Dealers’ repeat sales of same used car surprisingly common

In July 2009, an educational charity sold an 11-year-old Oldsmobile Intrigue at auction, where it was bought by Auto World Auto Sales.

The Sacramento dealership, which advertises “in-house financing,” put the aging sedan on its lot and quickly found a buyer willing to pay $4,899. Six weeks later it was repossessed and sold to someone else. A few months later, the car was repossessed and sold again. And again. And again. And again.

All told, the Olds, which at last count had 182,000 miles, has been sold eight times by Auto World Auto Sales. None of the owners kept it longer than six months.

The practice of selling the same car multiple times, known as “churning,” was explored in a series of Los Angeles Times articles last year. Now, a comprehensive analysis of California vehicle sales shows that churning turns out to be a surprisingly common practice in the state.

From mid-2008 to this April, 862 licensed used-car dealers — about 1 in 8 statewide — sold at least one vehicle three or more times, The Times has found.

Some did it more frequently than that, according to a Times review of 2.2 million Department of Motor Vehicles sales transaction records. One dealership, Repossess Auto in Hawthorne, sold more than 750 cars at least two times over the last four years.

The new findings come amid debate in Sacramento over three bills that aim to impose sweeping new regulations on the so-called Buy Here Pay Here industry.

These dealerships, which finance their own deals rather than use outside lenders, sell cars to low-income people with damaged credit who can’t qualify for a loan elsewhere.

Because their clients have little leverage, Buy Here Pay Here dealers can charge interest rates topping 30% and demand large down payments. In some cases, churning can be used to boost profits. Dealers collect large down payments and then repossess quickly when customers default so that the vehicles can be offered for sale again.

The bills, two of which await key committee votes in the statehouse this month, include provisions to cap the interest rate such dealers can charge and force them to disclose the fair market value of every car on their lots. The proposed legislation would also require them to register as lenders with the state.

All three bills sailed easily through floor votes in their originating houses in the spring. But they have faced mounting opposition from used-car dealers, who contend that increased regulation could put many lots out of business. Last week the dealers gained support from the state Department of Finance, which expressed doubt about the frequency of such abuses.

Assemblyman Mike Feuer (D-Los Angeles), who wrote one of the bills, said the intent is to curb potentially predatory practices, including churning, which he said were underreported and potentially devastating to low-income families who need reliable cars to get to work.

“The practice of turning over high-mileage vehicles multiple times underscores why we need to have this legislation,” Feuer said. “You want these transactions to succeed, and that doesn’t mean selling the same car many times over. It means the consumer keeps the car.”

If passed, he said, the bills could protect consumers such as Clemella Fields, who was the seventh — but not last — buyer of the 1999 Oldsmobile Intrigue at Auto World Auto Sales in February.

A 26-year-old single mother of three, she needed a car to get to her new job as a home healthcare aide. She agreed to pay $3,899 — roughly double book value — and put down $1,200 cash on the deal.

As the due date for her first installment approached, Fields realized she’d need a few extra days to scrape together the $220 payment. The dealership wouldn’t wait. It repossessed the car a week after the payment was due, Fields said.

At the lot, she pleaded for her wallet, stroller and child car seat, all of which were in the car. “I was crying and begging for them to give me my money,” Fields said. “They know people don’t have the money to get their cars back. They take advantage of you.”

Since mid-2008, Auto World Auto Sales has sold more than 30 cars at least three times apiece, DMV data show. The Oldsmobile, advertised for sale last month, has since been sold again, a salesman said. Auto World Auto Sales’ owner, Joe Darling, did not return numerous calls seeking comment.

One of the pending bills, by Sen. Ted Lieu (D-Torrance), would prohibit Buy Here Pay Here lots from repossessing a car during a 10-day grace period after a payment is due. It also would cap interest rates at 17% plus the federal funds rate (currently at 0.25%). In addition, it would oblige dealers to use a third-party towing service when they take cars back, making repossessions more costly.

Feuer’s bill, which passed committee last week and is awaiting a Senate floor vote, has a provision requiring Buy Here Pay Here dealers to offer 30-day warranties on every car they sell. That, too, could reduce repossessions since many defaults occur within weeks of sale, when the cars sometimes stop running and customers refuse to pay.

The third bill, by Assemblyman Bob Wieckowski (D-Fremont), requires dealers to post a fair market value on cars. Like Lieu’s bill, it passed its originating house and is awaiting an appropriations committee vote. The bills have found support from consumer groups and numerous chambers of commerce.

Used-car dealer trade groups, along with an alliance of Buy Here Pay Here dealers called the Coalition to Protect our Freedom to Drive, contend the new regulations would force hundreds of dealers out of business, costing the state as much as $337 million in lost sales taxes.

Dealers argue that churning is practiced rarely, if it all.

“It’s not something I’m aware of going on very frequently,” said Larry Laskowski, executive director of the Independent Automobile Dealers Assn. of California. “What I hear over and over again is dealers that want to keep their customers in cars.”

He said that every time a car comes back to the lot to be resold, dealers face a host of expenses that cut into their profits, including fees to repo men, repair and cleaning costs and commissions to salesmen.

Other industry experts, including Rick Garrett, a former Buy Here Pay Here dealer in the San Francisco Bay Area who now works as a legal consultant for consumer attorneys, said that in some circumstances, churning can simply be good business. Nagging late-paying customers is a headache, and there’s always a risk that cars disappear altogether. By repossessing at the first opportunity, a dealer can score a series of quick down payments on a car the dealership only paid for once.

“A lot of these dealers set their customers up for failure,” Garrett said. “They see your pay stub. They know how much you make, and they structure your payments so you can’t afford them.”

In its analysis, The Times examined sales by roughly 7,000 dealers that sell only used cars. It is difficult to determine how many are Buy Here Pay Here dealers because many do not identify themselves as such.

Most lots operate in a traditional mold, relying on outside lenders for financing. As a result, they don’t typically get cars back in the event of a default. DMV data show that most dealers rarely sell the same car twice — statewide, 2.6% of all vehicles sold by a used-car dealer are sold on the same lot a second time.

Some Buy Here Pay Here dealers, such as Drivetime, a national chain with four California locations that securitizes its car loans, have little incentive to churn because their business model depends on the loans performing. Only 2.5% of its cars were resold, data show.

By contrast, there were 28 used-car dealers in the state that sold at least 20% of their cars more than once.

Since March 2008, 1 of every 3 cars sold by Auto Mario in Petaluma returned to the lot to be sold again. One of them, a 1999 Honda Civic, was sold seven times from January 2009 to February 2012. According to DMV filings, four of the buyers did not have driver’s licenses, while two presented only Mexican driver’s licenses. At last count, the car had more than 214,000 miles.

Mario Perez, owner of Auto Mario, did not return calls for comment.

Repossess Auto, which has moved about 3,000 cars since mid-2008, resold nearly 27% of its inventory, including 11 cars sold at least five times each.

A manager at the lot, which is currently operating under DMV probation for improperly repossessing a car, declined to comment.

Immediately next door is Finance Auto Sales, which has sold 111 cars three or more times. Nearly 1 in 5 of the cars it sells returns to be sold again, data show.

Mark Awad, the lot’s manager, said that he charges “only 21% interest” and requires a $1,000 minimum down payment. He said cars come back because the dealership takes risks on consumers who have a history of defaulting on loans.

“If you look at what we do, it’s a lot of charity work,” Awad said. “We really put people on their feet.”

ken.bensinger@latimes.com

Times staff writer Doug Smith contributed to this report.