Lottery that leaves a bitter taste
By Bill McKinnon
The Sydney Morning Herald
Tuesday July 13 2004
Australians have almost no protection from costly automotive lemons, unlike the US, reports Bill McKinnon.
Buy a car in NSW that turns out to be a lemon and the chances of getting your money back, or a replacement, are negligible.
This is despite the Department of Fair Trading's Consumer, Trader and Tenancy Tribunal having the power to order a refund of the purchase price or the replacement of a dud.
The CTTT, established in February 2002, has been able to provide Drive with only one case in which it ordered the refund of a new car's purchase price to a consumer.
Andrew Eagleston bought a Holden HSV demonstrator sedan, with 800km on the clock, in late 2001.
Over the next two years, the car went back to the dealer, Heartland Holden at Parramatta, seven times and had 12 warranty repairs, mainly to the 5.7 litre V8 engine.
The tribunal accepted Eagleston's allegation that the dealer was aware of the defective engine when the car was sold to him.
Eagleston's request for a replacement engine was refused by the dealer, who after several attempts to rebuild it offered to do so again. After one rebuild, Eagleston told the tribunal, the 5.7 litre V8 was not properly mounted back on to its base and actually fell on to its sump, damaging it in the process.
In April this year, the CTTT found that it had no alternative but to order a partial refund -- $65,000 of the car's original $75,000 purchase price because Eagleston's car had never provided the use which a reasonable motorist would expect and is not ever likely to.
Holden is appealing against the CTTTs finding in the NSW Supreme Court and a hearing has been set for later this month.
Other new car buyers, stuck with what seem to be similarly bitter lemons, have been less successful at the CTTT. In some instances, consumers are having claims rejected on cars that could have serious safety defects.
The CTTT's 2003 annual report quotes the case of Mr X, who bought a new Falcon XR8 Rebel ute for $54,271 in 2001.
Mr X had a few problems over the next eight months with his ute: two failed engines, two failed clutches, one failed gearbox, engine noise and problems with shock absorbers.
A lemon? Not according to the CTTT which, despite finding that Mr X's ute was not of merchantable quality, was satisfied that neither the dealer nor the manufacturer was aware of the defects before the sale of the car.
It also found, according to the annual report, that the dealer had rectified all identified defects and, although the manufacturer took six months to identify the systemic problem, it did honour its warranty by providing replacement parts.
At one stage Ford offered to replace Mr X's ute, but it rescinded the offer the next day. The tribunal did not consider this treatment to be misrepresentation by Ford.
In dismissing Mr X's claim for a refund or replacement, the CTTT also found that the Rebel was a limited edition that was no longer manufactured and it would be impossible to provide Mr X with an exact replacement.
In another case, the CTTT dismissed a consumer's claim for a refund on a new Land Rover Freelander. This car had two failed clutches, which an expert report requested by the tribunal found were caused by using the clutch incorrectly.
However, this Freelander also had steering fluid leaks, wheel alignment, fuel injection and brake problems, a failed turbocharger and other faults which, in all, put it off the road for more than 100 days.
Despite finding that the car's owner had, to some degree, been inconvenienced by this the tribunal rejected his claim for a refund, finding that he had been fairly compensated with a hire car, towing and repairs.
So what exactly is a lemon, according to the law in NSW? That's part of the problem -- there is no clear definition.
If you can't get satisfaction from the dealer who sold you the car, or the manufacturer, and you go to the CTTT, you must prove, on the balance of probabilities, your claim for a refund or replacement.
You need to know your law in some detail when framing your case. You must make a claim, and prove it, that one or more pieces of legislation, both federal and state, such as the Sale of Goods Act, the Fair Trading Act, Motor Dealers Act or the Trade Practices Act, has been breached by the dealer or manufacturer.
The consumer must persuade the tribunal that it is more likely than not that the breach occurred, Regina Haertsch, acting deputy chairperson of the CTTT, told Drive. It is up to the applicant how they set out and support their claim, Haertsch says.
The Australian Consumers' Association argues that this system is not working. "We've tried to help a number of consumers who've been lumped with a lemon," the ACA says, "and have found that it's almost impossible under current law and with current industry practices."
Norm Crothers, a spokesman for the ACA says: "We have had people come to us with some dreadful stories.
"A car is no different from a toaster. Consumers should not have to prove economic loss, or a case under contract law, to get a refund or replacement on a lemon. It should be a simple black and white issue -- if the car is faulty and cannot be fixed, it should be replaced or the consumer refunded their money."
In 1994 the Australian Law Reform Commission recommended in a report to the Federal Government the amendment of the Trade Practices Act to give consumers the right to seek a replacement car (or any other product) and the right to choose a replacement or a refund.
