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Resource of Record
Rosemary Shahan
RECOMMENDED READING
The Lemon Law Bible
RECOMMENDED READING
Lemon Aid Car Guide 2000
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Lemon Laundering: Young mother and interior designer Gayle Pena discovered the hard way what happens when a manufacturer buys back a lemon car. She and her husband Greg were nearly killed when the brakes on their 1989 Chevrolet Suburban failed as they descended the Sierra Mountains, after a vacation at Lake Tahoe.
When they bought the Suburban
in June, 1990, they inquired about its low mileage. The dealer, Biddulph
Chevrolet in Santa Rosa, California, explained it was an "Executive, Brass
Hat" vehicle that had been pampered, and driven exclusively by a General
Motors executive. In fact, they ended up paying a premium for the
SUV.
After an ordeal with failed
brakes on a treacherous mountain road, Gayle delved into the vehicle's
past. She discovered who had owned the vehicle before, and it was not a
GM executive, but a couple in a neighboring community who were astonished
to learn it was back on the road. They showed Penas over 20 work
orders for brake repairs. There was documentation that the brakes
could not be fixed. When it was repurchased, the original owners
were promised it would be crushed. Seventy-two hours later, it was
on the lot at Biddulph Chevrolet, where Penas bought it.
Gayle brought the issue of
lemon laundering to the attention of the California
DMV, which investigated. She also coined the term "lemon laundering"
to describe the seedy practice of deceiving subsequent buyers. The
DMV seized internal documents from GM which revealed that the vehicles
were indeed lemons, with notations such as "Four repair attempts to transmission,
cannot fix, qualifies as a California lemon."
Eventually, after her case
made national news, GM apologized to Pena, who has become a leading spokesperson
for victims of lemon laundering, and now serves on the board of directors
of the non-profit consumer watchdog group Consumers
for Auto Reliability and Safety.
But the illegal practices
continue, despite prosecution by state law enforcement officials, scrutiny
by federal regulators, and attempts by private litigants to discourage
the dangerous fraud.
In the early Eighties, auto
manufacturers fought the enactment of state lemon laws tooth and nail,
claiming they would not dare return the rejects to the road, for fear of
being held liable if the vehicles were in subsequent crashes. Their
plaintive complaint: "You can't make us eat a $35,000 car just because
the dealer couldn't fix the brakes." Fortunately, all 50 states rejected
that argument.
The entire argument was totally
disingenuous. In fact, lemons keep cropping up again and again, as they
are resold to unsuspecting used car buyers. Vehicles with titles
branded "lemon law buyback" are commonly auctioned off in states that do
not recognize that brand, washing their titles clean and inflating their
value as used cars.
So far, manufacturers have
defied attempts by state law enforcement agencies and federal regulators
to stem the flow of bad cars to unwitting used car buyers. (See
filings with the Federal Trade Commission.)
Based on information the
auto manufacturers supplied to the Federal Trade Commission, auto manufacturers
repurchase at least 100,000 vehicles each year to comply with state lemon
laws. They admit that of those, roughly 95% are resold and returned
to the roads. They deny deceiving customers, and deny the vast majority
of the vehicles were indeed lemons, claiming that most of them are repurchased
for frivolous reasons unrelated to their flaws.
Internal documents obtained
by law enforcement agencies and individual attorneys reveal that the so-called
"goodwill" buybacks are actually seriously flawed vehicles. For example,
the California DMV found that the Chrysler lemons had been subject to warranty
repairs costing from $2,000 to over $14,000, and over 95% had safety defects.
As a clincher, the DVM obtained
letters Chrysler sent to the state's Board of Equalization, claiming a
tax refund, allowable when vehicles are repurchased under the lemon law.
Chrysler had requested the tax refund on nearly every lemon.
 Evidence has surfaced from a North Carolina consumer's case that shows Chrysler has recouped a hefty percentage of its losses on lemons by reselling them, usually through auctions. Only a small percentage of the vehicles it repurchases are destroyed or "donated." In fact, auto manufacturers have breathed new life into the notion of profiting from their mistakes. Not only are the subsequent owners unaware of the lemon histories, and therefore soaked by paying an inflated price at the time of purchase. But during their ownership of the lemon, they also commonly lack the warranty coverage provided the initial owners. This means that lower income consumers end up footing the bill, out of pocket, for expensive repairs to faulty vehicles the factory knows have inherent flaws. State attorneys general and consumer groups have urged the Federal Trade Commission to scrutinize lemon laundering nationwide. The FTC Commissioners voted unanimously to enter into the fray. However, negotiations between auto interests and law enforment officials and consumer groups have broken down, due to the manufacturers' insistence on "lemon loopholes" the pro-consumer forces staunchly refuse to allow. How can I tell if I own a lemon and what can I do about it? (08/23/00)
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