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Auto salvage and S. 431, S. 485, and S. 1232 : hearing before the Committee on Commerce, Science, and Transportation, United States Senate, One Hundred Third Congress, first session, August 3, 1993 online

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S. Hrg. 103-371

AUTO SALVAGE AND S. 431, S. 485 AND S.

1232

Y 4. C 73/7: S, HRG, 103-371

Auto Salvage and S. 431i S. 485 and...



HEARING

BEFORE THE

COMMITTEE ON COMMERCE,

SCIENCE, AND TRANSPORTATION

UNITED STATES SENATE

ONE HUNDRED THIRD CONGRESS
FIRST SESSION



AUGUST 3, 1993



Printed for the use of the Committee on Commerce, Science, and Transportation




^ n



U.S. GOVERNMENT PRINTING OFFICE
71-121CC WASHINGTON : 1994

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-043442-4



71-121 0-94-1



S. Hrg. 103-371

AUTO SALVAGE AND S. 431, S. 485 AND S.

1232

4. C 73/7: S. HRG. 103-371

to Salvage and S. 431. S. 485 and...

HEARING

BEFORE THE

COMMITTEE ON COMMERCE,

SCIENCE, AND TRANSPORTATION

UNITED STATES SENATE

ONE HUNDRED THIRD CONGRESS
FIRST SESSION



AUGUST 3, 1993



Printed for the use of the Committee on Commerce, Science, and Transportation




U.S. GOVERNMENT PRINTING OFFICE
71-121CC WASHINGTON : 1994

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-043442-4



71-121 0-94-1



COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION



ERNEST F. ROLLINGS,

DANIEL K. INOUYE, Hawaii

WENDELL H. FORD, Kentucky

J. JAMES EXON, Nebraska

JOHN D. ROCKEFELLER IV, West Virginia

JOHN F. KERRY, MassachusetU

JOHN B. BREAUX, Louisiana

RICHARD H. BRYAN, Nevada

CHARLES S. ROBB, Virginia

BYRON L. DORGAN, North Dakota

HARLAN MATHEWS, Tennessee

Kevin G. Curtin, Chief
Jonathan Chambers,



South Carolina, Chairman

JOHN C. DANFORTH, Missouri
BOB PACKWOOD, Oregon
LARRY PRESSLER, South Dakota
TED STEVENS, Alaska
JOHN MCCAIN, Arizona
CONRAD BURNS, Montana
SLADE GORTON, Washington
TRENT LOTT, Mississippi
KAY BAILEY HUTCHISON, Texas

Counsel and Staff Director
Republican Staff Director



(II)



CONTENTS



Page

Opening statement of Senator Bums 5

Opening statement of Senator Exon 1

Opening statement of Senator Gorton 4

Opening statement of Senator Pressler 3

List of Witnesses

Blumenthal, Hon. Richard, Attorney General, State of Connecticut, on behalf

of the National Associatin of Attorneys General 9

Prepared statement 11

Cheek, Paul, Vice President for Claims, GEICO 23

Prepared statement 24

Gray, Clyde, Investigative Reporter, WCPO-TV, Cincinnati 6

Prepared statement 8

McCarthy, Frank, Executive Vice President, National Automobile Dealers

Association 19

Prepared statement 21

Nordstrom, Art, President, South Dakota Recyclers Association 15

Van Winkle, Gene, General Manager, Omaha Auto Auction, on behalf of

Anglo American Auto Auctions 13

Appendix

American Association of Motor Vehicle Administrators, prepared statement

of the 47

American Insurance Association, letter from, dated August 4, 1993 46

Association of International Automobile Manufacturers, prepared statement

of the 43

Gillis Jack, Director of Public Affairs, Consumer Federation of America, letter

from, dated July 20, 1993 43

Gorton, Senator, prepared statement of 41

Gregoire, Christine 0., Attorney General, State of Washington, letter from,

dated July 28, 1993 41

Hanna, Thomas H., President and CEO, American Automobile Manufacturers

Association, letter from, dated August 3, 1993 47

Strandauist, John H., Executive Director, American Association of Motor

Vehicle Administrators, letter from, dated August 18, 1993 45

(III)



AUTO SALVAGE AND S. 431, S. 485 AND S. 1232



TUESDAY, AUGUST 3, 1993

U.S. Senate,
Committee on Commerce, Science, and Transportation,

Washington, DC.

The committee met, pursuant to notice, at 2:40 p.m. in room SR-
253, Russell Senate Office Building, Hon. J. James Exon, presiding.

