PRELIMINARY REPORT:
RESALES OF VEHICLES DETERMINED TO BE LEMONS

EXECUTIVE SUMMARY

Auto lemons are commonly transported and resold, sometimes within the same state, but more often across state lines, and occasionally across the entire continent. For this report, the Consumers for Auto Reliability and Safety Foundation obtained Vehicle Identification Numbers (VINs) for vehicles determined to be lemons in 7 states, then obtained their title histories, showing where they had been retitled.

The lemon retitling patterns indicate that factors other than market forces dictate the disposition of lemon vehicles. It is evident that many manufacturers' policies regarding the resales of lemons are not uniform across America, but instead apparently reflect differences among various states.

Furthermore, after resale, only a tiny fraction of lemons appeared to bear a "lemon" title brand. Out of 498 title reports, only 3 showed that vehicles were branded as lemons. There are several possible explanations for this. Only 16 states and the District of Columbia require titles to be branded. Vehicles were resold predominately in states that do not require title branding. In some states, the actual titles may be branded, but the brands may not be reflected in the computer database. (See Methodology, below.)

The most striking observation is the dramatic variation in resale patterns among states. For example, 100% of the lemons bought back in Vermont, Massachusetts, and Georgia were either retitled in another state or in "auction." This pattern persisted, and was entirely consistent, even though the lemons were manufactured and presumably repurchased by a variety of domestic and import auto companies.

For example, in Vermont, vehicles manufactured by Chrysler, General Motors, Ford, Toyota, Isuzu, and Suzuki were determined to be lemons. Because Vermont provided the CARS Foundation with copies of the lemons' titles, we know that they were branded on their titles with the notation "THIS VEHICLE WAS RETURNED PURSUANT TO LAW--DEFECT SUBSTANTIALLY IMPAIRS THE USE, MARKET VALUE, OR SAFETY. 9 V.S.A. CHAPTER 115." Subsequently, they were either retitled across state lines with apparently clean titles or were placed in "auction."

In Massachusetts, lemons manufactured by Chrysler, General Motors, Ford, Isuzu, Mazda, Mitsubishi, and Nissan were retitled in other states or were placed in "auction." In Georgia, the same pattern held for vehicles produced by BMW, Chrysler, General Motors, Ford, Hyundai, Mazda, Mitsubishi, Nissan, Toyota, and Volvo.

In stark contrast, a totally different pattern exists in Florida, Texas, and Washington. Not only were large percentages of vehicles repurchased in those states also retitled there, but wide variations exist among auto manufacturers whose vehicles were determined to be lemons.

In Florida, 60% of the 98 lemon vehicles repurchased in 1995 were retitled within the state. Some manufacturers show an even more pronounced departure from the pattern in Vermont, Massachusetts, and Georgia. For example, 30 out of 32, or 93%, of Fords were retitled within Florida, and show no subsequent titles. Ford's corporate partner Mazda followed a similar pattern, with 100% of its 6 lemons retitled within the state. However, the majority of Toyota's lemons were retitled in other states, with most retitled in Texas or Oklahoma. Mercedes' lemons were typically first retitled in New Jersey, then subsequently retitled outside Florida in states such as South Carolina, Illinois, and Kentucky, or placed in "auction."

Hawaii shows a pattern that differs from other states. Lemons produced by domestic manufacturers Chrysler, Ford, and General Motors were typically auctioned off in the Pacific Northwest or Southwest and retitled in states such as Arizona, California, and Oregon. Some of their lemons were placed in "auction" in the Pacific Northwest, and do not appear to be retitled within the United States. (One possible explanation, which is subject to further confirmation, is that they were purchased by dealers in Canada.) One Saab lemon was later retitled in North Carolina. Lemons produced by importers Mazda, Mitsubishi, Hyundai, and Nissan were retitled on the Hawaiian Islands, but not in large enough numbers to show a distinct pattern.

In sum, the lemon retitling patterns indicate that factors other than market forces dictate the disposition of lemon vehicles. It is evident that many manufacturers' policies regarding the resales of lemons are not uniform across America, but instead are designed to take advantage of differences among various state laws and limitations among jurisdictions.

BACKGROUND AND METHODOLOGY

In preparation for comments filed with the Federal Trade Commission, the Consumers for Auto Reliability and Safety (CARS) Foundation conducted research regarding the resales of vehicles determined to be lemons in those states that track them.

