Car Dealers Must Disclose Significant Pre-Sale Damage

February 12, 2009 by

Most states require car dealers to disclose pre-delivery damage new cars have sustained. Usually, there’s a threshold amount. For example, if the pre-delivery damage exceeds $500 or a certain percentage of the vehicle’s price, then the dealer must disclose the damage, even if the damage has been repaired.  But if the damage does not exceed $500 or the statutory percentage of the vehicle’s price, then the dealer is not required to disclose the damage. 

In California, certain types of damage, such as to the frame or suspension damage, must be disclosed no matter what the value of the damage is.  Also, if the vehicle damage has not been repaired, the car dealer must dislcose the damage no how much it costs to repair the vehicle.

If a car dealer fails to disclose such damage to new vehicles, the buyer may be entitled to cancel the contract or recover damages.


How to Buy a Car Without Getting Taken for a Ride

November 7, 2008 by

A customer and a car dealer usually have conflicting goals during the sales process.  The customer wants to pay as little as possible, whereas the car dealer wants to make as much profit as possible.  To maximize its profits, a car dealer frames the negotiations and sale in a way that is favorable to it.  Here are some ways to turn the tables on the car dealer:

1. Negotiate the Cash Price, Not the Monthly Payment.

The salesperson usually begins the negotiation by asking you how much you want or can afford to pay a month.  Negotiating this way, enables the salesperson to steer you into a sale that’s best for the car dealer.  Instead, do your homework before you go to the dealer.  You should know what the sticker price is before you look at a car.  Doing this will enable you to negotiate the cash price of a vehicle effectively.

2. Determine What Interest Rates You Are Eligible for Before You Go to the Dealer.

Part of the dealer’s strategy for increasing its profit is arranging the financing.  The dealer often acts as the initial lender and then sells the finance agreement for a profit to a traditional lender.  To increase its profit from the sale of the finance agreement, the dealer may need to charge you a higher interest rate than you could get if you obtained the financing on your own.  In addition, even if the dealer advertises a low interest rate, you might not qualify for that rate. 

3. Decline the Optional Products and Services.

After you’ve negotiated the sales price and the financing terms, the dealer will invariably try to sell a multitude of optional products and services: rustproofing, paint protection, fabric protection, VIN etching, oil change contracts, and extended service contracts.  Not only are these options unnecessary, they are also substantially marked up.  These are a significant source of profit for dealers.  If you really want these options, you can buy them elsewhere for less.  Moreover, extended warranties or service contracts are usually not worth the money. 

See for further information on extended warranties. See for information regarding dealer installed accessories.

The Truth About “Certified” Used Vehicles

October 9, 2008 by

Car makers and dealers are increasingly advertising that their used cars are “certified.”   However, what “certified” actually means varies from manufacturer to manufacturer or dealer to dealer.  Generally, though, certified vehicles are recent model-year vehicles, have undergone an inspection, have been repaired or reconditioned, and may come with some kind of warranty.

So, in theory, a certified vehicle’s major components are inspected, repaired, or reconditioned.  Vehicles certified by the manufacturer typically undergo a more rigorous inspection/repair process and are backed by the manufacturer’s warranty.  Vehicles certified by the dealer may undergo a more limited inspection/repair process and may not a have a warranty.  

Auto manufacturers and car dealers do not certify vehicles out of generosity.  Instead, they certify vehicles in an effort to increase their profit from the sale of used vehicles.  Manufacturers and dealers see the certification process as a way to increase used car inventory turnover as well as profit per used vehicle. 

In addition, if a manufacturer or dealer fails to inspect and repair a vehicle prior to selling it as a certified vehicle, a buyer’s recourse will vary from state to state.  Many states have no laws specifically regulating the sale of certified used vehicles.  Buyers in those states may have to prove fraud—intent by the manufacturer or dealer to defraud them—and the certifier can always argue that it simply made a mistake.  Otherwise, the certifier may be held only to the terms actually appearing in the written contract or warranty.  Other states, like California, have enacted laws that regulate the sale and advertising of certified vehicles.  California, for example, prohibits vehicles with damage and odometer discrepancies, among other things, from being certified and requires sellers to provide buyers with a copy of the certification report prior to the sale.