StaflF members assigned to this hearing: Claudia A. Simons, staff
counsel, and Moses Boyd, senior counsel; and Sherman Joyce, mi-
nority staff counsel.

OPENmG STATEMENT OF SENATOR EXON

Senator ExON. The committee will please come to order. The
chairman apologizes for being 6 minutes late. We had a Democratic
caucus today and had a long discussion about a matter, that you
would never guess what we were talking about, and that delayed
me somewhat.

I certainly am pleased to call this session of the Senate Com-
merce Committee to order today. Today's hearing will focus on
three legislative proposals to provide consumers more information
about the used cars that they purchase. The committee will con-
sider S. 431, the Vehicle Damage Disclosure Act, which I intro-
duced on February 24 of this year; S. 485, the Automobile Damage
Consumer Protection Act introduced by Senator Pressler on March
3; and S. 1232, the Motor Vehicle Cost Savings Act introduced by
Senator Gorton on July 15.

These proposals each have a common thread. They attempt to
use the auto title as a way to give consumers information about the
history of the car that they may purchase. That information is
power; power for the auto buyers to take steps to ensure that they
are not ripped off, and power to take steps to ensure that their car
is safe.

I believe that these three proposals have a high degree of com-
patibility. Preliminary staff discussions to produce a consensus ap-
proach have bjBen encouraging. These hearings will help the com-
mittee to better understand the issues involved in salvage fraud
and State lemon laws. I am hopeful that this hearing will help
make the job of merging these three proposals possible.

All three bills build on the success of legislation this committee
approved in 1985, and that was known as the Motor Vehicle Infor-
mation and Cost Savings Act. I was proud to be the Senate sponsor
of that legislation, which broke the back of underground odometer
fraud and the industry that was mushrooming around odometer
fraud.

(1)



The 1985 odometer fraud act stands as a pillar of consumer legis-
lation which has worked. It has made our streets and wallets safer
from the con artists who for years deceived countless American
drivers. In 1985 a study estimated that 50 percent of all leased ve-
hicles had odometers which were altered. A similar study released
by the Department of Transportation this year estimated that the
tamper rate for 1992 was 5 percent. Now, I suggest that that is
progress. Americans are also saving billions of dollars. Before the
truth in mileage act, American car buyers were losing more than
$3 billion a year to clockers who erased thousands of miles of wear
and tear from car odometers.

The secret to the success of the odometer fraud bill lies in the
car title. By affixing odometer readings to the car titles, the con
men were finally outsmarted. Under the truth in mileage act even
the most unsophisticated car buyer can now inspect an auto title
and understand any car's odometer history.

As successful as we have been, our job of protecting consumers
from auto fraud is not yet done. Other consumer frauds which con-
tinue to challenge the fiscal interests and safety of the traveling
public remain to be squelched such as salvage fraud and lemon law
fraud. With this hearing, I would say that the battle is definitely
joined.

Like the odometer fi*aud bill, the bills before the committee use
the auto title to inform the consumers of the history of the used
car. When a car is destroyed in a crash, it is generally sent to the
junkyard where it is stripped for parts or in some cases rebuilt.
Most States require that salvage or rebuilt cars carry a designation
on their title so that the consumers are alerted to the condition of
the auto that they are purchasing. By so-called branding the title,
consumers are put on notice to exercise due care.

Unfortunately, several States do not require any title brands.
Fraud artists use these States to wash titles of the salvaged cars
and come up with a clean designation. Once a clean title is ob-
tained, rebuilt wrecks are put on used car lots and sold to
unsuspecting consumers.

There certainly have been examples of cars cut in half, spot weld-
ed together, repainted, and sold with clean titles. One case we have
heard of involved a car whose frame was held together with chick-
en wire. I suspect that is an extreme case, but it is one case that
we know about. Most tragic are the cases where drivers have been
killed or maimed when their rebuilt wrecks simply failed or fell
apart. Only after the tragedy did buyers learn of the salvage his-
tory of their vehicle. Experts have estimated that car buyers lose
as much as $4 billion a year to salvage fraud, and millions of driv-
ers unknowingly face increased risk of injury and accident.

S. 431, the Vehicle Damage Disclosure Act, will require States to
carry forward any salvage designation from another State and
check records which are readily available to State officials. In addi-
tion, the Department of Transportation would be required to imple-
ment a nationwide unifomi title branding procedure. Another key
benefit of the salvage fraud legislation is that it would also crack
down on title washing used by criminals to fence stolen auto-
mobiles.