Every major state in the nation, with the exception of California, offers a state-administered arbitration program to resolve auto lemon disputes. Twelve states--Connecticut, Florida, Georgia, Hawaii, Maine, Massachusetts, New Hampshire, New Jersey, New York, Texas, Vermont, and Washington--offer independent arbitration programs. Together, they represent about 33% of the U.S. auto market.

Typically, those programs are administered by the state attorney general or office of consumer affairs, which in turn contracts with an arbitration service. Generally, those states require the arbitrators to apply the state's lemon law.

The CARS Foundation requested from those twelve states the Vehicle Identification Numbers (VINs) of vehicles that were determined in arbitration to be lemons. Therefore, this report does not reflect the entire universe of lemons, including "trade-assists," so-called "goodwill" buybacks, pre-decision buybacks, or settlements prior to hearings in arbitration or court. Instead, its sole focus is upon only those vehicles where:

1. The consumer filed for arbitration.

2. No settlement was reached.

3. An arbitrator or panel of arbitrators determined that a vehicle was a lemon, and awarded a refund or repurchase.

Not all the vehicles we sought could be included in this report. We could not obtain VINs from New York. Title histories from vehicles repurchased in Connecticut, Maine, New Jersey and New Hampshire have proven difficult to obtain in time for this report. Of the 27 VINs from Vermont lemons, we could secure title histories of only 12 vehicles. Varying percentages of title histories were not available for some states' lemons due to computer program problems or invalid VINs. Should more complete data become available, the CARS Foundation will incorporate it for submission to the FTC at a later date.

This report is based upon VIN numbers of vehicles determined to be lemons during 1993 through 1995 (unless otherwise noted), and supplied by the following 7 states, comprising nearly 25% of the U.S. new auto market:

Florida (only determinations made in 1995; earlier cases withheld due to the Attorney General's ongoing investigation)

Georgia

Hawaii

Massachusetts

Texas

Vermont

Washington (includes vehicles determined to be lemons from 1988 through April, 1996, provided the manufacturer reported to state authorities that the vehicle would have an out-of-state disposition)

This report is also based upon information supplied by Carfax, which includes the following disclaimer in its title histories: "Disclaimer of warranty. This report is based upon information supplied to Carfax by independent, external sources believed to be reliable, but no responsibility is assumed by Carfax or its agents for errors, inaccuracies or omissions. Carfax further expressly disclaims all warranties, express or implied, including any implied warranties of merchantability or fitness for a particular purpose regarding its goods or services." At the time this data was obtained, Carfax had data for 45 states, excluding Wyoming, Nevada, New York, Vermont, and Rhode Island.

In addition, the CARS Foundation notes that our report relies upon information supplied by independent agencies and organizations, and the facts regarding each individual case are subject to further confirmation.

NUMBERS OF TITLE HISTORIES IN REPORT

The Consumers for Auto Reliability and Safety Foundation's report is based upon a total of 498 title histories of vehicles that were determined to be lemons.⁽¹⁾

STATE # OF TITLE HISTORIES

Georgia 46

Florida 95

Hawaii 26

Massachusetts 21

Vermont 12

Texas 62

Washington 236

Total: 498

STATE-BY-STATE SUMMARIES

GEORGIA:

All of Georgia's 46 lemons were retitled in other states or were in "auction." None had been retitled within Georgia.

19 "auction"

8 Florida

5 South Carolina

4 Alabama

3 Virginia

2 North Carolina

1 in each state: Maryland, Texas, Indiana, Colorado, and New Jersey

0 Georgia

Total: 46

FLORIDA:

Most (65%) of Florida's 98 lemons were retitled within the state. Only 3 were in "auction," and had not been retitled.

64 Florida

7 Texas

4 in each state: Georgia, Oklahoma, and South Carolina

3 "auction"

2 in each state: Virginia, Kentucky, and Alabama

1 in each state: Arkansas, Illinois, Louisiana, Ohio, Colorado, Indiana

Total: 98

HAWAII:

Most (80%) of Hawaii's 26 lemons were retitled in the mainland U.S or were in "auction." Only 5 remained on the Islands.

