David Fisher is a senior reporter for the NZ Herald.

Buyers risk getting cars that have been damaged

Consumers are being sold second-hand Japanese imported cars that have been damaged - but don't have it recorded on their paperwork. David Fisher talks to a car salesman who says he's blowing the whistle on the industry

Chris Jellie says New Zealand compliance standards require a thorough inspection but the information is not  passed to the consumer. Photo / Brett Phibbs
Chris Jellie says New Zealand compliance standards require a thorough inspection but the information is not passed to the consumer. Photo / Brett Phibbs

The car that John Payne would ultimately buy sat awaiting border inspection in Japan - one among thousands.

To begin its journey to the roads of New Zealand it first must pass a biosecurity check where it is also inspected for pre-existing damage.

The year Mr Payne's Toyota Caldina lined up for checking, it was one of 89,600 cars to go through a brief inspection before being sent on for shipping to New Zealand. It goes up on a ramp, where inspectors scan the underside, before being lowered again and the outside of the vehicle is checked. The object: to weed out cars that may be unsafe on our roads.

In the 2010-11 financial year, 4188 cars were "flagged" as damaged, but Mr Payne's was not one of them.

The check was nowhere near as thorough as that done in New Zealand. The cars at the compliance stations here are dismantled, with every seam studied.

Those showing signs of previous damage or wear are sent for special examination and not approved for importation with repair certificates. In the same year that Mr Payne's Caldina passed over the border, there were 9674 cars needing repair certificates before being allowed onto our roads.

No damage was found during the first, cursory check so, when Mr Payne studied the car's details on the consumer information notice, he could see it was not marked "imported as damaged vehicle".

It was a claim that wasn't entirely true - although technically correct - and one able to be made for 48,500 cars since 2006.

Signs of damage emerged later when Mr Payne - as a canny car buyer - took the car to a mechanic friend. He found damage to both sides of the car - including to the support column between the doors and the wheel arch.

"That wasn't ever raised by the company," he said.

Loophole in the law

Chris Jellie was the salesman at The Auto Co that day. Already, he says, he was uncomfortable about working at a car yard that would later be fined for misleading customers in online auctions.

A panelbeater, Mr Jellie's concerns were broader than just the auctions. He was concerned about a loophole in the law through which business owner Masashi Umeoka was importing cars which would need repair certificates yet not be marked "imported as damaged".

Mr Umeoka owned the importing agent in Japan and was able to identify which cars would be able to be imported to New Zealand without being flagged.

"He read up on the compliance rules and found out what you could get away with," said Mr Jellie, who worked in the car trade in Japan.

The control of the Japanese end meant there was control over the vehicles to the point where they were inspected. He said the auction sheets - which often gave a guide to the condition of a car - were removed before the car was presented for border inspection.

MAF Biosecurity had control of the inspections at the time (it has since shifted to Transport Agency-subcontracted companies) which aided the car importer. "They are bug inspectors, not structural engineers or qualified crash repair specialists," said Mr Jellie.

The definition of "damage" was also one that could be worked around. Cars with the rear quarters staved in would not be flagged, he said, because they were not considered to have structural issues. Since it was the only place where a flag is raised, he said, the consumer would probably have a different definition - and want better information. "What is a damaged vehicle?"

The question was better answered in New Zealand, he said. Once here, the cars are put through compliance testing. "New Zealand compliance is actually a really thorough inspection," he said. The difficulty is that the information is not passed to the consumer.

Instead, when the car gets to the yard - as Mr Payne's did - it comes with a consumer information notice which details key facts about the car.

Included is a section headed: "Imported as damaged vehicle". Sellers can tick yes - or no. Mr Payne's is clearly marked "No".

The gap in consumer knowledge is revealed in statistics released by the Transport Agency. They show 560,000 cars imported since 2006. Of those, 27,139 were flagged as damaged in Japan - and then marked as "imported as damaged" if ultimately sold. But 75,644 repair certificates were issued - showing a gap of 48,500 cars which were picked up as damaged after they were imported.

Mr Jellie: "I am of the opinion, being a New Zealand-qualified panelbeater, that if a vehicle has suffered an impact that required or requires the removal or replacement of a welded panel then it has been 'damage-repaired'. An estimated 40 per cent of The Auto Co stock on-sold to the New Zealand public could have in fact been a damage-repaired, engineer-certified vehicle."

A sample of The Auto Co's records from early 2010 shows 14 per cent of 150 cars needed repair certificates. The records don't show any flagged cars, indicating the cars getting certificates were not flagged at the border inspection. The 2009-10 financial year, which includes the period of the records, had the lowest number of imports (2.1 per cent) not flagged but needing a repair certificate.