As Senator Grorton and our panelists will describe in more detail,
an additional consumer fraud occurs with cars that have been re-
turned to the dealers as lemons and are sold unrepaired, nothing
done to them, to unsuspecting consumers. It is time that public
safety and full disclosure be put ahead of greed and deceit.

We have a distinguished and full panel today. All witnesses will,
without objection, have their full statements included in the record,
and when we get to the witness we will certainly at that time en-
tertain any statements that wish to be made to give us a better un-
derstanding as we move forward in this area.

Senator Gorton, I assume you have a statement.

Senator Gorton. I do, but Senator Pressler was ahead of me.

Senator EXON. I see. Senator Pressler, I recognize you for what-
ever you wish to do.

OPENENIG STATEMENT OF SENATOR PRESSLER

Senator Pressler. I shall be very brief and I shall put most of
my statement in the record. I did want to say the purpose of my
legislation, S. 485, the Automobile Damage Consumer Protection
Act of 1993, is to address one of the most pressing issues currently
facing American consumers, automobile title fraud. In my view, it
is time for Congress to penalize this crime and protect the
consumer.

As you know, Mr. Chairman, many Americans unknowingly buy
new or used cars that are rebuilt junk or salvaged vehicles, and
you have stated this very eloquently in your opening statement.
There is currently no uniform national law requiring disclosure of
major automobile damage when the title is transferred. As a result,
many consumers own vehicles with fraudulent titles, titles that
have been cleaned up to falsely reflect damage history. This is
known as automobile title washing.

Title washing costs consumers near $3 billion each year. And the
root of the problem is simple; each State treats damaged vehicles
differently. With diverse State laws, car owners or sellers can
transfer old titles interstate. The interstate transfer acts as a
cleanser of auto titles. It cleans the slate so that the title no longer
reflects previous damage. These clean titles put devious car dealers
at ease, but put the car buyer at risk.

So, the solution I have proposed: let us require uniform damage
disclosure for all States when damage exceeds a certain dollar
amount. The approach would be based on dollar damage. Further,
let us establish both civil and criminal penalties for those who will-
fully and knowingly violate the damage disclosure requirements.
Those are my recommendations. However, I am also interested in
learning more about other legislative proposals.

Let me say that I am very proud that we have here today as a
witness Art Nordstrom from Garretson, SD. Mr. Nordstrom is the
president of the South Dakota Auto Recyclers Association. Art and
his wife Marie were instrumental in developing South Dakota's
damage disclosure law. South Dakota was the first State to enact
a comprehensive damage disclosure law. Thus Art and Marie are
pioneers in the area of vehicle damage disclosure. They are proof
that citizens can make a difference. They are to be commended and



they are here today and I look forward to hearing them at the wit-
ness table. I am very proud of their presence.

Senator ExoN. Senator Pressler, thank you very much. Senator
Gorton.

OPENING STATEMENT OF SENATOR GORTON

Senator Gorton. Mr. Chairman, I find it interesting that the
definition of an automobile that has been totaled, you know a word
that all of us use very frequently, is simply that the cost of repair-
ing it is greater than its fair market value. That obviously leaves
an area in which people can make a very real profit by taking over
such a totaled car and restoring it, and there is nothing illegitimate
about that business.

One of the estimates that we are dealing with here is that some
70 percent of all of the cars that are totaled end up being rebuilt
and being resold, and it is exactly at that practice and the require-
ment of a disclosure of that practice that your bill and some por-
tions of Senator Pressler's bill and a part of my bill are aimed.

We feel, all of us, that under those circumstances the purchaser,
the ultimate purchaser ought to know that that automobile has
been totaled. Sometimes the repairs are not done very well, some-
times there are safety defects. In any event, the fair market value
of that rebuilt car is going to be less than would be the case with
a very similar automobile which had not been engaged in such a
wreck.

We have got estimates that fraud costs with respect to salvage,
going beyond this, may cost consumers as much as $4 billion a
year, and we are attempting to lessen that. The consumer obvi-
ously can either walk away from a car when he or she has that
kind of notice, or can get it at a lower price.

The independent and additional element of the bill which I have
introduced applies the same set of rules to cars which have been
returned to the manufacturer as lemons. And I think every State
but two — I am afraid this is one that you need to go to work on
in South Dakota, because South Dakota is one of the two States,
Senator Pressler. Every State but two has lemon laws, but auto-
mobiles can be repurchased by the manufacturer under lemon laws
and sold off in a different State without the ultimate purchaser
knowing that, in fact, they were lemons.

