Car Advice

Why we need car lemon laws in Australia

Bought a new car that’s a dud? You may have a lemon, but there are currently no Australian car lemon laws to help…

MODERN CARS ARE marvels of engineering. Sophisticated, reliable, safe, practical… they cost millions to develop and these days there are very few absolutely dire cars, with today’s “bad” car well advanced beyond yesterday’s “acceptable”. 
 
Still, for one reason or another, individual cars can turn out to be problem-prone nightmares and these are known colloquially as ‘lemons’. A car being a lemon is very rarely down to an intrinsic design fault common across all vehicles, because those sort of things are noticed and fixed across the board as part of recalls – well, most of the time and sometimes under duress. 
 
Instead, your lemon is a one-off individual problem machine. The root cause might be a manufacturing error, service error, even operator error that results in problem after problem, often apparently unrelated, usually hard to reproduce or even harder to fix. Often these problems are electronic or electrical. 
 
Time after time the car is returned to the dealer, and either no fault is found or a fix is put in place that doesn’t help. Or a new problem springs up, probably with the same root cause although what that may be is never quite clear. Regardless, if your new car is spending a lot of time at the dealership’s workshop to resolve serious issues  then it’s likely to be a lemon. 

Which manufacturers are the worst?

It’s easy to demonise any given manufacturer, but the reality is that every carmaker produces lemons on occasion, yet they are relatively rare because otherwise the carmaker would sell no more cars. So ignore the hysteria about specific carmakers being far worse than others, because by and large, they all produce cars to an acceptable level of quality for a given price point.
 
However, it is true that over time there are highs and lows as different management comes and goes, and there are specific models that are shockers. It doesn’t help that humans have a terrible habit of extrapolating a few examples into an all-encompassing opinion, and then there is confirmation bias – where you focus on evidence that supports your perspective, particularly if you’ve been hurt as you would be in the case of a lemon car.
 
Today’s social media echo-chambers of self-reinforcing, unverified, meme-driven “fact” don’t help, and neither does our modern tendency to be professionally outraged over minor infringements to our inflated sense of entitlement. Sadly, all this anger tends to obscure the relatively few cases which are truly deserving of attention – lemon cars absolutely do exist.
 
The level of service is also more or less equal across brands for a given price point, but again fluctuates according to the management of the day, and certainly from dealer to dealer. Still, that’s of no use to the poor owner of a lemon who has sunk a lot of money into a new car, and now can’t properly use it, can’t really sell it in all honesty, and is under the stress of trying to fix it.

What are lemon laws?

This is where Australia needs to learn from the USA, which has had  “automotive warranty law”, otherwise known as lemon laws for many years. These laws are pretty simple. You buy a new car, and if there are defects that substantially affect the safety or value of the vehicle and these defects cannot be resolved after the car is out of operation for a set number of days (usually 25-35) in the first year or so, then the car is a lemon. Most states require that the fault continues to exist… as soon as it is fixed the car is no longer a lemon.
 
If your car qualifies as a lemon, or is close to it then you need to write the manufacturer a last-chance letter saying you consider the car a lemon under the lemon laws. The manufacturer can then either give up, or have one last chance to fix the car. If they give up or the fix fails, then the car owner is entitled to a remedy which is either a new car, or a refund. In the case of a refund that may be calculated pro-rata, for example to compensate for the mileage or use you got from the vehicle before the first problem. 

Why do we need lemon laws?

Sounds fair, right? It is. Lemon laws recognise that every so often a dud car is produced, and that getting it fixed correctly is immensely difficult because of the huge power, skill, knowledge and financial imbalance between the dealer and manufacturer on one side, and the owner on the other.
 
All lemon laws do is redress that balance, fairly. There are many, many tales of extremely poor service to new car owners, because dealers and manufacturers use their huge advantages to make the problem go away without actually resolving it. It would be about every week I get stories of some fanciful tale told by a dealership to an owner, and the poor owner lacks the knowledge to determine fact from fiction so has little choice but to play along – another early leave pass from work, another taxi, more stonewalling, and all the while the car repayments don’t wait for you. No wonder many owners just give up. It should be said that service of this nature is not the norm, and there are many very fair dealers, but the harder a problem becomes the greater the incentive to just get rid of it.
 
