Monday, March 8, 2021
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Wrecks on the road

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The paint peeling off the repainted bumper of Joanne Stuckmayer's 1999 Acura turned out to be a symptom of a car that's a rebuilt wreck. (MPR photo/Dan Olson)
As many as 2,800 Minnesota drivers have unknowingly bought wrecks. State Farm Insurance, the country's largest vehicle insurer, admits it totaled vehicles involved in crashes, but didn't change their titles to show they were wrecked or salvage cars. Many of the vehicles were repaired and sold to unsuspecting buyers. The buyers believed the clean titles meant they were purchasing legitimate used cars.

State Farm is offering compensation, but for much less than what buyers paid. Consumer advocates say State Farm's settlement is inadequate. The episode offers a glimpse into this country's vast and lucrative wrecked or salvage vehicle business.

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St. Paul, Minn. — There's still curb appeal to Joanne Stuckmayer's l999 Acura. But a closer look reveals telltale symptoms of a troubled past. The hood has some barely noticeable dents. Paint is flicking off a repainted front bumper.

Stuckmayer says her suspicions about the Acura's history grew and were confirmed by an independent auto inspector she hired.

"There's weld marks on each corner of the door. The inspector I had said he's pretty confident in telling me it had been in a rollover, which would explain the four corners being welded, and the rust that's going in the car too," Stuckmayer says.

Joanne Stuckmayer has since learned her Acura was in a rollover crash in Texas early in its life.

She is one of as many 2,800 Minnesotan's who unknowingly bought a State Farm wreck. State Farm totaled the car, but didn't change the title to show it was a junk or salvage vehicle.

Somewhere, someone bought it from State Farm, probably at an auto auction. They repaired the Acura enough to make it presentable and driveable.

The car, clean title still intact, found its way to the used car lot of a Hopkins auto dealer. That's where Stuckmayer bought it a few years ago for $19,000.

Then, early this year she got a letter from the Minnesota Attorney General's office, saying she's eligible for compensation from State Farm. The company, on its own, in 2003 stepped forward and revealed to state officials what had happened and offered to make amends to owners.

But Stuckmayer doesn't like the offer.

"They had valued my car at $12,500, which is the Blue Book value of it. However, they were only going to offer me $3,500 in the settlement," she says.

That's about one-fourth of the Acura's value if it had a clean title. But it won't get one. When Stuckmayer renews the car's license, it'll be retitled as a wreck and worth much less.

Like a handful of unhappy vehicle owners across the country, Stuckmayer has hired an attorney and is suing State Farm.

"What I'd like to see is that I receive a check from State Farm Insurance for the retail value of my vehicle," Stuckmayer says.

Consumer advocates agree with Stuckmayer. Iowa Assistant Attorney General William Brauch, spokesperson for the eight states which negotiated the settlement, says states can't get punitive damages in cases like this. What they can get is "consumer reimbursement."

"What that means is a dollar amount which is generally reflective of lost value, in the sense that a consumer paid more for something than it was truly worth," Brauch says.

Critics say the negotiators should have demanded State Farm pay buyers what they paid for the vehicles. That's what the state of Indiana won in a separate settlement with State Farm.

Years before this case, Indiana caught State Farm doing the same thing -- not labeling as wrecks cars totaled in crashes. Indiana buyers are getting full compensation.

But the deal agreed to by 49 states, including Minnesota, gives buyers much less.

State Farm has set aside $40 million to pay claims. Consumer Reports magazine senior editor Jeff Blyskal says the amount is a fraction of the value of wrecks sold each year.

"We estimated in 2002, insurers recovered about $1 billion from the sale of salvage wrecks five or fewer model years older," he says.

Blyskal's investigation for Consumer Reports, the magazine and online service published by the Yonkers, New York, based Consumers Union, found the revenue from selling wrecks is large. So is the number of vehicles, he says.

"We estimate that the shadow auto industry now bangs out about 400,000 rebuilt wrecks per year, which are five or fewer model years old," says Blyskal.

Auto sales people say vehicles with titles branded salvage, junkers or wrecks bring anywhere from $100 to $2,000 at auto auctions.