And so my bill sets up pretty much the same rules for the sal-
vage or totaled vehicles as it does for lemon law vehicles. One
group has said that lemon law fraud costs three-quarters of a bil-
lion dollars a year. And so we are not talking about something
which is small, we are not talking about something which is just
simply a surface difference, we are talking about automobiles
which have serious problems in many cases, and create serious
safety challenges.

I remember, Mr. Chairman, when you were a major part in that
odometer fraud law. I was on the committee then. I think Senator
Pressler was. I believe that both of us were cosponsors of that bill.
We have done a great deal on this committee to lessen, particu-
larly, interstate fraud, and this is simply another step forward in
the same direction.



We do have a distinguished group of witnesses here today, in-
cluding one State attorney general. My own State attorney general,
my successor, one of my successors as attorney general, has a
statement which she would like included in the record as if she
were here and delivering it in person. And I also have a statement
from the Consumer Federation of America and, Mr. Chairman, I
would ask that both those statements be included in the record.

Senator EXON. Both of those statements, without objection, will
be included in the record at an appropriate point.

Can I ask you one brief question, Senator? I am very attracted
to your lemon proposition and it is something we should consider.
Can you briefly tell me — certainly if a car is wrecked, it is pretty
well established. How do we identify a lemon?

Senator Gorton. That is a very good question, and the definition
that we use here is a technical definition. A lemon law car is a car
which has been returned to its manufacturer under the law of one
of our States. Your State has such a law, so does mine.

Senator ExoN. If it is returned under a law.

Senator Gorton. It is not just something that you think was a
junker or you did not like.

Senator ExON. I see.

Senator Gorton. It has to have been returned to the manufac-
turer under a lemon law to be required to have this disclosure
under my bill.

Senator ExoN. Thank you. We have a vote on, gentlemen.

I would be glad to recognize you. Do you wish to make a state-
ment. Senator Bums?

OPENING STATEMENT OF SENATOR BURNS

Senator Burns. I just want to make a short statement. And I ap-
preciate this. You know, when you are not close to this industry —
of course, I guess I am. I have got teenagers so I am closer to it
than I want to be. But I was reminded, after our staff got to look-
ing up, of the importance of this legislation when they turned up
with an example in Montana where a lady was looking at a Datsun
380ZX. She liked the car and came to find out — she called the pre-
vious owner and he says my gosh, do not buy the car. It has been
run over once by an MDU ladder track, and the second time it was
totaled out was when it ran off a bridge into a creek. So, she did
not buy the car.

And I would say probably with reputable people, most cars can
be rebuilt. There is nothing that cannot be rebuilt in modern days.
And if you have reputable people doing it, I think they can prob-
ably do a pretty good job. There are some people that can do some
work for me that I would be very very comfortable with. But I
think what we are striving to do here is to let the people know
what happened to the automobile before it was rebuilt or totaled
out. But whenever you have got one that has been totaled out
twice, that seems pretty glaring to me that maybe something has
to be done in the way of notification of the prospective owners of
these automobiles.

So, I appreciate you bringing up this situation, and I was sur-
prised to know that 70 percent of the ones totaled out get back into



the chain, and I think we ought to take a look at that. And I thank
you, and if you want to go vote I yield the floor.

Senator EXON. Senator Bums, thank you very much.

Let me call the witnesses and then we will take a recess subject
to the call of the Chair. The Honorable Richard Blumenthal, the at-
torney general of the State of Connecticut; Mr. Jim Zarchin, news
director, and Mr. Clyde Gray, investigative reporter for WCPO-TV,
Cincinnati.

Mr. Gene Van Winkle, a friend of longstanding long back, and
one of the most respected used car people in Lincoln, NE. I have
known him for a long time. I knew his father. Rip Van Winkle. Not
the Rip Van Winkle that you automatically think of, but that was
his name. Gene, thank you for coming in. We are very glad to have
you.

Mr. Art Nordstrom, president of the South Dakota Recyclers As-
sociation, as Senator Pressler has referenced; Mr. Frank McCarthy,
executive vice president. National Automobile Dealers Association;
and Mr. Paul Cheek, vice president for claims, the GEICO Co., ac-
companied by Ms. Judith Stone, president and executive director of
the Advocates for Highway and Auto Safety.

If you would excuse us, subject to the call of the Chair, we have
a vote on and we will return shortly. Please be at ease and we
stand in recess subject to the call of the Chair.

[A brief recess was taken.]

Senator Mathews [presiding]. Let me call the hearing to order.
I did take the opportunity to vote before I came into the room, so
we will go ahead and get started. The others will return shortly.

