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Putting the squeeze on lemon dealers.

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."

Not true, says Max Gates, communications manager for the American Automobile Manufacturers Association, which represents Chrysler, Ford, and General Motors. In 1996, the association polled its companies in response to allegations of lemon laundering, said Gates. It found that "of the thousands of vehicles that are repurchased each year, only about 1 percent are repurchased as a result of lemon-law litigation."

Reselling lemons "is not a common event," he says.

But Nowicki says most dealers involved in reselling faulty vehicles in his state failed to notify prospective buyers of the cars' trouble. In some cases, the dealers would simply sell the car as new. Nowicki estimates that consumers spend about $100 million each year on defective vehicles companies have resold under false pretenses.

That's what happened to Terri Skogebo, a kindergarten teacher in Antelope, California, who bought a 1988 Plymouth Colt Vista for $15,000 from Auto West Dodge in Roseville, California, in 1989. Her "brand new" Chrysler minivan, it turned out, had already made a few trips to the shop in unsuccessful attempts to repair a defective frame. After driving the car for a year, Skogebo discovered that the "tires were wearing funny," and found that the vibrations at highway speeds made it "difficult to drive straight."

When she took the vehicle back to the dealership, Skogebo says the service manager told her, "We can't fix the car for an alignment problem because we worked on that before." Skogebo explained to the man that she was the first owner of the vehicle and had never taken it in for repairs. What he was saying couldn't possibly be true, she told him. "He immediately stopped talking to me, and then they wouldn't give me my car back," she said in an interview.

Later, when Skogebo returned to the dealership to retrieve the paperwork on her Colt to take to the Division of Motor Vehicles, she says the dealer shredded all the papers in front of her. As she testified in court some years later, a Chrysler representative told her that "the car was defective before I bought it" and that "they were not able to get it back to specifications." She called the Chrysler customer service toll-free number and explained what had happened. The agent advised her to sue the dealership and the car manufacturer .

After she filed suit, Chrysler settled with Skogebo for $14,000 and the company agreed to buy the car back from her. But that wasn't the end of the 1988 Plymouth Colt Vista.

Two years later, a Sacramento couple Lourdes Sodari-Smith and Roger Smith. bought the same vehicle from Marin Dodge, a franchised Chrysler dealer. According to court papers, the couple received no notification that the vehicle had been a lemon buy-back. "Had we known it had been repurchased for faults, we would never have purchased the vehicle," Sodari-Smith told the California Division of Motor Vehicles during a hearing on Chrysler lemon-laundering charges in 1995.

Although the Smiths settled with Chrysler for $16,000, the car was still not taken off the roads. According to CARS president Shahan, the company sold it yet again. The state of California accused Chrysler of reselling 119 defective vehicles. It was the state's biggest lemon-laundering case ever. An administrative law judge found that Chrysler had defrauded its customers, and in October 1996, the Division of Motor Vehicles revoked the manufacture's license for forty-five days and suspended the company's activities at 300 dealerships throughout the state. According to the Division of Motor Vehicles order, "Chrysler affirmatively misled consumers and dealers by failing to disclose material facts known to it regarding the condition of these vehicles."

But in August 1997, the New Motor Vehicle Board, a seven-member panel, overturned the DMV's decision and rescinded the suspension order. Lew Goldfarb, assistant general counsel for Chrysler Corporation, says the New Motor Vehicle Board found that the state Division of Motor Vehicles had engaged in misconduct during the trial because the agency had failed to notify Chrysler of administrative information that would have helped the auto manufacturer's case. "It's a pretty resounding turnaround," he says. Furthermore, says Goldfarb, lemon laundering may have been an issue in the early 1990s, but today it simply doesn't exist. "It's a non-issue," he says. "Not only Chrysler, but every other company around the country does it right and makes all the necessary disclosures. This is not a problem in California or the rest of the country."

California Division of Motor Vehicles spokesman Evan Nosoff says the case is still in the appeals process, and he's confident that Chrysler will be forced to change the way it does business. "We're pursuing our suit, and so far we have been upheld on the merits," he says.

Bruce and Donna Gray, a publisher and a teacher's aide from Belvedere, California, bought a 1991 Jeep Grand Wagoneer in 1992 from the John Irish dealership in San Rafael. The dealer told them that a mechanism on the car's front end was broken and then fixed, and offered them the jeep for $10,000 off the advertised retail price. But, according to Bruce Gray, there were many more problems that were not disclosed, including the fact that the jeep would regularly stall while going fifty-five miles per hour.

"One thing was disclosed to us, but in fact the history of the car was that it had seven pages of flaws from day one," he said. "Seventy-five to a hundred things were wrong with it, and it had been in the shop more days than it had been out." Gray discovered that the car had been bought back from another customer, who was told that it would be crushed. The Grays are currently suing Chrysler.

