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

and he really, or the secretary in the office, they do not know that
car has got a salvage or previous salvage title. So, if they had to
put it on the car, I think that you would get some innocent dealers
in trouble. I could not see where there would be a lot of advantage
to it.

Mr. Nordstrom. I would have to agree that I do not think there
would be a lot of advantage to the sticker. The biggest thing that
we saw was the education the minute it was put out. I mean it
seems like when they come into a lot right now and are looking at
a vehicle, **been wrecked?" is the first question, it seems like mat
is No. 1 right now. And if it has, then they can make that deter-
mination. So, just educating the people that are out buying a car
I think will go a lot farther.

The Northland Used Independent Car Dealers in our area have
said — he was saying that he thought that 50 percent — they said
that they felt that 60 to 70 percent of the cars are bought and sold
between private individuals. So, that leaves a lot of people out
there that do not know what they are buying.

Mr. Cheek. I do not think anyone would seriously oppose the
sticker, but I do not believe that it would be nearly as effective as
the title.

Senator Gorton. Oh, this was not in substitution for it.

Ms. Stone. Can I just say something about that?

Senator Gorton. Sure.

Ms. Stone. I think it is important to keep the information to the
consumer in one place, the important pieces of information about
a car. And therefore sometimes when it is not on a sticker — and I
do understand that there is a lot of information out there that has
to be put on the car, but when it is not there the consumer just
simply does not see it. And it may not be because somebody is try-
ing to hide it from them, but if it is there with all the information
about the safety features in the car and other pieces of important
information, they are more likely to see it.

Senator Gorton. Thank you.

Thank you, Mr. Chairman.

Senator Pressler. Mr. Chairman.

Senator Exon. Senator Pressler.

Senator Pressler. I have one final question. I want to again pay
tribute to Mr. Nordstrom, who took his first airplane ride today. He
got up this morning in Sioux Falls, flew all the way here, and he
is going to fly back tonight, because he is running a small business
and he cannot afford to be away more than that amount of time.

Now, Mr. Nordstrom — and I have some additional questions for
all of you for the record, but Mr. Nordstrom, I know you brought
examples of photos that can be used to illustrate a good comparison
between Senator Exon's proposal and my legislation. Could you
walk this committee through those examples of damage disclosure
and specifically explain how the consumer is alerted if an insur-
ance company is bypassed?

Mr. Nordstrom. I think that — can you hear me without the
mike, it is kind of in the way. These are three vehicles that we
have dealt with in just the last 2 weeks. Our dealings are mostly
with insurance companies, but we buy a lot of vehicles



37

Senator Pressler. Go ahead and use the microphone.

Mr. Nordstrom. We buy a lot of vehicles from private individ-
uals, and we buy a lot of vehicles from dealers. Now, I am not pick-
ing on the dealers this time, but I am just going to use these as
an example of what happens. And being in the salvage business,
a lot of people do not realize it. They say totaled, or if the insur-
ance company takes possession of the car it is a totaled vehicle, but
let me show you something.

And I can pass these around if you would like.

Senator Pressler. You can just hold it up there. We will take
a look at it.

Mr. Nordstrom. This car right here is a 1992 — oops, excuse me.
Yes, a 1992 Honda Accord EX. The car has got a book value of
$16,800. The cost of repair is $8,969.61. The car has got 26,213
miles. It drives. It was rolled over in the State of Minnesota. The
dealer called us in Sioux Falls and wanted to know if we were in-
terested in buying it because they were going to take it in trade.

They have found too that they can take damaged cars in trade,
sell them without fixing them, and still make money on it. Or if
they do fix it and put it on the lot, they will put a disclosure with
it and the people buying it know what they are getting. In the
State of Minnesota, in this case, if the owner would just take the
insurance check, he could sell the car to anybody and there would
never ever be any indication of branding whatsoever on the car be-
cause of the fact he is the owner. The insurance company is just
paying him the check for the damaged value.

I do not know what has happened on this yet, whether somebody
else has got in and bought it privately, but if it ends up in South
Dakota it will have a disclosure on it. And the picture and the esti-
mate is on the back from where the estimate was written.