7 "auction"

5 in each state: Hawaii, Oregon

3 Arizona

2 California

1 in each state: Oklahoma, Washington, Minnesota, North Carolina

Total: 26

MASSACHUSETTS:

All (100%) of Massachusetts' 21 lemons were either retitled in another state or were in "auction."

8 "auction"

4 New Jersey

3 New Hampshire, Virginia

1 Pennsylvania, Colorado, Ohio

0 Massachusetts

Total: 21

TEXAS:

Most (72%) of Texas' lemons were retitled within the state. Even those that were later transferred to other states were, almost without exception, first retitled within Texas.

45 Texas

6 Oklahoma

3 Arkansas

2 "auction"

1 in each state: Colorado, Florida, Michigan, Montana, South Carolina

Total: 62

VERMONT:

All (100%) of Vermont's 12 lemons were retitled in another state or were in "auction."⁽²⁾

4 "auction"

3 New Jersey

2 New Hampshire

1 in each state: Maine, Michigan, Minnesota

0 Vermont

Total: 12

WASHINGTON:

Most (32%) of Washington's lemons were subsequently retitled in neighboring Oregon. Another 20% were retitled within Washington. (Note: these were vehicles that manufacturers had reported to state authorities as "out-of-state" disposition vehicles.)

77 Oregon

48 Washington

32 Idaho

17 Utah

10 "auction"

9 Texas

8 Montana

7 Colorado, New Jersey

4 California

3 Florida

2 Oklahoma

1 in each state: Connecticut, Iowa, Kentucky, Louisiana, North Carolina, Ohio, Minnesota, Missouri, Virginia

Total: 236

VEHICLES IN "AUCTION"

Among all 7 states, a total of 62 vehicles, or 12%, were not retitled to a subsequent owner, but instead were designated as being in "auction." There are several possible explanations for the disposition of these vehicles, including that they are not within the database, due to being retitled in Rhode Island or New York; or they were shipped out of the country; or they remain on a lot for resale.

The percentage of vehicles in "auction" varied markedly from one state to the next, with Georgia having the highest percentage of vehicles in "auction," and Washington, Florida, and Texas the lowest percentages.

Percentage of vehicles in "Auction":

41% Georgia

38% Massachusetts

33% Vermont

26% Hawaii

4% Washington⁽³⁾

3% Florida and Texas

TITLE BRANDING

Sixteen states and the District of Columbia require the titles of lemon vehicles to be branded, with varying criteria for when the provisions apply. Those states are Alabama, California, Connecticut, Florida, Idaho, Indiana, Iowa, Louisiana, Maryland, New Jersey, New York, South Dakota, Utah, Vermont, Washington, and Wisconsin.

"Lemon" brands

Of the total 498 title histories, only 3, or .6%, reflect lemon brands. Those are:

1. A 1993 Ford that was determined to be a lemon in Hawaii, and was retitled on March 19, 1996 as a "Lemon Law Buyback" in California

2. A 1993 Dodge that was determined to be a lemon in Washington state and was retitled in Connecticut on July 1, 1995 as a "Manufacturer Buyback," then placed in "auction"

3. A 1990 Volkswagen that was determined to be a lemon in Washington state, placed in "auction," and retitled in California on January 21, 1995, as a "Manufacturer Buyback"

The title on one vehicle, a Nissan determined to be a lemon in Washington, was branded on June 13, 1994 as "Comments" in Louisiana, which may indicate a lemon brand.

Out of 262 lemons bought back since 1993, only 21 (8%) were resold in states with title-branding provisions.⁽⁴⁾

"Salvage" or "Junk" brands

Another 10 vehicles bore other brands indicating that they had been retitled as "rebuilt," "salvage," "reconstructed," or "Junk." However, this brand may appear as the consequence of a collision, rather than because the manufacturer chose to junk the vehicle due to its defects.

1. For reasons noted above, title histories were not available for all VINs submitted to the CARS Foundation by the 7 states.

2. Please note that 27 titles were submitted to Carfax, but only 12 reports were received. Vermont is not included in Carfax's database, so vehicles may have been retitled within the state, but would not have been reported.

3. Includes vehicles bought back as early as 1988.

4. Excluding Washington state's 236 lemons, many of which were repurchased as early as 1988, before other states had enacted title branding provisions.