It’s also worth remembering that a car is typically the second largest purchase after a house, and is an essential part of many lifestyles, so not having what you paid for is a very significant impost on the owner. We are not talking here of a fridge, TV or games console, all of which are much cheaper and mostly far less vital.It is easy to take back a faulty bed or games console, it’s not a huge profit dent and such things are often easily fixed or sold with defects. No so cars. In short, cars merit special attention so consumer laws that work for toasters don’t necessarily translate to vehicles. 
 
We asked Senator Ricky Muir for his views and he was quick to respond: “I have received a lot of correspondence from constituents who as consumers have had reoccurring issues with vehicles which they purchased new. By purchasing new, consumers are purchasing a product which in many cases can be a family’s second biggest investment. This is done under the presumption that buying new would avoid mechanical failures and give them some comfort surrounding warranty and consumer law. A common theme is that vehicles can end up spending a significant amount of time being either repaired or undergoing diagnostic tests to return to the owner just to have the issue re-occur.”

the other view

But there’s another side to the story. The car manufacturers and dealers have much to say on the subject and raise some good points. It’s easy to get official words from spokesmen, but I decided to talk direct to the guys on the front line, friends who are dealer service managers. Their big concern was giving an extra incentive to difficult customers to cause even more trouble – and anecdotally, for every well-publicised lemon case where the consumer has been wronged there would be many, many more cases where consumers have abused staff verbally (at the very least), or acted entirely unreasonably. One manager told me a story of a customer who, only last week had to be removed by police after yelling, ranting and aggressively videoing staff – this was over a car fault which was admittedly a significant problem, but the dealers had done everything they could to fix it at the time, well above the service standards. Understandably, nobody wants to give people like that any more ammunition.
 
Lemon laws are not the favourite topic of discussion for car manufacturer executives, who quickly steer the conversation to the virtues of their latest model and their improved customer relations. But in all that chaff there was one telling comment – “We’re used to dealing with lemon laws overseas, so we’d just do the same if they came in here”. This was from a local exec transferred in from the USA, but you couldn’t expect such a comment from staff with only local experience.

What exactly is a lemon?

Then there’s the thorny question of definition of a lemon-like problem. A “noisy” engine when it’s just operating normally? A broken trim piece when the customer obviously did it? Towing well beyond the rated capacity? Dealers and manufacturers are rightly wary of abuse of process, so any lemon laws need to cover off the potential for what is in effect fraud. The Americans address this quite simply, and here’s an excerpt from Maine’s guide to their Lemon Law:
 
The Lemon Law only covers serious defects—those which substantially impair the use, safety or value of the vehicle. However, the law does not list specific defects, which are considered substantial. You must be able to demonstrate how your vehicle has been substantially impaired. For example, to prove substantial value impairment, you could show that the retail value of your vehicle is significantly less than it would be without the defect. Although a defect may be annoying, it is not necessarily “substantial”.
 
The concept of substantially impairing safety or value nicely covers everything. It means that cars which are unsafe or largely unusable must be fixed (“safety”). It also means that cars which are safe and run perfectly well but have problems with non-essential functions must be fixed (“value”) – that might be the satnav playing up, aircon not working, electric tailgate problems.
 
The word “substantially” protects the dealer and manufacturer against minor complaints about issues that are within normal tolerances for new cars – some examples which have all been made by owners – electric seat noisy, bonnet hard to open, excessive wind noise. Of course if any of these were extremes then it would come into “substantial value impairment”, but despite the fears of the motor lobby the USA lemon laws do not give license to difficult owners to get refunds on a whim. Another reason the car industry need not fear lemon laws is that the process also usually an independent arbitration, and the onus is on owner to prove a problem exists.
 
Not happy with that effort required on behalf of an owner? Some may say dealers and manufacturers have plenty of money, but the fact is if you load an industry with compliance costs that tends to come back to the consumers one way or another. Insurance fraudsters, take especial note.
 
There’s also this view, from Australian Automotive Dealers Association chairman Ian Field: “The question for us is – what’s the problem? Because at the moment our position is there are no mechanical problems that we can’t fix”. 
 
That view was echoed by the service managers to a fair degree. However, I argued that there’s a difference between “can fix” and “will fix”. What’s easier for a busy workshop, send the customer away and hope they don’t come back (or more fairly put in a maybe fix), or put an expensive tech on for hours with little hope of the money being recovered, and accept the double financial hit of the tech not being able to work on other cars while they’re troubleshooting. It is also not unknown for cars to be sent to superstar techs to fix who succeed where others fail – yet not every dealer does this – so the question of “can fix” vs “will fix” is fair. The workshop is a significant contributor to dealership finances, so it’s not as if it’s run at a loss while the dealer gets fat on sales.
 