It was kind of ironic, the estimate on this is $8,900. There was
an estimate written in Minnesota for $4,000. Over a $4,000 spread
between the two. One was a complete estimate, one was an incom-
plete estimate. So, they are strictly estimates.

If we get the car, we will end up turning it, and we are going
to try and make a profit on it. But one guy we have already talked
to has got a body shop, fixing it on his own time, will fix the car
for probably he figured about $2,500, because it has got a sun roof
and the track is damaged on it. Anybody who wants to see these
pictures, I will show them to you.

The other vehicle that we are working on right now, this giiy is
a very particular guy, he has got a 1992 Grand Am. The driver's
door is caved in on it. The repair estimate on this car is $5,360.40,
and you could take that door off the car, put another door on it,
and drive the car away. And there is a little bit of damage on the
second door. It does not appear to be that bad, but if you go by fig-
ures only it does not give you a true estimate of what the dollar
value is.

If I end up with this car, I will sell you the car and I will sell
you a door for $450. But the thing about it is, if it does get traded
into the dealer it will come with the disclosure to us, and whoever
buys the car is going to get a disclosure from us.

Because the door is being repaired, it probably can be repaired
properly. But, there again where the disclosure would fit it, what



38

happens if the door that is put on there is a stolen door, or maybe
say it was a front end, a stolen front clip or something. OK, law
enforcement through our State can go through the computers, there
again, and find out anything that happened to 1992 Grand Ams,
because a new body style started in 1991.

And we do have some high-priced cars in South Dakota too. This
one right here is water damage. We had a lot of flood cars in South
Dakota. You would not think it could happen, but it happened
when Sioux Falls got hit. This is a 1992 Mitsubishi Diamante DL.
It has got 23,000 miles on it with a gold package. The car is sold —
we sold the car for $16,500. It has got a book value of $26,000.

This happened, I am sorry to say, a lot during the flood that we
had down there. There were close to 250 cars that were totaled out
in Sioux Falls. B^ the word totaled, that the insurance company
took possession of them or people sold the cars and took the checks.
This one here, the guy had worked the insurance company up to
$8,900 for replacement of seats, electric motors, safety belt re-
straints, and everything. He took the check for $8,900. All he did
was shop-vac the car, sold it to us. I am sorry to say but it went
to Nebraska, but it went with two disclosures, one from him, one
to us. And what the State of Nebraska does, I do not know, but it
will have a South Dakota damage disclosure following the vehicle.

And the other one here, this one is on our videotape. As I said,
anybody can have that if they want it. Senator Pressler, you will
have that in your office. This one here is a brand new 1993 Ford
Pickup. If anybody wants to see what this looks like, it is right
there. This truck had a window sticker of over $22,000. It had a
written estimate of $15,600 and some odd dollars on it. It went
through a ravine. It was still driveable. If you did not see the pic-
tures and I told you it had 15,000 dollars' worth of damage and it
was a $22,000 truck, you would call that severe damage.

What happened, the insurance company took bids on it. It is a
brand new vehicle. It is an MSO vehicle. They took bids on it. The
insurance company paid off on the vehicle. The dealership bought
it back for the salvage value, so all they took was a check for the
difference of the repair. We bought the vehicle from them. We sold
it to a guy in Minnesota, and Minnesota cleaned up the title on
this vehicle. It went in with two damage disclosures but Min-
nesota's law at that time allowed — they went by percent, 70 per-
cent, and with a written estimate and photos, and they cleaned the
title up.

Now where this is going to end up, I have no idea. It could go
to an auction. It could go to anybody privately. But it does have
significant frame damage on it. The dealership did cancel the war-
ranty on it, so it is not going to come through on warranty. But
the thing about it is, the guy that bought the truck fixed it for
$3,500, and he could do it for $3,500. He straightened a lot instead
of replacing it.

So, that is why when you start talking percents, you start talking
total, you talk about insurance company cars, you do not hit every-
thing. And this is what we see all the time in my business since
we have built it, and that is why we came around with the broad-
based disclosure at $1,000, then it went to $2,000, and I wish it
was at $1,000 again. It will protect the consumer.



39

Senator Pressler. Thank you very much. I am very proud of
your testimony.

Senator ExoN. Senator Mathews.

Senator Mathews. No further questions, Mr. Chairman.