In short, the mere fact that a vehicle is being sold as a “certified pre-owned vehicle” does not mean much.  A consumer should still find out:

  1. Which components were inspected,
  2. Which components were repaired/reconditioned,
  3. Whether the vehicle was in an accident,
  4. Whether the vehicle sustained flood damage,
  5. Whether the vehicle comes with a warranty from the manufacturer,
  6. How long the warranty lasts, and
  7. Which components are covered by the warranty.

For more information, see the entry on buying a quality used car, Tips for Buying a Quality Used Car:

California Tire Fees May Be Charged for Only New Tires

September 5, 2008 by

California law requires sellers of new tires, including new and used car dealers, to charge customers a fee for the sale of new tires.  The current fee is $1.75 per new tire.  The tire fee is collected to defray the cost of used tire disposal and is deposited into tire disposal and air pollution control funds.  The funds help pay for things such as tire recycling, cleaning up disposed used tires, shredding used tires, and researching alternative ways of disposing of used tires. 

The tire fee, however, may not be collected in connection with the sale of used tires, including used tires sold on used cars.  Car dealers sometimes use pre-printed forms with the maximum tire fee ($8.75) already filled in and use this same pre-printed form for new and used vehicle sales.  Car dealers also might enter the tire fee in contracts for used cars out of habit.  In addition, car dealers might intentionally charge buyers of used vehicles the tire fee to line their pockets.  As a result, there are a number of circumstances under which consumers might be charged the tire fee even though their vehicles were not sold with new tires.  For these reasons, buyers of used cars with old tires should double check their sales agreements to ensure that they are not being charged a tire fee for used tires.  Further, although the tire fee may be relatively small, the potential penalty for illegally collecting the tire fee is huge.

Cheap Chinese Scooters May Leave Buyers with Little Recourse

August 1, 2008 by

With gas prices soaring, many people are looking for more fuel efficient means of transportation.  The low price of certain Chinese motor scooters may make them look like a good buy.  But don’t be swayed by the price alone.   Low-price Chinese scooters may be a bad buy given the lack of potential recourse a buyer may have.  Products like cars and motor scooters usually are not sold by the manufacturer to the ultimate buyer.  Instead, they are sold by independent sellers, and the independent sellers of these products typically do not furnish their own warranties.   They also often have a no-return policy. 

Although Chinese scooter manufacturers may give buyers a warranty, the warranty might be unenforceable for all intents and purposes.  Chinese scooter manufacturers have little physical presence in the United States.  Unlike foreign automakers, they do not have distributors, manufacturing plants, or even authorized repair shops here.   Therefore, even if you sue one of these manufacturers, win the case, and have a judgment entered, you still might not have anyone in the United States you can collect from.

Consumers Should Insist on Factory-Installed Accessories and Components

July 2, 2008 by

When looking for a new car, you should avoid cars with non-factory-installed or “aftermarket” accessories or components.  If you see a vehicle on the car lot you like, but it does not have a specific component or accessory you want, the salesperson will probably tell you the dealership can have the component or accessory installed.  Common aftermarket accessories include: alarms, DVD players, remote starters, stereos, navigation systems, back-up cameras, and sunroofs.  However, you should insist on a vehicle with factory-installed accessories or components.  This means you may have to wait for the dealer to order or locate a vehicle with all factory-installed accessories and components.  But it is definitely worth the wait.

Not only will you have little recourse if you experience problems with the aftermarket accessories, you may also have little recourse if those accessories cause problems with the factory-installed components.  In fact, if the aftermarket components cause damage to the factory components, your warranty may be partially voided.  Aftermarket components are typically installed by third-party facilities—not the manufacturer or the dealer.  The selling dealer usually does not extend any warranty covering these components.  The manufacturer’s warranty does not cover them because they aren’t the manufacturer’s components.  The third-party installer may not even offer a warranty on the components.  Therefore, if you are having problems with aftermarket components or if they are affecting the factory-installed components, you may have few options.  Most likely, you will not have the protection and remedies provided by your state’s lemon law.