Yet manufacturers and dealers need not be so shy of lemon laws, which could even work in their favour. Lemon cars chew up an inordinate amount of time between dealer and manufacturer, with decisions about what to do and when to do it, with goodwill and reputation seeping away minute by minute – the lemon laws could make that process a lot simpler. And it’s not as if “buy backs” in the motor trade are unknown, cars are bought back regularly, sometimes in the case of cars that have been incorrectly advertised. Still, lemon laws would just make the process clearer and easier on both sides, and here’s the important point; if a buy-back is looming, there would definitely be some pressure for “can fix” to turn into “have fixed”.
 
One dealer principal told me: “Our company policy has always been ‘just fix it and worry about the cost later’. Certainly this has led to expense being borne by us but I am confident that repeat business and confirmation of our good reputation has far outweighed any expense. Indeed our 100-year-plus longevity is also testament to our modus operandi. It beggars belief that some dealers (and manufacturers) take such a short term view of a problematic situation that they burn a bridge in an effort to minimise their outlay.”
 
It’s a fair point, but sadly not all dealerships are run on this principle. Not fixing a problem these days runs the risk of invoking the ire of the world via social media, as evidenced by the Destroy My Jeep campaign, or a mocking video that ends up with 2.2 million views. Of course, companies can’t afford to throw money at every little niggle that comes their way, but lemon laws would certainly provide an incentive to fix major problems.
 
One thing that does need to be changed is the liability for a buy back. As of law changes in 2006 this rests with the dealer as they actually sold the car, and then the dealer has to seek recompense from the manufacturer. The relationship between dealers and manufacturers is fragile at the best of times – dealers invest perhaps more than any other business in stock, premises and everything else and manufacturers are dependent on them, but again there’s an imbalance as most dealers are more much more tied to manufacturer than vice-versa.
 
Part of any lemon law should be a change such that both dealer and manufacturer are liable for buy backs in the event of a car being declared a lemon, as it is clearly not fair to place all the onus on the dealer as often the root cause is not their fault, and the fix often requires the deeper technical resources of the manufacturer. Again, we are not talking about household whitegoods here.

So what laws do we have now?

The Motor vehicle sales and repairs – An industry guide to the Australian Consumer Law (link here) covers most of the lemon laws scope. For example:
 
Major failures
A major failure to comply with the consumer guarantees is when:
>> a reasonable consumer would not have bought the motor vehicle if they had known about the full
extent of the problem. For example, no reasonable consumer would buy a new car with so many
recurring faults that the car has spent more time off the road than on it because several mechanics have
been unable to solve the problem.
 
This is why some say no new laws are needed. However, the problem is loose wording – one example is “more time off the road than on it” which implies a greater than 50% unavailability ratio, very high to begin with and open to interpretation. A characteristic of lemon laws is being specific about the number of days the car is unavailable, not just some vagueness that leads to an argument. Then there’s the period after purchase when problems can arise:
 
The ‘rejection period’ is the period commencing from the time a consumer bought a vehicle, during which it would be reasonable to expect a problem to appear.
 
Too loose. Again, true lemon laws are much more specific, specifying usually one, two or three years, or the manufacturer’s warranty period. Here’s a summary of the current law, as described in the document above:
 
ACCC-workflow
 

What happens now?

Momentum is building with a Lemon Laws for Australia movement (links below), and as we reported earlier the Consumer Action Law Centre has called for a law that will define a lemon as “a vehicle that has been repaired at least three times by the manufacturer or importer and the vehicle still has a defect – or if the vehicle is out of service for 20 or more days in total due to a defect”.
 
The Australian Aftermarket Accessories Association (AAAA), has a strong view,  quoted in our earlier report as saying: “We now welcome the drive for a law that defines a lemon as a vehicle that has been repaired three times by the manufacturer or importer, yet still has a defect, or if the vehicle is out of service for 20 or more days in total due to defects.” Queensland State Attorney-General Yvette D’Ath is also reviewing the situation and considering lemon laws. Senator Ricky Muir also told us that “I personally, as an elected representative of the people, will be using the opportunity of the review of Australia’s Consumer Law [report due in 2017] to push for stronger consumer protections in the form of Lemon Laws.”
 