Senator ExoN. Gentlemen, we really appreciate your coming here
today. This has been a tremendously informative meeting. There
may be additional questions for the record, and if so we would ap-
preciate your responding as quickly as vou can to those.

You have been a very excellent panel and have been very helpful
to us. I simply invite you, on behalf of the Senate, to keep sending
us in your suggestions and comments as we move forward on these
things. And if you feel that you have any more help that you can
give us, give us a call or drop us a line. We want to work very
closely with you people out there in the trenches, because if we
write a law here that is not going to work out there, it does not
do anybody any good. So, we really appreciate your advice and your
input.

Thanks for being here and we are adjourned.

[Whereupon, at 4:25 p.m., the hearing adjourned.]



APPENDIX



Prepared Statement of Senator Gorton

I would like to thank the Chairman for arranging a hearing on this legislation,
despite the Senate's hectic schedule. I anti pleased that we are moving quickly on
this issue, and I look forward to working with Senator Exon and Senator Pressler.
Like the legislation introduced by Senator Exon and Senator Pressler, the Used Car
Consumer Notification and Reporting Act addresses the salvage fraud issue, but it
also addresses the problem of resold lemons.

The same circumstances which allow salvage fraud to occur allow "lemon fraud"
to occur. The lack of uniformity among state titling and disclosure laws allows a
lemon to be returned in one state, transferred to another, and sold to a consumer
without him or her knowing that they are buving a lemon. Despite even the best
of efforts to let consumers know about a vehicle's history, unscrupulous individuals
can easily obtain a clean title free of the "salvage" or "lemon" designation by
retitling it in states which do not require this information to be carried forward.

The legislation I have introduced will put a big dent in used car fraud, which not
only causes serious safety problems, but is a blatant consumer rip-off. Used car
fraud is allowing thousands of unsafe vehicles to end up in the hands of
unsuspecting buyers, and it is letting them pay more for these vehicles than they're
worth. Not only do they pay more for the car when they buy it, but when it breaks
down, they end up shelling out even more money for the repairs. The legislation I
have introduced will remedy these problems by establishing a nationally uniform
certificate of title, carrying forwara buyback and salvage designations from one
state's title to the next, and by providing for strong consumer disclosure. By placing
a disclosure sticker on the window of the vehicle, the consumer knows, as they are
making their decision, that the car was either a salvage or lemon vehicle.

The decision to buy a car is not one that consumers take lightly. It is a huge in-
vestment that takes a lot of careful thought, research, and consideration. Someone
who has decided to spend thousands of nard-eamed dollars on a car deserves to
know as much about tnat vehicle as possible. Today — especially — when families are
trying to 'lighten their belts" and make wise use of every dollar, this information
is vitally important, and the legislation I have introduced will allow consumers to
make informed decisions about tneir investment.

I asked the advice of many people in drafting this legislation. Since some people
cannot be here today, I'd like to submit their letters of support for the record. One
is from Christine Gregoire, the Attorney General for Washington state, and the
other is from the Consumer Federation oi America.



Letter From Christine 0. Gregoire, Attorney General, State of Washington

July 28, 1993.

Honorable Slade Gorton,
U.S. Senate,
Washington, DC 20510

Dear Senator Gorton: I am writing to support the legislation you recently intro-
duced in the Senate to protect consumers who unsuspectingly purchase lemon or
salvage vehicles without any disclosure of the vehicle's history.

The state of Washington probably has the strongest Lemon Law in the country.
However, we have taken legal action against firms for failing to disclose to subse-
quent purchasers that the vehicles they purchased had previously been adjudicated
a Washington lemon.

Our law is particularly strong regarding returned lemon vehicles that are resold
in the state of Washington. We note a disturbing trend among vehicle manufactur-
ers to remove Washington's lemons to other states, most probably for resale I am
enclosing an excerpt from our 1992 Lemon Law Annual Report which shows the out-

(41)



42

of-state disposition of adjudicated Washington lemon vehicles. It is particularly
noteworthy that Chrysler, Ford and General Motors remove any vehicles to Oregon
and Utah. While Washington's lemon documentation follows the vehicle, we have
concerns that the subsequent purchasers in other states may not receive the lemon
disclosures.