Its recommendation was not adopted. Its report argued that contract law was an inadequate basis for consumer protection because it is premised on both parties having equal economic strength and knowledge. This rarely arises in consumer transactions, says the ALRC. It certainly doesn't arise when a consumer, taking their case to the CTTT, is facing the resources and expertise of a new car dealer and/or manufacturer.
And, if you disagree with the tribunal's findings, you have to hire a lawyer and head off to the Supreme Court, where the inequality between a private individual's financial and intellectual resources and those available to a multinational car maker becomes even greater.
Why our lemon laws are weak
Compared to their American counterparts, Australian motorists are left in the lurch when it comes to lemon laws.
"Perhaps your Consumer Trader and Tenancy Tribunal would be better called the Consumer Turndown and Trade-In Tribunal," Clarence Ditlow, the executive director of the US Center for Auto Safety, says when asked to comment on several cases where NSW car buyers have been unsuccessful at the CTTT in obtaining a refund or replacement vehicle.
The CAS, founded by the US Consumers Union and Ralph Nader in 1970, has since campaigned hard and successfully to have lemon laws introduced across the US.
"The essence of our lemon laws is that if a vehicle contains a defect that substantially impairs its safety, use or value, which cannot be repaired within a reasonable time, or a reasonable number of attempts, the manufacturer must replace the vehicle or refund its purchase price," Ditlow says.
Most US states define a lemon as a vehicle with a defect that cannot be fixed in three or four attempts, or is out of service for 30 days, in the first 12-24 months.
A car is out of service while it is being repaired or waiting for parts. Rather than having to construct and prove a common or civil law case as in NSW, an American car owner simply has to keep accurate records of any attempts to fix their car, give the required notice to a manufacturer that the car is about to qualify as a lemon (before the final attempt at repair) then, if the problem has not been fixed, claim a refund or replacement in writing.
In some cases, if the consumer has enjoyed a period of trouble-free ownership before the car's problems become apparent, an offset, in the form of a partially reduced refund, is awarded.
Several states also have arbitration programs to resolve disputes if a manufacturer refuses to provide a refund or replacement. Some are state run, others are partially funded by the auto industry.
Arbitration is seen by some as a watering down of US lemon laws. Ditlow describes it as a refuge for a manufacturer because it drags the process out. "Even worse, if it's manufacturer run, it lets the fox guard the chicken coop," he says.
Even a well-run state arbitration program will take 70-100 days before a consumer actually gets rid of a lemon, he says. However, an experienced lemon lawyer in a state with a good law can get a consumer out of a lemon within 30 days.
Fifteen US states are particularly uncompromising when it comes to safety related problems, with only two attempts allowed to fix a safety defect such as faulty steering or brakes before a car is defined as a lemon.
Some states allow only one attempt to fix a safety related fault, on the basis that a consumer should not have to risk their life several times for a safety defect.
When asked to comment on the NSW case of the Land Rover Freelander, Clarence Ditlow quoted its steering fluid leak as an example of a safety lemon fault under some US laws.
Drive gave Ditlow details of a 2002 NSW case in which a consumer bought a used Commodore that developed a strong fuel smell in the cabin.
The consumer claimed a refund of the car's $21,000 purchase price. Despite finding that it was clear that the fuel smell had an impact on the merchantable quality of the vehicle, the CTTT decided that this was not sufficient to rescind the contract and awarded the consumer $5500 as a remedy.
In its findings, the tribunal did not place any importance on the possibility that a car with a fuel smell in the cabin might pose a safety risk.
"There is no issue with the general roadworthiness of the vehicle, with the exception of the fuel smell," it stated.
"This is a bright yellow lemon under any US law," Ditlow says. "The finding of the tribunal, under US lemon law definitions, means it could be a safety lemon, but you don't have to go there because the tribunal determined there was a substantial impairment of value. It's an open and shut case."
Ditlow is unimpressed by the levels of protection against lemons provided to NSW consumers and the complex legal process they must negotiate to prove a claim at the CTTT.
The economic loss doctrine that played heavily into these decisions (of the CTTT) has no place in American lemon laws, he says.
"Our laws create a presumption, which arises if a car cannot be repaired after a certain number of attempts, or spends a certain amount of time off the road, that the car is a lemon," he says.
So, while in NSW it is up to you to prove that your car is a lemon, US laws instead place the onus on the manufacturer to prove, if the car in question qualifies as a lemon, that it is not.
In the absence of effective lemon laws, auto companies are always willing to repair and repair and repair a lemon free until the warranty runs out, Ditlow says.
California passed one of the first lemon laws in the US, when a Ford lobbyist was asked how many times was reasonable to repair a vehicle under warranty. When he responded that sometimes even 40 wasn't enough for an elusive electrical problem, the bill became law.
