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COPYRIGHT 2002 Consumers Union of the United States, Inc.
When a car or truck has been so badly damaged in an accident that an insurance company declares it a total loss, it usually means the labor and parts required for proper repair would cost too much, given the vehicle's worth. You might think that would put severely damaged vehicles on a one-way trip to the junkyard for parts or scrap.
Instead, hundreds of thousands of these wrecks make a U-turn each year and get right back on the road. One big reason: Insurance companies, which own the piles of twisted metal after they pay off a total-loss claim, have discovered they can get more bucks for the bang-ups if they sell the wrecks at salvage auctions. The practice has fostered a thriving industry that rebuilds severely damaged vehicles--craftily enough to hide their traumatic pasts yet cheaply enough to turn a sizable profit.
Some of the new breed of rebuilders are refugees from criminal pursuits, says Bill Brauch, director of the consumer-protection division of the Iowa attorney general's office. "Instead of rolling back odometers, people who wanted to defraud consumers turned to rebuilding damaged cars whose history could be concealed," he says.
This shadow auto industry now annually beats, bends, and bangs out as many as 400,000 rebuilt wrecks that are five or fewer model-years old, CONSUMER REPORTS estimates; no authority keeps track of the total. That represents 3 percent of the 13 million used vehicles sold in that model-year group in 2001. But the number looms large, because rebuilt wrecks, like all used vehicles, are not subject to federal safety standards.
Insurers say that as much as they disdain shoddy rebuilding, they cannot stop it. "Once we sell the vehicle to a salvage yard, there's very little we can do to influence the process," says Mary Beth McDade, a spokeswoman for Progressive Insurance, the nation's fourth largest auto insurer.
The Highway Loss Data Institute (HLDI), a leading highway-safety institute funded by the insurance industry, and several other data providers hold key information that could help reveal the scope of the problem. But industry officials say they cannot release their data, citing confidentiality concerns and contractual prohibitions. As a result, the full extent of this murky enterprise is largely unknown. (See "What We Don't Know" on page 34.)
But according to a CONSUMER REPORTS study using data from the National Highway Traffic Safety Administration (NHTSA) and the database of Carfax, a company that sells vehicle history reports to consumers and businesses, 20 percent of vehicles that were damaged severely enough to be "totaled"--that is, labeled by an insurer as not worth repairing--after fatal accidents in the U.S. from 1993 through 1999 were rebuilt, reregistered, and put right back on the road.
Our six-month investigation also found the following:
* There's no way for consumers to know for sure the history of a used vehicle. States have widely differing laws concerning rebuilding practices and damage disclosure, and critical oversight is lacking in most states. It's not uncommon for rebuilt wrecks to hopscotch from state to state, receiving new titles "washed" of any hint of past problems.
* Overall, 30 percent of vehicles that had been totaled after a fatal accident and then put back on the road with a title that disclosed the damage had that disclosure subsequently removed, our study found.
* Wrecked cars can be rebuilt safely, experts say. But there are strong financial incentives to cut corners. Consumers should especially steer clear of newer-model vehicles that have been totaled and rebuilt, unless a trusted mechanic can vouch for the repairs. The damage is usually severe, which can encourage rebuilders to skimp on repairs to make a profit.
This report tells you the best way to identify such vehicles before you buy a used car and what to do if, after reading this, you think you may own one.
FLAWED DISCLOSURE
Used-car buyers have always had to be wary of unscrupulous individuals fobbing off a "cream puff" previously creamed in an accident. In all states except Wyoming and the District of Columbia, the used car's certificate of title is supposed to tell about severe accident damage. But title disclosure is incomplete. For starters, accident disclosure is required only if damage exceeds typically 70 percent or more of the vehicle's pre-accident book value or the insurer declares the vehicle a total loss. Lesser damage is not disclosed on the title.
In most cases, when an insurance company declares a total loss, it pays off the policyholder's claim and takes title to the vehicle. Often, the insurer must then apply for a different type of title for that vehicle, one generically known as "salvage," though different states use other designations, including "junk," "unrebuildable," "scrap," and "parts only. "Whatever it's called, a salvage title's key distinction is that it declares the wreck not worth repairing, as far as the insurer is concerned, and doesn't allow the vehicle to be operated on public roads.
At this point, the wreck itself usually sits at a salvage auction company, which often obtains the salvage title and handles other paperwork as agent for the insurer. Three national chains, ADESA Impact, Copart, and Insurance Auto Auctions, sell insurance salvage vehicles almost exclusively at auctions throughout the country and handle about half of the estimated 2.5 million vehicles totaled each year. (Other auction chains sell unwrecked fleet, auto-rental company, and off-lease vehicles.)
From here, the car or truck might be sold to a dismantler for parts, a scrap processor, or a rebuilder or used-car dealer who works with a rebuilder to put the vehicle back together. In any event, the salvage title is transferred from the insurer to the buyer. If the wreck is rebuilt, it must regain a...
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