So there’s hope yet, and at Practical Motoring we’d like to see lemon laws that are fair to owner, dealer and manufacturer because while cars are better now than ever, the reality is every so often there will be a dud which could be sorted out more quickly and easily for all concerned if there were better legislation to frame the process.
 
 

Questions we need to resolve for Australian lemon laws

It’s not enough to just call for lemon laws. There are numerous difficult questions to resolve, such as:

  • Exactly what are the criteria for lemons – how many days unavailable, over what period of time?
  • How long after sale should lemon laws hold? The USA varies one from year to the total of the warranty period.
  • What’s a “new” car – does a demonstrator count? Lemon laws don’t apply to secondhand cars. This could actually drive new-car sales, something the automotive industry doesn’t seem to have considered.
  • What does “unavailable” mean, and does driving a car with an existing problem count in any way?
  • What’s the definition of ‘fixed’ – for example no re-occurrence of the problem after X many days?
  • What’s a lemon-worthy fault? What level of fault should be accepted by the customer as normal?
  • How do we make a distinction between a normal service and unscheduled work leading to unavailability?
  • Who pays for a buy back, dealer or manufacturer?
  • How can owners be stopped from bringing cars back for minor or insignificant problems, or even creating problems in the hope of getting their car declared a lemon?
  • Should there be a database of lemons, performance reports by manufacturer?
  • Is a ‘lemon ombudsman’ needed or would the normal courts suffice?

Fortunately, lemon laws have operated well in the USA and other countries for decades, since 1975 in the case of the USA and their car market seems to be quite healthy. It’s also fair to assume that over the past 40-plus years the laws are well tested.  So we can learn from their experience, and anyway just because there’s a difficult question shouldn’t stop us forging ahead with improvements.

There is some hope. Senator Ricky Muir told us that “This year we will see a review into the 2011 Australian Consumer Laws conducted by Consumer Affairs Australia and New Zealand (CAANZ). The final report is said to be provided early in 2017. On the Australian Consumer Laws website it states that “CAANZ will consult widely with consumer representatives, businesses and the wider public, with public consultation on the review to formally begin in 2016.”

Oh, and how about we go for an Australian first and do this federally instead of each state coming up with nearly the same solution to exactly the same problem? Standardisation of automotive rules and regulations across states, any pollies want to put their hand up for getting the red-tape slasher out and freeing up our local industry to spend more time building and less time frigging around with paperwork? Again it’s Ricky Muir who is pushing in the right direction, and he supplied us this link to the Future of Australia’s Automotive Industry (read section 5.20).

Examples of USA LEMON LAWS

Much of the hard work has been done for us. Here’s some examples from the USA:

What’s a lemon?

Maine

The law defines a “lemon” as a vehicle either purchased or leased in Maine, which has a defect that substantially impairs the use, safety or value of the vehicle, and which has not been repaired after a reasonable number of attempts .1 If your vehicle is found to be a lemon then the manufacturer must give you a replacement vehicle or refund your money.

Wisconsin

A new vehicle that is no more than a year old and still under warranty is classified as a “lemon” if:

  • It has a serious defect the manufacturer or dealer(s) didn’t fix in four tries, or
  • It has one or more defects that prevent you from using it for 30 days or more (the 30 days need not be consecutive).

What’s a defect?

Maine
 
The Lemon Law only covers serious defects—those which substantially impair the use, safety or value of the vehicle. However, the law does not list specific defects, which are considered substantial. You must be able to demonstrate how your vehicle has been substantially impaired. For example, to prove substantial value impairment, you could show that the retail value of your vehicle is significantly less than it would be without the defect. Although a defect may be annoying, it is not necessarily “substantial”.
 
Wisconsin

A defect (or a nonconformity) covered by the Lemon Law must seriously affect the use, value or safety of your vehicle and must be covered by the warranty. Conditions that result from abuse, neglect or unauthorized modification or alteration of the motor vehicle by a consumer do not qualify as defects the manufacturer must repair under the law.

An irritating rattle may not be “serious” enough to make your car eligible for a Lemon Law claim. Your vehicle stalling or not running might be.