In our practice, we have heard many horror stories from buyers of vehicles with aftermarket accessories or components:

  • The aftermarket remote starter wiring was improperly installed, which drained the battery.
  • The aftermarket sunroof has water leaks and the vehicle is flooded every time it rains.
  • The aftermarket DVD player causes the vehicle not to start due to faulty installation.
  • The aftermarket navigation system compromised the vehicle’s entire electrical system.

Despite these significant problems, none of these vehicles qualified for relief under the lemon law.  These people had to either live with the problems or have the aftermarket components removed.

Extended Warranties are Usually Not Worth the Money or the Frustration

June 3, 2008 by

Extended warranties apply to automobiles as well as other consumer products.  They are normally not worth their cost.  In fact, these “Extended Warranties” are not warranties at all.  They are more properly called service contracts.  These agreements are usually sold by car dealers for $1,000 to $3,000 with a new vehicle.  Through a service contract, you pay an independent warranty company, an administrator, up front to pay for repairs for covered problems with your car in the future.

Car Dealers try to scare you into purchasing a service contract for your peace of mind after your factory warranty expires.  This is because service contract sales are a huge profit maker for a car dealer.  Typically, 50% or more of the selling price goes to the dealer as the seller.  However, rarely do these “Extended Warranties” provide you with the protection that you are led to believe they have and would expect.  Most have exceptions or exclusions such as the following:

Lack of Maintenance Records–Failure to retain and produce records that the vehicle was maintained in accordance with the manufacturer’s routine maintenance schedule.  It is generally  not enough to just maintain your vehicle.  You must also be able to provide proof to the service contract administrator that the vehicle was maintained.  No proof equals no coverage.

Wear and Tear–Normal wear items such as brake pads and shoes, gaskets, hoses, clutches, shock absorbers, and belts are typically excluded.  These are the items that are expected to “wear out” through normal use of the vehicle and are the owner’s responsibility.  These items are the ones most likely to require repair during the first six years of your car’s life.

Failure of a Non-Covered Part–Repairs which are needed to cover a part caused by the failure of a non-covered part are excluded from coverage.  This means that if a wear item such as a hose or gasket fails and this causes a major engine failure, the engine repair will not be covered.

Tear Down Diagnosis–Under many service contracts, prior to servicing the car, the repair shop will require the consumer to agree to be responsible for the tear down charges if the failure is not due to a covered part.  Some repair facilities will even require the consumer to pay a deposit before they will begin to diagnose the problem. 

Limited Choice of Repair Facilities–Many people also encounter difficulties in obtaining repairs for their vehicles because the service contract restricts the choice of repair facility.  These agreements will require you to have your vehicle repaired at a specific or limited number of repair facilities.  Sometimes, due to an Administrator’s track record, a repair facility will not honor the service contract and instead insist on payment from the consumer, leaving you to try and get reimbursed from the administrator.

With all of the above hurdles, it is hard to imagine receiving any peace of mind if you actually need to use your service contract.  Additionally, with the quality of today’s vehicles the odds of needing a major repair during the first six years of your car’s life are slim.  The bottom line is to save your money.  In most situations you will be farther ahead monetarily and have greater peace of mind by saving your money for a rainy day.


The Vacation Is Over: Several RV Companies Recently Closed Their Doors

May 8, 2008 by

In the last few months, a number of major RV manufacturers have closed their doors for good.  These RV companies include: Travel Supreme, Alfa Leisure, and National RV.  The closure of these businesses is bad news for consumers who recently purchased an RV because they may have trouble obtaining repairs under the manufacturer’s warranty.  RV owners already experiencing warranty problems with one of these RVs may have little recourse in attempting to enforce the manufacturer’s warranty.  Also, buyers considering purchasing an RV made by a defunct RV manufacturer should beware.  Even if the RVs are being sold at a “significant discount” they may not be worth the money if costly repairs are needed. 