As I understand it. Chairman Exon has introduced the witnesses,
the people who will testify. Mr. Clyde Gray, a reporter for WCPO-
TV in Cincinnati will be the first witness, and I understand you
will introduce a tape. Mr. Gray.

STATEMENT OF CLYDE GRAY, E>fVESTIGATIVE REPORTER,
WCPO-TV, CINCINNATI; ACCOMPANIED BY JIM ZARCHIN,
NEWS DIRECTOR, AND MATTHEW WEBER, GENERAL COUN-
SEL, WCPO

Mr. Gray. Thank you, Mr. Chairman, and good afternoon mem-
bers of the subcommittee. My name is Clyde Gray, and I am an in-
vestigative reporter with WCPO-TV in Cincinnati, Ohio. I am ac-
companied today by Jim Zarchin, who is the news director of
WCPO-TV, and Matthew Weber, of Baker & Hostetler, WCPO's
general counsel.

After my statement, I will show you a short \ndeo containing
highlights of the I-team's series on rebuilt wrecks. We very much
appreciate the invitation to testify today about Federal legislation
which could combat the life-threatening risks that we documented
in our series.

Imagine paying more than $13,000 for a car that the salesman
tells you is a low-mileage, one-owner car with a shiny paint job
only to discover that you cannot steer that car over 50 miles per
hour. But that is not all you discover. The car the salesman as-
sured you was almost new is not new after all. In fact, it is not
even one car.



Incredibly, your $13,000 car has actually been spliced together in
a backyard body shop from the bodies of two diflferent cars, cars
that often are from two different model years. Almost unbelievably,
you find your car was totalled in a wreck only a few weeks before
you bought it. The car was smashed in both the front and the rear.
An insurance company sold the car for salvage, and then it was
pieced back together with parts from other wrecked cars before
being sold to your car dealer at an auto auction in another State.
You paid $13,000 for a piece of junk, a car that experts now tell
you is unsafe to drive.

Mr. Chairman, horror stories like this are all too real, and in
most cases the consumers who are victimized have no adequate re-
course under State or Federal law.

During our 6-month investigation of this growing problem, the
WCPO-TV investigative unit found hundreds of cases where con-
sumers had paid thousands of dollars for what they thought were
almost new cars but which in reality were rebuilt wrecks. This is
not an isolated problem. It crosses the borders of almost every
State. The I-team uncovered a huge national industry that is cheat-
ing millions of car consumers every year. One car auction company
estimates the cost to consumers from this car fraud to be in the bil-
lions of dollars.

In most cases buyers of rebuilt wrecks never know they are pur-
chasing cars that were wrapped around telephone poles or which
had plunged down embankments. That is because in many States
there is no indication on a car's title to tell the consumer that the
car was totalled and then reconstructed.

In these States, a car that is salvaged after a wreck gets a sal-
vage title, but once it is reconstructed, the car gets a brandnew
title — known as a clean title — that has no mention whatsoever of
its previous condition. To the next buyer of the car, it is as if the
accident never happened. The buyer seldom knows the car was to-
talled, and he ends up paying thousands more than the car is
worth. Often, the cars now are structurally unsound, and some-
times they are not even roadworthy.

Because of these loopholes in the title process, the buyer of a re-
built wreck does not know why the car is having mechanical prob-
lems. Car dealers who buy these cars at auto auctions say they also
are the victims of rebuilt wrecks. In Ohio and Kentucky alone, we
found more than 150,000 rebuilt wrecks were sold in just the last
few years.

While the economic cost to individual consumers who get stuck
with rebuilt wrecks might be devastating, the solution to the prob-
lem is a simple one. Just as passing the National Truth in Mileage
Act was necessary to correct the rolling back of car odometers, the
problem of rebuilt wrecks calls for a national law requiring that
these cars carry titles designating them as "rebuilt."

Once a car is salvaged by an insurance company, the title should
always reflect the car's salvage history. Like cattle, the title should
be branded for life. This would require uniform wording and a uni-
form salvage designation from State to State, but this would not
be any different or any more difficult than what was done for
odometers, and many experts will testify that rebuilt wreck fraud
poses an even greater safety risk than odometer rollbacks.



8

In addition to branding a car's title as rebuilt, we would encour-


1 3 4 5 6 7

Online LibraryScience United States. Congress. Senate. Committee on CommAuto salvage and S. 431, S. 485, and S. 1232 : hearing before the Committee on Commerce, Science, and Transportation, United States Senate, One Hundred Third Congress, first session, August 3, 1993 → online text (page 1 of 7)