Example given in the Maine guide

The example below shows that a car is not a lemon if there are minor faults, even if the faults are clearly present and acknowledged by the dealer and manufacturer:

The vibration that intermittently occurred during the 40 minute test drive on the arbitration day was extremely minor, and would not at all rise to the level of a substantial impairment. The vibration however has been verified by an independent mechanic as well as by the authorized dealership’s technicians.
 
Additionally, the vibration was experienced by the Field Technician Specialist during the manufacturer’s “final opportunity to repair” period. While the independent mechanic [qualifications not known] stated it was not normal and could cause significant transmission issues in time, I must weigh that statement against the statement offered by Chrysler’s Specialist which indicates the vibration is consistent and normal for this particular model vehicle.
 
The consumers were also advised on how they could avoid this vibration if they used the auto-stick transmission.
The consumers have not experienced any situations where their safety has been compromised by the vibration. The consumers did not bring in an appraisal of their vehicle by a professional (not an automobile sales person). The consumers are able to use their vehicle with the present vibration. The consumers are disappointed in the performance of their vehicle but the condition causing their disappointment does not substantially impair their use, safety, or value. 

How does the lemon law process work?

Maine
 
Here are the six stages of a Lemon Law claim:
(1) Motor vehicle has serious defect or combination of defects.
(2) There were a reasonable number of repair attempts but defect continues.
(3) The Manufacturer was given a Final Repair Opportunity (no more than seven
business days).
(4) The defect is not repaired.
(5) The consumer receives a State Lemon Arbitration Hearing within 45 days.
(6) The consumer receives a refund or replacement vehicle if the Arbitrator finds
that the defect substantially impairs the use, safety or value of the motor vehicle.
 

Wisconsin

The law provides that a vehicle is considered “out of service,” if a consumer is unable to use the vehicle for its intended purpose because of either of the following:

  1. The vehicle is in the possession of the manufacturer, motor vehicle lessor, or an authorized dealer for repair of a defect.
  2. The vehicle is in the possession of the consumer and the vehicle has a nonconformity that: A) substantially affects the use or safety of the vehicle and B) the manufacturer or dealer has attempted to repair on at least two occasions.

California

Lemon Law Presumption*
Within the Song-Beverly Act, there is a presumption guideline wherein it is presumed that a vehicle is a “lemon” if the following criteria are met within 18 months of delivery to the buyer or lessee or 18,000 miles on the vehicle’s odometer, whichever comes first:
  • The manufacturer or its agents have made two or more attempts to repair a warranty problem that results in a condition that is likely to cause death or serious bodilyinjury if the vehicle is driven;
  • The manufacturer or its agents have made four or more attempts to repair the same warranty problem; or
  • The vehicle has been out of service for more than 30 days (not necessarily all at the same time) while being repaired for any number of warranty problems; or
  • The problems are covered by the warranty, substantially reduce the vehicle’s use, value, or safety to the consumer and are not caused by abuse of the vehicle;
  •  If required by the warranty materials or by the owner’s manual, the consumer has to directly notify the manufacturer about the problem(s), preferably in writing. The notice must be sent to the address shown in the warranty or owner’s manual (for bullets 1 and 2).
If these criteria are met, the Lemon Law presumes that the buyer or lessee is entitled to a replacement vehicle or a refund of the purchase price. However, this presumption is rebuttable. The manufacturer may show that the criteria has not been met (for example, because the problems are minor) and therefore, the buyer or lessee is not entitled to a replacement vehicle or refund.
*Source: California Civil Code Section 1793.22(b)

What To Do now if your car has problems

  • Document, document, document. Keep a record, photos and video of everything. When you bought the car, who said what, when exactly it was out of service. Get everything in writing. This advice applies even in the cases where lemon laws exist, because you still will need documentation to prove the car is a lemon. Include hardship and expenses such as taxi fares, time off work.
  • Band together. There’s power in numbers with others facing similar issues. Refer to the links below.
  • Be firm but fair. Rants and empty threats don’t work.
  • Be reasonable. Still, you probably aren’t reading this if you’re an unreasonable sort of person.
  • Know your rights. Australia may not have car-specific lemon laws, but there are existing consumer protection laws that help.
  • Cooperate with the dealer to help fix the problem or give very clear reasons (in writing) why you won’t or can’t, and offer alternatives if possible.

Links

Do you have a story to tell? Maybe you own a lemon, or you have experience on the other side of things working in the automotive industry. Contact us, or post your tale below in the comments…
 


Robert Pepper

Robert Pepper