Chrysler, DMV Feud Shines Light on Lemon Law

Four years after the California Department of Motor Vehicles slapped Chrysler Corp. with a stiff penalty for violating the state’s automotive “lemon law” by allegedly reselling defective vehicles to unsuspecting buyers, the auto maker continues to dodge the bullet.

The 1996 case against Chrysler marked the first time a U.S. state agency had ordered the suspension of an auto maker’s business license. Under the DMV order, Chrysler’s license was to be lifted for 45 days, preventing the shipment of new vehicles to California during that time. (California Chrysler dealers could still sell vehicles they had in stock, however.)

Chrysler’s penalty for having allegedly resold 116 lemons between 1991 and 1992 without disclosing the vehicles’ repair history was praised by consumer advocates as a victory for auto buyers.

But to this day, the company’s license has yet to be suspended and it is business as usual for the auto maker--now part of DaimlerChrysler.

In its battle against the DMV, Chrysler persuaded the California New Motor Vehicle Board to overturn the suspension. The nine-member state board, which includes four auto dealers, handles disputes between dealers and auto makers and hears DMV appeals. The governor appoints seven of the members and the Assembly and Senate each get one appointment. While considered an independent entity, the board operates under the DMV’s budget and administration.

The board’s decision to overrule the DMV in the Chrysler case led to an appeal by the department. The legal wrangling continues and, as it now stands, the case will be referred to an administrative law judge for further hearings, including a review of evidence that Chrysler maintains was withheld by the DMV from the original judge in the case.

That evidence includes internal DMV memos indicating that the agency may have been sloppy in handling vehicle title “branding”--indicating its lemon history, as required by law.

“We are going back for a complete reconsideration of the case in light of both the memos that came out showing that the DMV had not been branding vehicle titles. . . . They admitted later they had no process to do so,” said Chrysler attorney Jackie Glassman.

“What is going to happen at the hearing is an investigation of the DMV . . . and the extent to which the DMV was imposing different standards on Chrysler” than on other auto makers, Glassman says. She contends that “most of the 116 vehicles were not bought back for lemon law reasons.”

Chrysler has bought back cars to satisfy customers or resolve issues before they ever reach the lemon law stage, she said. “We’ve even bought vehicles back because someone didn’t like the paint,” Glassman said, adding that Chrysler is “confident that there will be no penalty imposed and no findings against us” when the case is concluded.

But auto safety advocates, who are continuing to push for an immediate 45-day penalty against Chrysler, believe that sanctions would send a powerful warning to auto makers that may engage in auto lemon laundering.

“There’s the saying, ‘Justice delayed is justice denied,’ and I can’t think of a better case than this to exemplify that,” said Clarence Ditlow, executive director of the Center for Auto Safety in Washington. He argues that even if the DMV had kept sloppy records, “it does not excuse Chrysler for failing to disclose auto lemon defects to purchasers.”

For its part, the DMV still wants the 45-day moratorium imposed.

Under California’s current lemon law, manufacturers are required to buy back vehicles under warranty if defects cannot be fixed by an authorized dealership or repair shop after four attempts. And before a lemon can be resold by the manufacturer or dealer, the defect must be repaired and the title must show that the vehicle was a lemon-law buyback.

Additionally, California’s Consumer Notification Act requires the seller of a vehicle with a history of repair problems to disclose those problems to prospective buyers.

Now there’s a proposed tougher state lemon law, sponsored by Consumers for Auto Reliability and Safety, a Sacramento-based consumer group. The measure, awaiting action in the California Legislature, would give auto makers only two chances to fix defects before they are required to buy back the vehicle.

The Chrysler case is an example of why tighter lemon laws are necessary to protect consumers, said CARS President Rosemary Shahan. “The public’s safety is at stake” because when people are unwittingly driving defective vehicles, it makes it “phenomenally dangerous out there,” she said.

Shahan called the delay in imposing sanctions on Chrysler “bad news for consumers because [auto makers] feel they can get away with it.”

Despite the passage of other lemon laws around the country, “we are still hearing about auto manufacturers selling lemons under the radar screen of the law,” Shahan said.

Resale of vehicles deemed lemons is a major problem nationwide, Ditlow said.

“There are at least 100,000 lemons bought back [by auto makers] each year. And at an average price of $20,000, that’s $2 billion worth of lemons,” he said.

And when auto makers and dealers resell the vehicles, he said, there’s a financial incentive to hide the fact that they had been defective. A vehicle branded as a repaired lemon will sell for about 25% less than a similar vehicle without a history of problems, according to Ditlow.

While a 45-day business license suspension in California “wouldn’t have a big economic impact on Chrysler,” he said, “it would leave a huge stigma of shame” and send a message to other car makers.

Though Chrysler and other manufacturers have been reprimanded or penalized for alleged auto lemon laundering in other instances, no major auto maker has ever had its business license suspended in any state, Ditlow said.

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Jeanne Wright cannot answer mail personally but responds in this column to automotive questions of general interest. Write to Your Wheels, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. E-mail: jeanrite@aol.com.