Last year we cooperated in an investigation conducted by the Inside Edition New
York-based television program. Their investigators tracked a number of vehicles
through the Vehicle Identification Numbers (VIN) we provided them. They then con-
tacteo— purchasers of the Washington lemon returned vehicles to determine if they
were aware of the history of the vehicles. Two segments appeared in November and
December of 1992 documenting the problems of subsequent purchasers of Washing-
ton returned lemons.

In conclusion, I strongly support the "Used Car Consumer Notification and Re-
porting Act" as an amendment to the Motor Vehicle Information and Cost Savings
Act. If you desire any other information or if we can be of further assistance, please
feel free to call on me.
Sincerely,

Christine O. Gregoire,

Attorney General.



MOTOR VEHICLE LEMON LAW — ANNUAL REPORT, JAN. 1, 1992-DEC. 31, 1992



Resale Compliance (Vehicles returned 1988-92) — Out of State Dispositions



Manufacturer



Destination State



No of vehicles



Alfa Romeo Distributor of Nortfi America

American Honda Motor Co., Inc

American Isuzu Motors, Inc

Audi of America, Inc

BMW of North America

Chrysler Motor Corp

Daihatsu of America, Inc

Deere & Co

Fleetwood Enterprises, Inc

Ford Motor Co

General Motors Corp

Georgie Boy Mfg., Inc

Hyundai Motor America

Land Rover Cars of North America, Inc ..

Maserati Automobiles Inc

Mazda Distributors (West), Inc

Mercedes Benz of North America

Mitsubishi Motor Sales

Nissan Motor Corp

Peugeot Motors of America, Inc

Porsche Cars of North America, Inc

Subaru of America, Inc



New Jersey
Oklahoma

Oregon

Oregon

California

Oregon

Utah

Oregon

California

Idaho

Montana ..

Ohio

Oregon

California

Oregon

Florida

California

Idaho

Minnesota

Ohio

Oregon

Idaho

Montana ..

Oregon

Utah

Michigan .

Idaho

Orgeon

Texas

Texas

Idaho

Oregon

California

Idaho

California
Colorado ..

Oregon

California

Oregon

Nevada ...
Minnesota



66



43
Resale Compliance (Vehicles returned 1988-92) — Out of State Dispositions— Continued



Manufacturer



Oestlnation State



No. of vehicles



Suzuki of America Automotive .
Toyota Motor Sales, U.S.A., Inc

Volkswagen United States

Volvo North America

Winnetwgo

Yugo America, Inc



Total



Oregon ....
Oregon ....
Oregon ....
Oregon ....
California
Oregon ....
Idaho



235



Vehicle Disposition Reports Pending — There are 33 vehicles that have been re-
turned to various manufacturers for which no resale or other disposition status has
been reported.



Letter From Jack Gillis, Director of Public Affairs, Consumer Federation

OF America

July 20, 1993.

Senator Slade Gorton,
U.S. Senate,
Washington. DC 20510

Dear Senator Gorton: As a representative of over 240 state, local and national
consumer groups, the Consumer Federation of America supports your bill to amend
the Motor Vehicle Information and Cost Savings Act to require the establishment
of federal requirements regarding the disclosure and reporting of salvage vehicles
and manufacturer buyback vehicles.

For most of us, the car is either the first or second largest purchase we will make.
In addition, there are few products that we buy which have a greater impact on our
own health and safety as well as the public health of America. As such, we are con-
cerned any time a consumer buys a motor vehicle for which full disclosure has not
been made on that motor vehicle's history. In fact, unless a rebuilt motor vehicle
has passed a rigorous safety inspection, it may be a hazard to the purchaser.

Wnat is particularly important in your bill is the requirement that consumers be
told of "lemons." All too often car dealers will resell vehicles whose mechanical prob-
lems are so severe that the manufacturer took the car back. These cars should not
be resold without the full disclosure that your bill would require.

We believe that the five specific requirements of your bill will go a long way to
assist the American consumer in making an informed and safe choice when it comes
to a used motor vehicle. This is particularly important because each year an esti-
mated 18 million of us buy used motor vehicles, primarily because they are less ex-
pensive than new cars. Your bill will help ensure that those of us who cannot afford
orand new cars will not be subjected to safety hazards because of that fact. In addi-
tion, public notification of which vehicles are, in fact, salvage vehicles will affect
their price, thereby lowering the cost of salvage vehicles to those customers who
may want to purchase such a vehicle.

