Avoid The Dangers of A Failing Car Dealer


When a car buyer still owes money on a vehicle being traded in, the dealer promises to pay off the outstanding loan, then resells the vehicle. But as more auto dealerships go out of business, they are sticking consumers with the bill. Lenders then go after the previous owner who thought the debt was paid, or they repossess the car from the new owner who assumed it came with clear title.

Some ways consumers can avoid problems with dealers when they seek to trade-in a vehicle with an outstanding loan or are considering buying a used vehicle:

  • If you still owe money on your old car and you can afford to pay off the loan yourself, do so before trading in the vehicle. Otherwise, it's important to find a reputable, financially stable dealer who will pay off the loan. Look for high-volume dealers, usually in urban areas, who are part of a larger auto dealership group. They usually are less likely to go out of business and more likely to clean up their commitments if they do fold.
  • If you are buying a trade-in, insist on seeing the used vehicle's title to make sure it is in the dealer's name — not the former owner's. There should be no lien on the vehicle, and if there is one, there should be a lien release attached to the title.
  • Check the vehicle's history. They are available from Web sites such as carfax.com for a fee, but many reputable dealers will provide them for free.
  • If you run into problems, complain to the agency that regulates auto dealers in your state, often the Department of Motor Vehicles. Many state attorneys general and local prosecutors also are getting involved with this growing problem.
  • You may be able to file a claim against the bond the dealer posted with the state. However, the bonds often are too small to cover all the losses, and payments are usually made on a first-come, first-served basis. File early.
  • Hire a lawyer. Your recourse may be to sue the dealer. But if the dealer goes out of business and is bankrupt, there often is no money left for consumers.


Some Web sites with tips on car-buying:

Consumers for Auto Reliability and Safety

Consumer Reports


Sources: Consumers for Auto Reliability and Safety, Edmunds.com, Arizona Department of Transportation, California Department of Motor Vehicles.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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