Beware Flood Damaged Vehicles

The disaster in Texas and Florida understandably consumed the news media recently.  In many shots of the devastation, one can see cars, trucks, and buses partially or fully submerged in the flood waters. Some have estimated that there may be as many as 500,000 flood damaged vehicles in the Southeast region.

As the devastation is cleaned up, these vehicles will surely be totaled and towed away.  You can also be sure that many of them will be showing up on the used car market in the months ahead.

You’ve probably seen a number of news stories warning consumers not to buy these cars from “unscrupulous dealers.”  Instead of replaying old stereotypes, the media should warn consumers about the real problem—curbstoners who sell through the newspapers and at Saturday “auto shows” at the local strip malls and are unaccountable when problems arise.  Dealers are potential victims who must avoid being scammed and must take great care in acquiring used vehicles and getting them prepared for retail sale.

Most states have laws requiring that flood damaged vehicles be branded.  For example, Virginia law establishes a very low threshold—$3,500—for flood damage repaired at the cost of an insurance company that must be disclosed to the buyer in a signed statement which must be attached to the title.  The new title to the vehicle is then “branded” with this information.  However, there are some states that do not have brands on titles, and many totaled vehicles may be temporarily titled in states not providing for brands to “wash” the titles.

We have always advised dealers that they cannot depend on vehicle history reports to alert them to problems in a vehicle.  Not all repairs are reported in a way that is picked up by the vehicle history report service.  And even those repairs and insurance company actions that are reported are sometimes delayed for many months. Consequently, a dealer can find itself buying a flood vehicle with no indication that it was totaled on a vehicle history report, only to find the history showing up later on a vehicle history report run by the buyer.  The buyer’s first reaction, generally, is to find a lawyer to sue the dealership for fraud and violation of the state consumer protection act.

It is more important than ever to thoroughly inspect every vehicle that the dealership chooses to retail.  That inspection should include an examination to determine if the vehicle has ever suffered significant damage that has been repaired and may have to be disclosed. At the same time, the dealer should be looking for evidence of flood damage on every used vehicle that it will seek to retail.  What should the dealer do? 

Here are some suggestions:

  • If it is a relatively new vehicle (a brand the dealership sells), check the warranty history. Is there any evidence the vehicle was originally in Louisiana, Mississippi, or Alabama? 
  • Run a vehicle history report and check the state title history if available electronically. While lack of a negative history does not guarantee the vehicle has not had problems, the dealership should make sure it knows of anything that has been reported.
  • Is there any evidence of dried mud or grit, especially in and around small recesses of the starter motor, power steering pump, relays, in the glove compartment, in or under the seats, in the trunk or under the dashboard?
  • Do the colors of the upholstery and carpet match each other and the rest of the interior?  This may indicate replacement of rugs or seats. 
  • Check the seats carefully. Have they been replaced? Are there rusted seat components, mounting bolts, screws, or other hardware?
  • Have the rugs or trunk carpet been replaced?  If not, are there any discolorations or stains?
  • Check generally for evidence of rust and flaking metal on the undercarriage, on the inside of the vehicle, and under the carpets that are inconsistent with the year of the vehicle.
  • Check the undercarriage, the outside of the engine, and various moldings and kickplates for a waterline.
  • Do the instruments all work properly?  If they do not, that may be an indication of electrical problems resulting from flood damage. A detailed inspection of the electrical wiring system should be done.
  • Check for rust on screws in the console and other areas that would not normally get wet unless the car was submerged.
  • Does the vehicle have a damp or musty odor?

Most importantly, regularly cover these issues with the used car department.  The number of flood vehicles resulting from Hurricane Katrina is unprecedented.  And the folks bold enough to wash the titles of these vehicles will be slick enough to use a variety of schemes to trick dealership managers, even those who think they know all the schemes, into buying them.