Mr Umeoka said The Auto Co complied with the law and the compliance regime. "We have never asked any supplier to hide any negative information about our cars."

He said the cars his company sold were "safer, better quality, and better value" than others on the market. He said he believed The Auto Co "lifted standards in the industry".

Mr Jellie said the cars he sold at The Auto Co were as safe as any that passed through the compliance centres. Mr Jellie - who wants to go into business advising consumers on buying imported cars - says the issue is not that the second-hand imported car you paid $10,000 for is not safe. Instead, the issue is that it might not be worth $10,000.

"To allow the sale of damaged vehicles as undamaged vehicles seriously misleads the public and places them in a position where they are paying too much money for something, believing they are getting something when in fact they are not."

False sense of security

The Herald found no one in the second-hand car industry who could find value in the "damaged" box on the consumer information notice. Consumer Affairs Minister Craig Foss said consumers should always get cars independently assessed before buying them.

It's generally considered good advice - but doesn't answer the question of whether consumers are being misled by the loophole.

Mr Foss has asked officials to check. To clarify, he said: "A tick in the box does not guarantee that a vehicle was undamaged when it was imported. It just informs a potential buyer that damage was or was not picked up at the time of import."

It's a nuance likely to escape car buyers standing on a lot being assured by a salesman that the car they want was not "imported as damaged". It also reflects the way the loophole crept into the system.

The line on the notice was introduced in 2003 after the Ministry of Consumer Affairs studied the importing process. It was a time when the Government had more direct control over the importing system and each car was documented through the predecessor of the Transport Agency.

David Vinsen, of the Imported Motor Vehicle Industry Association, said it was a "working field" in the systems of the transport authority.

The officials from Consumer Affairs thought it was good information for the consumer and insisted it be included.

"They did it in ignorance," said Mr Vinsen.

The changes and checks in the importation system have resulted in a system barely recognisable to the bureaucrats of a decade ago.

The cursory border checks - on behalf of New Zealand - are done by Japanese mechanics in Japan before the vehicles are shipped.

The compliance checks done here are by subcontracted bodies working out of privately owned businesses - sometimes owned by the same people importing and selling the second-hand cars.

"Nothing that happens after the border is ever flagged. This is really a bit of an aberration," said Mr Vinsen.

The official flag - done after the border check which is less revealing than the compliance check - stays with a car after it has been fixed unless money is spent seeking a special order to remove it.

"They're unsaleable. Sale-proof - even though the damage may be minor."

In contrast, the rigorous check at compliance "where you find all the problems" is not presented to the customer.

The information notice card "can lull you into a false sense of security", he said, and should be removed.

Consumer advocate Clive Matthew-Wilson also believes the notice is misleading for consumers. Of course customers should get cars checked - but should the government-approved consumer sheet muddy the waters for the buyer right at the outset?

"It's a scam that's done with full government support. If a vehicle comes in and requires repairs, that should be marked clearly on the ownership papers."

He said all imports needed to be graded at the point of compliance. Doing so would give consumers a clear understanding of the quality of vehicle they were buying.

"The cars are sold on appearance. You should never fall for a shiny paint job," he said.

Car had been shunted

Tony Allan didn't fall for a shiny paint job when he visited The Auto Co in April 2011.

His visit is recorded in documents obtained by the Herald from the vanished second-hand car company - gone from its Penrose lot since the Commerce Commission found it misled hundreds of customers with false bids on Trade Me.

The Henderson truck driver was looking at buying a Honda Accord for $13,440.

He got $3000 knocked off the listed price and signed a contract - "subject to independent inspection".

"It had been shunted," he said, "and there was nothing on the paperwork about that.

"That was one of the reasons we pulled out of it. Things like that should be on the records."

The $10,000 car-shopping budget was a big investment for Mr Allan. He said he expected the best information to be put before him.

"It doesn't matter where it has been checked - if it's had an accident, it's had an accident."

More repair data on second-hand cars sought

Talks are under way to develop a new system which would give consumers more information about the repair history of second-hand cars.

It could see cars carrying their history with them through subsequent domestic owners.

In contrast to imports, which undergo a rigorous compliance check, cars sold and re-sold in New Zealand carry no history of major structural repairs.

New Zealand Transport Agency light vehicles manager Ian Baggott said discussions had been around establishing voluntary standards for repair quality in the industry.

The standards would be expected to regulate 75 per cent of the industry, creating a system in which repairs were recorded. Ultimately, it could give consumers more information about whether the second-hand car has had major repairs.

"We're trying to specify what is 'significant structural repairs'," he said, adding that training was also a significant issue affecting repair quality.

Mr Baggott said the next likely stage was a discussion paper to get formal feedback from the industry.

- NZ Herald

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