Putting the squeeze on lemon dealers - regulating the sale of defective automobiles

Progressive, The, Feb, 1998 by Nina Siegal

Gayle Pena Labarrere had no reason to think that her 1989 I Chevrolet Suburban pickup would have trouble hauling I a twenty-four-foot trailer. But in 1990, on a trip home to Cotati, California, after a week-long vacation in Lake Tahoe, Labarrere and her then-husband Greg Pena were driving down a winding Sierra Nevada incline when the car's brakes brakes out.

Greg pressed the brake pedal to the floor, with no luck. Then he had to veer the car around a blind corner and into the opposite lane to get off the road.

"We had developed so much speed we could not stay in our own lane," Labarrere says. "On one side was a gravel pullout area for trucks. On the other side was a fifty-foot drop."

Fortunately, the couple got out alive--no thanks to the car dealer. Labarrere had bought the Suburban off the new car lot at a Santa Rosa, California, dealership just four months earlier. The car had 10,500 miles on it, but the salesman told Labarrere that it was a General Motors executive vehicle, used exclusively by company management.

Soon after Labarrere bought the vehicle, she began experiencing unusual difficulties. "The next day it had a problem with one of the electric windows. From there on out there were multiple problems with the vehicle, from electrical problems, to windshield wipers not working, to door locks not working, and then we had a problem with the brakes," she says. "You put on the brakes, and the vehicle would dive to the left."

When Labarrere took her pickup back to the dealership after she and her husband were nearly killed, the staff assured her she must have been driving too fast. She left the vehicle with the shop, and when she got it back the dealers told her that there was nothing wrong with it. But the brakes still didn't work--Labarrere says they were even worse than when she had brought it in. After seven or eight similar repair attempts, Labarrere became suspicious. She called the General Motors toll-free number, asked for the original shipping information on her vehicle, and learned that the company had originally sold the car to a dealership in Napa, California. When she drove to Napa and asked the dealer for the service records on her truck, she discovered that the previous owner--who was no G.M. executive--had attempted from eighteen to twenty repairs on the vehicle and had finally convinced the dealer to buy it back.

Instead of taking the truck to the "autopsy ground," the company sent it thirty five miles away to the Santa Rosa dealership. In uncovering this scam, Labarrere unearthed one of the most profitable rackets in the automotive industry lemon laundering.

Labarrere filed suit against General Motors, and the California Division of Motor Vehicles launched a statewide investigation into lemon laundering. As a result, in the early 1990s the state Division of Motor Vehicles filed two major lawsuits against G.M. and chrysler. Each alleged fraudulent resale of more than 100 vehicles. In 1994, G.M. settled the case, paying $330,000 in damages. The suit against Chrysler has yet to be resolved.

Car manufacturers or dealers repurchase more than 50,000 vehicles with "serious safety defects" each year, according to a 1991 statement by the National Association of Attorneys General. Consumers for Auto Reliability and Safety (CARS), a lobbyist group in Sacramento, estimates that the number of repurchased vehicles has since risen to more than 100,000 each year, based on information auto companies provided to the Federal Transportation Commission in July 1996.

The companies subsequently recycle many of these back into the marketplace--often to unsuspecting buyers. In 1991, the National Association of Attorneys General estimated that consumers spent $750 million on these faulty vehicles; CARS now estimates that cost to be closer to $2 billion. In 1991, the California Arbitration Review Program recorded almost 5,000 consumer requests for arbitration under the state's lemon law. According to CARS, only about 25 percent of Californians who seek relief are granted buy-backs.

"Corporations are dumping their dangerously defective products back into the market," says Rosemary Shahan, president of CARS. "They buy back [a defective car] from the first owner, who has the best chance of getting an attorney, and they resell it to someone who is more vulnerable and less able to fight. People who own these things don't even know what they have. They just know they have a car they can't seem to get fixed."

Philip Nowicki is the president of the national automotive research and consulting firm, P.R. Nowicki and Company, which specializes in motor-vehicle lemon laws. As former director of the lemon-law program in the Florida attorney general's office, Nowicki completed one of the most comprehensive investigations of automobile laundering in Florida from 1993 to 1995. He discovered that auto companies had resold at least 3,400 irreparable vehicles in that state, and that lemon laundering was commonly practiced by "all the major manufacturers, including General Motors, Ford, Chrysler, Honda, Toyota, Nissan, Mazda, Volkswagen, Isuzu, Mitsubishi, and Hyundai." Concludes Nowicki: "There's no stellar performance on anyone's part."