It is likely that dealerships in areas affected by Hurricane Sandy will encounter consumers attempting to trade in flood-damaged vehicles. Moreover, because of the size of the storm and number of vehicles located in affected areas, there is heightened risk that vehicles damaged during Hurricane Sandy may end up being sold at auctions throughout the country. Therefore, your staff should work diligently to inspect trade-ins and auction purchases for potential damage related to the storm. Do not rely solely on vehicle history reports or title inquiries to detect potential flood damage to vehicles that may end up in your dealership’s inventory.
Many states require titles to flood damaged vehicles be branded accordingly. Unfortunately, there are several states that do not have such requirements and are havens for those seeking to ‘wash’ titles to flood damaged vehicle. While vehicle history reports are helpful for detecting prior damage or conditions that may impair title, there are several reasons why dealers should use inspection processes that include physical inspections of trade-ins and auction vehicles for signs of flood damage. First, not all insurance providers report information to the companies that offer vehicle history reports. There are often delays between when insurance companies report issues with vehicles and when the vehicle history reports show the issues. In reality, such occurrences may not show up on reports until months or years have passed. Therefore, it is possible that an owner of a flood-damaged vehicle could trade in the vehicle without the vehicle history reports and the title showing any issues. Dealers who are not alert to this possibility could inadvertently purchase the vehicle and subsequently sell it to a third party, only to learn about the flood damage after it eventually shows up on a future vehicle history report or after further examination of the title history. If the dealership advertises or sells the vehicle to a consumer without properly disclosing the prior flood damage, the consumer will likely sue for fraud and violation of his state’s consumer protection law.
Your staff should thoroughly inspect every vehicle that the dealership chooses to inventory and sell, whether the vehicle will be sold eventually to a retail or wholesale buyer. Do not rely on your dealership’s compliance with your state’s safety inspection requirements to protect your dealership, as these types of inspections may not be thorough enough to detect flood damage. If you determine that a vehicle already in inventory has prior flood damage, you will need to act quickly to avoid making further misrepresentations to consumers regarding the vehicle’s condition. Your staff must be aware on how to properly disclose the vehicle’s condition to prospective buyers.
Remember, the courts see you and your staff as experts on the products you sell. Your business is held to a higher standard of care than a private seller in a similar transaction. The thoroughness of your inspection at the time you acquire your inventory may help mitigate potential future loss.