

A vehicle history report doesn’t protect buyers at all. In fact, it ends up hurting them because they think they’re being protected,” said Bernard Brown, a Kansas City, Mo., attorney who specializes in automobile fraud cases and works with numerous consumer groups on vehicle safety issues. “These companies represent that their reports show whether vehicles have sustained major accident damage which is untrue,” commenting on CARFAX and Experian Automotive, provider of the Autocheck product.

Representatives of these companies concede that their databases aren’t perfect but say the reports are a valuable tool for consumers in researching a vehicle’s past.

LAWSUIT OVER HISTORY REPORTS

My guess is that seven out of eight cars that have been in major wrecks will not show up,” said Brown. That is the central issue in a lawsuit filed recently in Tennessee on behalf of a Memphis auto dealer alleging that CARFAX markets its vehicle histories “in a manner which is unfair, false, deceptive and materially misleading.”

Among other things, the lawsuit filed by Memphis attorneys David McLaughlin and Frank Watson III on Oct. 28 alleges that the Fairfax, Va. based company does not have access to police accident reports in 23 states and that its vehicle histories “therefore are incomplete, inaccurate and/or unreliable.”

Liz DeCastro, a spokeswoman for CARFAX, said she could not comment on specific allegations in the lawsuit, but added, “We’re not really sure where their claims are coming from.”

Representatives of CARFAX and Experian Automotive both declined to state specifically where they get their data, citing competitive concerns.

NO WAY TO CROSS-REFERENCE

But after MSNBC.com contacted motor vehicle departments and public safety officials in Texas and California — two of the states identified as not providing records to CARFAX in the Tennessee lawsuit and verified that no accident data linked to unique vehicle identification numbers (VINs) is currently provided to vendors, DeCastro acknowledged that the company would have no way to cross-reference accident reports without them.

We do get a lot of information from Texas and California ... and both those states are working on systems issues to get us other information,” she said.

Critics of the vehicle history reports also charge that some auto dealers use them to sell previously damaged autos and trucks to unsuspecting buyers.

Dale Irvin, a Kansas City, Mo., attorney, said he worked with Brown on a case in which a local dealership used a clean CARFAX report to sell his clients a pickup truck that had suffered more than $8,000 in damage in a previous wreck.

Although the dealer, according to our expert witness, would have spotted the evidence of the prior wreck and repairs, by having a clean CARFAX (report) the dealer felt free to misrepresent the vehicle,” he said.

One industry insider, who spoke with MSNBC.com on condition of anonymity, said that while dealers typically claim to have been fooled by a clean vehicle history report when buyers come back with evidence that it was involved in a serious accident, such explanations don’t wash.

“When they buy those cars at auction, they can see an overspray (indicating major body work) from a mile away,” the source said. “I don’t think any legitimate car dealer could stay in business if that was the extent of their knowledge.”

Auto P. I. Used Car Inspections is currently working with local reporters on their stories about used car buyers purchasing wrecked vehicles with a clean Carfax report. Auto P. I. is also serving at technical advisors for Remar Sutton, President and co-founder with Ralph Nader, of the “Consumer Task Force for Automobile Issues” about Carfax and their deceptive advertising and reports.

A recent investigation identified 100 used cars in Texas with previous accident damage and/or frame damage. A Carfax report was then obtained from their web site for each of the 100 vehicles. Not one of the 100 Carfax reports showed any previous accident damage.

Many Credit Unions are either removing their web site links to Carfax or placing a strongly worded message about Carfax to their members.

Although a title history can be helpful when buying a used vehicle, there is no guarantee that the historical information is either complete or correct. A history report can not determine the true condition of a vehicle, only a physical inspection can produce that information.
 

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California tries to thwart fraud on accident repairs

California’s Bureau of Automotive Repair (BAR) estimates that 40% of body and frame repairs made in California are fraudulent.

BAR investigators are “…discovering that auto repair shops are changing the method of repairs, such as telling customers they will replace a component, then only applying filler to the component and/or charging for frame and body repairs that are never performed.

So widespread is this practice that the BAR instituted a program which the State will inspect each vehicle with recent body and frame repairs, to determine if the repairs were performed, and preformed to industry standards. This free inspection by the State is documenting this type of fraud to be used for prosecution and changes to the existing laws.

Un-repaired frame damage presents safety issues, potential mechanical problems, and reduction of value of the vehicle.

These fraudulent repair practices are not exclusive to California.

 

 

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