Federal legislation is needed to prevent flood-damaged vehicles from making their way to dealers' lots and consumers' driveways, says Jack Kain, chairman of the National Automobile Dealers Assn.
“Massive storms like Katrina have a way of showing us exactly where our weaknesses lie,” he says. “And one of our weaknesses, in the largest sector of the U.S. retail economy, is a lack of accurate and timely title information.”
That lets illicit salvage handlers surreptitiously clean up and sell flood-damaged cars to dealers and consumers who are unaware of the vehicles' water-logged histories.
“We're talking about title fraud,” says Kain. “Franchised dealers are the first line of defense when it comes to protecting buyers from purchasing damaged vehicles. But dealers themselves can easily fall prey to title washing. Dealers buy as many used cars as consumers do.”
The number of flood-damaged vehicles from Hurricane Katrina, alone, is 570,000, estimates Carfax, a provider of vehicle histories.
“Many of these cars sat in contaminated water for days and should be entirely junked,” Kain tells the Automotive Press Assn. in Detroit. He fears “the very real prospect” that many of them will be illegally salvaged.
He calls for federal legislation that would require uniformity in the way state motor vehicle departments process titles.
“When one state brands a title for flood damage, and the vehicle is then sold in another state, the title brand doesn't necessarily carry forward,” says Kain.
Titles document vehicle characteristics such as make, model and age. Title brands are signals to prospective buyers that vehicles have sustained certain types of significant damage, such as flooding or a major collision.
“But even so, there are so many title brands, it is hard to keep them all straight,” says Kain. Among them are “reconstructed,” “salvage,” “rebuilt salvage,” “junk,” “unsafe,” “non-repairable” and “repaired.”
“In a given state, who knows what each of these means?” says Kain.
He calls for a national electronic database that:
- Gives buyers — both consumers and dealers — immediate access to up-to-date information.
- Makes title information available before the purchase. “If our goal is to prevent fraud, then providing information after (a vehicle) has been sold helps no one,” says Kain.
He says the technology to make title data available already exists. Companies such as Carfax and Experian use it daily. But they buy the data in bulk, not real-time, and from a variety of inconsistent sources.
“The information may not be complete and is not necessarily current,” says Kain. “In fact, the title information from some states lags behind by as much as two months.”
He urges all departments of motor vehicles to make their title data more accessible, “so that private-information vendors can provide national transparency.”
Referring to privacy laws, he adds: “We are not seeking — and we do not need — information about who owns a specific vehicle.”
He says Congress should use incentives to prod all the states to make their title laws more uniform and adapt consistent terms and definitions for damaged cars that are salvaged.
“The law should encourage the states to carry forward brands,” says Kain. “No one should be able to wipe a title clean simply by re-titling a vehicle in another state.”
Not only does it invite fraud and result in buyers paying more than a vehicle is worth, “more importantly, motorists are unknowingly driving seriously damaged vehicles,” says Kain.
In the aftermath of Hurricane Katrina and Rita, he also urges insurance companies to make title information readily available to the public. He says auto makers should disclose vehicle identification numbers of cars and trucks totaled by the storms.