There's no doubt that American lemon laws have been effective. Before their introduction, American consumers obtained annually only 500 refunds from manufacturers. Today the total is well above 100,000 buybacks each year.
In NSW, however, a solitary lemon is all we've identified, in more than two years. We're either driving the best cars in the world, or perhaps just suffering the sour, expensive taste of ineffective protection against the bad ones.
Case studies: Unhappy customers driven to distraction
Customer: John Owens
Car: 2003 Peugeot 307 1.6
Problem: Unintended acceleration. The car would accelerate of its own accord, usually from rest or while moving slowly, without the driver touching the accelerator.
What happened: The car was returned to the dealership four times over eight months. At first, the problem could not be isolated but on the fourth visit a software upgrade was downloaded. It is now "95 percent fixed" says Owens. The car still occasionally revs without being prompted, but catches itself before accelerating.
Customer: Michelle Kenny
Car: 2001 Nissan Pulsar Q
Problem: Began with a whining noise in the clutch, then in September 2003 the car lost all power momentarily when travelling at 100kmh on the M4. A couple of days after this, the car would not start.
What happened: Clutch problem could not be solved by the dealer Kenny bought the car from. She took it to another dealer who replaced the flywheel under warranty. The power failures were caused by a faulty crank angle sensor. In November last year, Nissan initiated a global recall for all Pulsars built between October 2000 and June 2002 to replace the sensor.
Customer: Emmanuel Joseph
Car: 2003 Volvo S40
Problem: Misaligned panels, car leans slightly to driver's side, paint irregularities, worsening irregular engine idle. Owner believes the car was damaged and repaired, before being sold to him.
What happened: Nothing. Owner commissioned three NRMA reports that say there has been panel damage on the right front corner of the car which has been repaired and resprayed. Joseph says the dealership he bought the car from has ignored his complaint and Volvo Australia won't replace the vehicle. He approached the NSW Department of Fair Trading, who say that a dealer is obliged to inform a buyer only if four or more panels of a new or demonstrator car have been damaged and repaired before delivery. Joseph has adorned his vehicle with signs saying "I wish I wasn't a bloody Volvo driver" and drives it to and from work each weekday. He parks it outside the dealership at weekends.
Customer: Sue Darley
Car: 2002 MG ZT 190
Problem: Clutch failed nine days after a scheduled service.
What happened: The broken clutch housing and flywheel were replaced, which cost $3557. Darley says MG blamed driver error for the problem and would not repair the car under warranty, but she says the car was driven normally and had a relatively easy life, being primarily used for regular highway trips between Sydney and Brisbane.
Customer: Peter Hansen
Car: 1998 Land Rover Freelander, purchased used (with 65,000km on the odometer) in 2001.
Problem: Spent $4500 to replace the rear differential, then $10,000 to replace the engine which blew up when the timing belt broke.
What happened: Hansen bought the Freelander from a dealer in mid-2001. It came with a three-year non-factory warranty. After the problems emerged, he discovered the fine print of the warranty excluded all the faults. When his mechanic told him the transfer gearbox would need to be replaced, at a cost of $4000, Hansen decided to trade it in. He lost $24,000 in 18 months.
The NSW Consumer Trader and Tenancy Tribunal has a jurisdictional limit of $25,000 for used vehicles and unlimited for new vehicles. Application fees to the CTTT are $28 for claims under $10,000, $58 for claims $10,000-$25,000 and $155 for claims exceeding $25,000. Eligible pensioners pay $5. Go to www.fairtrading.nsw.gov.au
for more information.
The most generous lemon law coverage in the US applies in New Hampshire and Vermont, where it extends for the duration of the manufacturer's new car warranty, typically three years/60,000km. The most common lemon coverage period is two years and 30,000-40,000km.
Some US states impose penalties on car-makers for wilful violation of lemon laws, to deter manufacturers from stonewalling or misleading consumers. North Carolina and Wisconsin laws can award damages to consumers, then double or treble them if the manufacturer has acted unreasonably.
The issue of how to protect consumers against defective and/or unsafe cars was first taken up by Ralph Nader in 1965, with the publication of his book Unsafe at Any Speed, a study that showed many American cars were structurally unsound and unsafe.
The US Center for Auto Safety's involvement in consumer protection dates back to the early 1970s, when defective Ford Pinto and Mercury Bobcat fuel tanks exploded in rear impacts and six people died in fires. Ford admitted in a magazine article that it had decided it would be cheaper to pay injury and death liability claims than to fix the problem. The CAS was instrumental in having 1,400,000 cars recalled. The CAS website address is www.autosafety.org
Prices and details correct at publication date.