Gates of the American Automobile Manufacturers Association says that if people like the Grays are being misled, it's not the automakers' doing. "Whenever these vehicles are repurchased for any reason, it is clearly documented," he says. "It is pretty clear to anyone purchasing that vehicle that it is a buy-back and why it is being bought back."

But Nowicki, who has prepared several national studies on lemon laundering for the Federal Trade Commission, claims the Grays' case is typical: Sometimes dealers reduce the price on defective vehicles and disclose some of the problems. But on average, a dealer makes about $4,000 more than it should by neglecting to disclose the vehicle's history. In some cases, the vehicles would have no value at all if the dealer told the truth. Up to several thousand cars each year may have defects that could be life-threatening, Nowicki says.

No matter how egregious the fraud, it can be difficult to fight car manufacturers and dealers and recoup financial losses. The cost of bringing a suit can run anywhere from $15,000 to $500,000, says Bryan Kemnitzer, a lawyer in San Francisco who specializes in consumer litigation. The plaintiff could win from $25,000 to $300,000 in damages, depending on the severity of the defect. But, in most cases, the manufacturers are willing to expend resources far beyond the consumers' means, and many lemon owners would rather make a deal with the manufacturers. "I'm one consumer who fought back, but there are a million who just roll over," says Labarrere, who joined the board of CARS after her experience with Chrysler. "They don't have the resources or the tenacity to fight, and they let the company buy back the vehicle for much less than they paid."

When consumers don't pursue legal remedies to the bitter end, however, manufacturers sometimes claim that they bought the car back, not because it was faulty, but "to promote customer satisfaction." In this way, the automakers can circumvent disclosure requirements outlined in state lemon laws.

According to consumer groups, car manufacturers also avoid compliance by moving vehicles from state to state. "We've tracked lemons from Hawaii to Virginia," Shahan says. "We've tracked Vermont's lemons and found that they were being sent to Massachusetts and New Hampshire. It's like old lemons never die ... they just get shipped around."

Although all fifty states have lemon laws that apply to the first buyer of a vehicle, only thirty-eight states require disclosure to the second owner. Those thirty-eight offer varying degrees of protection to consumers. For example, California requires manufacturers to brand the titles of faulty vehicles with the words, "Lemon Law Buyback," while South Dakota requires a brand that reads, "This vehicle was returned to the manufacturer because it did not conform to its warranty." Twelve states don't have any branding or disclosure requirements at all--Delaware, Idaho, Kentucky, Michigan, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, Oklahoma, Tennessee, and Wyoming.

"There's nothing illegal about interstate commerce," contends Gates, who says that auto manufacturers may sometimes be confused because there are so many different lemon-law requirements in different states. "The question is, does the appropriate paperwork follow?"

Though wary of weakening some of the nation's strongest state lemon laws, many consumer groups now recognize the need for uniform rules that will govern car manufacturers and dealers no matter where they do business. The automakers also say they favor national guidelines.

"We have been strong supporters of uniform federal guidelines on the disclosure requirements," says Gates. "Our preference would be to see it done through legislation in Congress."

Shahan says car-safety advocates are afraid to seek help from Congress, since auto manufacturers are a powerful lobby in the nation's capital. According to the Los Angeles Times of September 21, 1997, Ford, General Motors, and Chrysler were among the top eighty-five Fortune 500 contributors to 1995-1996 federal campaigns. Together, the big three donated more than $1.5 million to federal election campaigns. Shahan says that as a result, there has been a "power vacuum" in Congress around automotive issues.

Meanwhile, car manufacturers are becoming more brazen about asserting their power. Both General Motors and Chrysler have included confidentiality agreements, or gag orders, in their buy-back agreements. Chrysler's reads: "Except as permitted by law, I agree not to talk about the details of this agreement and release to anyone." A November 26 letter to the Federal Trade Commission from General Motors legal staff member George Velez defends the practice. "Confidentiality agreements have their legitimate place," he writes. General Motors asked Gayle Pena Labarrere to sign a gag agreement as part of her settlement. She agreed not to disclose the amount of the settlement, but the company pursued a blanket gag. "I got up and walked out and told them to forget it," says Labarrere.

But the pressure didn't stop there. When Labarrere became a witness in the California Division of Motor Vehicles case against General Motors, she says the car manufacturer and dealer came after her. "It was really horrific, very hot and heavy for a long time," she says. "We had to testify and we were told that it would be a `good time to take a vacation."' Later, she says, General Motors attorneys told her, "Just remember, we are very big and you are very small." She claims she also received explicit death threats. In the end, the case proved both financially and emotionally devastating. Fearful and exhausted, the couple decided to move to Arizona. "It had become such an ugly thing, we decided it would be better to get up and move out of state," she says.

Nina Siegal is senior staff reporter with the San Francisco Bay Guardian, and a San Francisco-based stringer for The New York Times.
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Title Annotation:regulating the sale of defective automobiles
Author:Siegal, Nina
Publication:The Progressive
Date:Feb 1, 1998
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