The important point in this case is wrecks with a clean title bring up to $2,000 more, Blyskal says.

State Farm spokesman Fraser Engerman says the company has not calculated how much money it gets from the sale of totaled vehicles. He declines to characterize as "selling" the way State Farm deals with the wrecks.

"In many cases they are turned over to a salvage yard, or a business that handles salvaged vehicles, and is supposed to be destroying them or crushing them or getting rid of them," Engerman says.

Bernard Brown says State Farm's sale of wrecks brings in lots of money. Brown is a Kansas City private practice attorney. He's encouraging state attornies general who agreed to the State Farm settlement to try for a better deal.

State farm handles 700,000 totaled cars a year. If they only sell 10 percent of them without salvage titles, the math works out to $140 million profit a year.
- Attorney Bernard Brown

"State farm handles 700,000 totaled cars a year," Brown says. "If they only sell 10 percent of them without salvage titles, the math works out to $140 million profit a year."

Brown calls the State Farm settlement outrageous. Besides the low rate of compensation, he says there's no assurance the vehicles are safe.

"The notices that were sent to people don't ever mention the word safety," Brown says. "That's what salvage titles are all about, is so that cars can't be rebuilt and resold to people without telling them, 'Hey, this car's been totaled in wreck,' which raises huge safety flags."

Consumer Reports senior editor Jeff Blyskal says rebuilders who buy wrecks hoping to resell them are tempted to cut corners. They save thousands of dollars by not replacing components that might have been damaged in a crash, but wouldn't be noticed by unsuspecting buyers.

"They may have not put the air bag in. An air bag costs a lot of money to replace. Don't replace the seat belts. Once you've been in an accident where a seat belt has saved your life, essentially, that seat belt needs to be replaced," says Blyskal.

Iowa Assistant Attorney General Bill Brauch says a totaled car is not automatically unsafe.

"You cannot paint with a broad brush, and say every car that was once in a wreck of some sort is an unsafe car. That is just not accurate at all," Brauch says.

The window for owners to apply for compensation from State Farm has closed. In Minnesota, at last count about 1,600 people of the 2,800 notified have filed claims.

Minnesota Assistant Attorney General Lori Swanson, the head of the consumer division, says buyers who didn't apply for compensation have another route.

"If they think they can cut a better deal on their own, they certainly have the recourse preserved to go ahead and pursue a private claim in court," Swanson says.

The failure of State Farm to label cars totaled in crashes as wrecks -- along with the 500,000 new cars reportedly damaged by Hurricane Katrina and totaled by insurers -- pose a question. How should used car buyers protect themselves from unwittingly buying a wreck?

Iowa's Bill Brauch says shop carefully, obviously. Get an inspection. He warns that online services like Carfax don't have access to a vehicle's complete history.

Brauch's been lobbying Congress to put money behind an idea that would help consumers trace a vehicle's history and avoid getting stuck with a wreck.

"There is a means that is available if it would only be appropriately funded, and that's called the National Motor Vehicle Title Information System," Brauch says.

The system would be a clearinghouse, Brauch says, that would pull together what is now a hodgepodge of state-run systems with widely varying vehicle reporting requirements.

For now, consumers are mostly on their own for learning about a vehicle's history, and then seeking redress if they feel they've been defrauded.

Joanne Stuckmayer of Eden Prairie, and presumably others involved in the State Farm settlement, are caught on the horns of a dilemma.

Stuckmayer is convinced she doesn't want to keep her '99 Acura, the used car she bought not knowing it had been in a Texas rollover crash. However she's reluctant to sell it. She'll take a big monetary loss and she doesn't want to sell a wreck to someone else.

"I certainly wouldn't want to give somebody else my problems, regardless if it was a branded title or not," Stuckmayer says.

Keeping the car is also a problem. Minnesota law requires vehicles labeled wrecks be inspected, and records produced to prove they've been properly repaired. But many wrecks don't have a repair paper trail.

They've been sold as legitimate used cars with their histories intentionally, or as State Farm says in this instance, inadvertently obscured.

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