Buyers should also be careful about buying an extended warranty or service contract to compensate for the potential lack of a manufacturer’s warranty.  Extended warranties and service contracts sometimes have exclusions or limitations that render them nearly worthless.  Further, some extended warranty companies have gone out of business.  Hence, you might compound your losses by buying an extended warranty or service contract, and what is trumpeted as a safety net may prove to be illusive.   

Although many RV makers have not gone out of business, filed for bankruptcy, or sold their assets, they still may be facing economic difficulties.  Factors such as the current economic downturn, the high price of gas, and the limited availability of credit have greatly reduced RV sales.  There have been numerous reports of temporary plant closings by RV manufacturers.  Likewise, industry reports show that RV sales dropped in 2007, and sales are forecast to further decline in 2008.  Therefore, there may be more closures or consolidations on the horizon.

What Happens to Lemon Vehicles?

April 21, 2008 by

The answer to this question depends on the state in which the defective vehicles are repurchased or resold.  Some states have strict laws governing lemon vehicles, while other states do not have any such laws.

A number of states, including California, require the title of a repurchased vehicle to be branded that it was repurchased due to a manufacturer’s defect. The California Automotive Consumer Notification Act, for instance, requires the title of a repurchased vehicle to be branded that it was repurchased due to a manufacturer’s defect, the provision of a warranty buyback notice to the consumer, and the placement of a decal on the vehicle indicating that it was repurchased because of a manufacturer’s defect.  The warranty buyback notice discloses the defects reported by the original owner or lessee as well as the repairs performed in an effort to correct the problems reported by the original owner or lessee.  Additionally, the warranty buyback notice must be signed by the buyer prior to the sale of a lemon vehicle.   The California law, therefore, requires strict disclosure of a Lemon vehicle’s problems to subsequent buyers.

However, not all states have such requirements.  In many states, a manufacturer can turn around and sell a lemon vehicle to someone else.  No repairs and no type of disclosure are required.  Such vehicles quickly end up as someone else’s problem.

Lemon vehicles are commonly transferred to auction houses, which then auction the vehicles to the public or automobile dealers.  However, some automakers take defective vehicles out of the market after repurchasing them, by selling them as scrap metal.

The practice of selling lemon vehicles without disclosing their problems or the fact that they were repurchased is commonly called “lemon laundering.”  A prevalent method of lemon laundering is selling the repurchased vehicles in states that lack title branding requirements.  Because there is no national law governing title branding or lemon vehicle disclosures, this type of laundering is easy.


A Defect Need Not Be Verified Each Time to Count under the Lemon Law

April 4, 2008 by

On your way to work, your car’s check engine light comes on.  You make an appointment with your local dealer to have the problem checked out.  But before you go to your appointment with the dealer, the check engine light goes off.  If you take the vehicle in for the appointment, will the repair visit still count under the Lemon Law even if the dealer does not verify or duplicate the problem?

Consumers frequently experience a variation on this scenario and wonder if unverified complaints still count under the Lemon Law.  While every state is different, a defect usually does not have to be verified every time you take your vehicle in for repair.   Many state Lemon Laws require that consumers present their vehicles for repair and do not necessarily require that repairs actually be performed.  These laws use language like “repair attempt” or “subject to repair,” suggesting that duplication of a problem is not required.  Therefore, repair visits where a mechanic reports “no problem found” still may count as repair attempts under the Lemon Law.

Such an interpretation of the Lemon Law makes sense because many automobile problems are intermittent.  Further, the repair efforts undertaken by a dealer/manufacturer are beyond the control of consumers.  If duplication of a problem were required, dealers/manufacturers could always say they couldn’t duplicate problems to avoid any liability under the Lemon Law.  Therefore, requiring duplication could give dealers/manufacturers a disincentive to verify automobile defects.  

However, it is difficult to pursue a claim under the Lemon Law if a problem is never verified.  While you could still argue that the dealer or manufacturer failed to adequately diagnose the problem, you would face a significant challenge in attempting to show that a vehicle is defective without any verification by a mechanic.