We appreciate the efforts that you are making to protect the American consumer
and support your efforts to pass this bill during this session of the U.S. Senate.
Sincerely,

Jack Gillis,
Director of Public Affairs.



Prepared Statement of the Association of International Automobile

Manufacturers

The Association of International Automobile Manufacturers, Inc. ("AIAM") is the
trade association that represents the U.S. subsidiaries of international automobile
companies. AIAM member companies distribute passenger cars and light trucks
that are either imported into or manufactured in the U.S. Altogether, the inter-
national automobile industry supports more than 400,000 U.S. jobs in such areas
as manufacturing, the supplier industry, dealerships, transportation, port and R&D
facilities.



44

There is a great need for uniformity in "title branding" of vehicles repurchased
under state lemon laws. AIAM supports the following federal preemptive provision
that would guarantee complete uniformity: "The provisions of this Act shall super-
sede any and all State laws insofar as they may now or hereafter relate to any dis-
closure of whether a motor vehicle is a manufacturer buyback vehicle." This lan-
guage is clear and unambiguous and should be substituted for the current preemp-
tion language in S. 1232.

This language mandates uniform notice procedures among the states. It would not
establish, nor does AIAM seek, preemption of the substantive retjuirements of the
various state lemon laws. The states' mterest in regulating in this narrow area is
outwei^ed by consumer benefits to be deprived from uniform treatment of this
interstate problem. Indeed, the state attorneys general clearly recognized the need
for uniformity when they adopted a model title branding jaw.

Tracking repurchased vehicles is an interstate problem. After being repurchased,
most vehicles are returned to the manufacturer who sells them at auction. The auc-
tion frequently does not take place in the state where the vehicle was repurchased.
Moreover, those entities that purchase at auction may reside in another state, and
may in turn sell the vehicles in yet a third or fourth state. Cars are moved around
to meet the needs of the used car market and consumer demand. The process can,
and frequently does, involve a number of states. Indeed, the vehicles may travel
across vast areas of the country after being repurchased.

Both the states and manufacturers have recognized the need to provide disclosure
to consumers concerning vehicles that have been repurchased under state lemon
laws. However, because of the interstate nature of the resale process and the num-
ber of different parties involved in the chain of transactions, neither has been fully
successful in providing notice. Most manufacturers have elaborate notice procedures.
For some, auction purchasers receive forms making full disclosure of the reasons for
the repurchase. These forms must be signed by purchasers who are, in turn, di-
rected to give further notice to the next purchaser.

Other manufacturers provide repurchased vehicles with an extended warranty
that only begins when the ultimate consumer advises the manufacturer which in-
cludes acknowledgement of the vehicle's history. However, because manufacturers
do not themselves resell the vehicles to consumers, they cannot guarantee that in
all cases the notice will be carried along with the vehicle.

In recent years, a number of states have enacted laws requiring that notice be
given. However, because the states cannot act beyond their own borders, such notice
does not necessarily travel with the vehicle. Recognizing that notices could be re-
moved from the vehicles, several states have passed legislation that would require
the titles of vehicles to be branded if they have been repurchased by manufacturers.
Only a few states have enacted such legislation, and because of the interstate na-
ture of the transactions, there have been times when vehicles have been moved from
a state that has branding and retitled in a state that does not have branding. The
"clean" title can then be used to avoid the brand when the vehicle is ultimately re-
sold. This highlights the need for a uniform nationwide system in this area.

The current patchwork of legislation cannot guarantee that the vehicle's history
will travel with it. Despite the promotion of uniformity by the state attorneys gen-
eral, the statutes are inconsistent from state to state. This lack of uniformity ulti-
mately reduces the value of the information to consumers. For instance, the require-
ment that triggers the notice or branding requirement varies substantially. In some
states, any vehicle repurchased by a manufacturer for any reason may be subject
to the notice or branding statute. Other states, seeking more certainty in the nature
of the trigger provision and hoping to avoid chilling manufacturers' goodwill efforts,
have limited the notice requirement to those vehicles subject to adjudicated repur-