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Dealers' repeat sales of same used car surprisingly common

From mid-2008 to this April, 862 licensed used-car dealers in California — about 1 in 8 — sold at least one vehicle three or more times, The Times has found.

August 15, 2012|By Ken Bensinger and Elizabeth Frank, Los Angeles Times
  • Finance Auto Sales in Hawthorne has sold 111 cars three or more times. Nearly 1 in 5 of the cars it sells returns to be sold again, DMV data show.
Finance Auto Sales in Hawthorne has sold 111 cars three or more times. Nearly… (Gary Friedman, Los Angeles…)

In July 2009, an educational charity sold an 11-year-old Oldsmobile Intrigue at auction, where it was bought by Auto World Auto Sales.

The Sacramento dealership, which advertises "in-house financing," put the aging sedan on its lot and quickly found a buyer willing to pay $4,899. Six weeks later it was repossessed and sold to someone else. A few months later, the car was repossessed and sold again. And again. And again. And again.

All told, the Olds, which at last count had 182,000 miles, has been sold eight times by Auto World Auto Sales. None of the owners kept it longer than six months.

The practice of selling the same car multiple times, known as "churning," was explored in a series of Los Angeles Times articles last year. Now, a comprehensive analysis of California vehicle sales shows that churning turns out to be a surprisingly common practice in the state.

From mid-2008 to this April, 862 licensed used-car dealers — about 1 in 8 statewide — sold at least one vehicle three or more times, The Times has found.

Some did it more frequently than that, according to a Times review of 2.2 million Department of Motor Vehicles sales transaction records. One dealership, Repossess Auto in Hawthorne, sold more than 750 cars at least two times over the last four years.

The new findings come amid debate in Sacramento over three bills that aim to impose sweeping new regulations on the so-called Buy Here Pay Here industry.

These dealerships, which finance their own deals rather than use outside lenders, sell cars to low-income people with damaged credit who can't qualify for a loan elsewhere.

Because their clients have little leverage, Buy Here Pay Here dealers can charge interest rates topping 30% and demand large down payments. In some cases, churning can be used to boost profits. Dealers collect large down payments and then repossess quickly when customers default so that the vehicles can be offered for sale again.

The bills, two of which await key committee votes in the statehouse this month, include provisions to cap the interest rate such dealers can charge and force them to disclose the fair market value of every car on their lots. The proposed legislation would also require them to register as lenders with the state.

All three bills sailed easily through floor votes in their originating houses in the spring. But they have faced mounting opposition from used-car dealers, who contend that increased regulation could put many lots out of business. Last week the dealers gained support from the state Department of Finance, which expressed doubt about the frequency of such abuses.

Assemblyman Mike Feuer (D-Los Angeles), who wrote one of the bills, said the intent is to curb potentially predatory practices, including churning, which he said were underreported and potentially devastating to low-income families who need reliable cars to get to work.

"The practice of turning over high-mileage vehicles multiple times underscores why we need to have this legislation," Feuer said. "You want these transactions to succeed, and that doesn't mean selling the same car many times over. It means the consumer keeps the car."

If passed, he said, the bills could protect consumers such as Clemella Fields, who was the seventh — but not last — buyer of the 1999 Oldsmobile Intrigue at Auto World Auto Sales in February.

A 26-year-old single mother of three, she needed a car to get to her new job as a home healthcare aide. She agreed to pay $3,899 — roughly double book value — and put down $1,200 cash on the deal.

As the due date for her first installment approached, Fields realized she'd need a few extra days to scrape together the $220 payment. The dealership wouldn't wait. It repossessed the car a week after the payment was due, Fields said.

At the lot, she pleaded for her wallet, stroller and child car seat, all of which were in the car. "I was crying and begging for them to give me my money," Fields said. "They know people don't have the money to get their cars back. They take advantage of you."

Since mid-2008, Auto World Auto Sales has sold more than 30 cars at least three times apiece, DMV data show. The Oldsmobile, advertised for sale last month, has since been sold again, a salesman said. Auto World Auto Sales' owner, Joe Darling, did not return numerous calls seeking comment.

One of the pending bills, by Sen. Ted Lieu (D-Torrance), would prohibit Buy Here Pay Here lots from repossessing a car during a 10-day grace period after a payment is due. It also would cap interest rates at 17% plus the federal funds rate (currently at 0.25%). In addition, it would oblige dealers to use a third-party towing service when they take cars back, making repossessions more costly.

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