Volkswagen Used Car Dealers and the Volkswagen Mess

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HONZABy: Honza Prchal

Volkswagen spent a decade overcoming its poor reputation, and now it has taken a well-deserved PR drubbing for one of the most thoroughgoing frauds in automotive history. The nitrous oxide emissions of these supposedly “clean diesel” vehicles are 40 times – an order of magnitude quadrupled – more nitrous emitting under real-world conditions than its advertising promised. That’s not just a bad product, it is blatant fraud. Hundreds of class actions and even more mass-tort actions have been and are being brought for those injured. Cars whose owners were, only a few months ago, bragging that they could get 48 miles to the gallon driving in the Appalachians or Sierra Nevadas are now facing massive decreases to power, responsiveness (“peppiness”) and decreased fuel efficiency once the problem is “fixed.” Additionally, they and authorized dealers will have to spend as yet untold man-hours “fixing” their vehicles to ensure that they drive worse, and more expensively, and likely with greater non-nitrous pollution emissions than they already do. Buyers, individual and corporate alike, paid a premium for Volkswagen’s reputation for honest dealing and quality.

Amidst all the hubbub, however, an often overlooked class of small businessmen are in the familiar situation of playing Rodney Dangerfield (“I don’t get no respect”) even though they’ve been victimized and injured. I speak of course of people who sell used cars for a living, in whole or in part. Some of these fellows are proud of their chosen trade and sell all used cars, but most dealers will have trade-ins and other purchases they sell as a sideline to their new car fleets. All those dealers with fraud-affected TDI vehicles and perhaps all those with inventory with the Audi or Volkswagen brand are now stuck with damaged goods. They’re stuck with damage they had no way to detect. The fraud perpetrated by a few people at Volkswagen.

Used car salesmen provide a useful service to millions of Americans (I’ve purchased several used vehicles myself) and are, no doubt, used to all the jokes. Even the very best, most obsessive car history detectives among them get stuck with cars they often cannot know were offloaded before their typical sell-by date for a reason. This is why comedians get so much mileage, pardon the pun, out of abusing used car dealers. Their wares already come with a noticeable discount because of what they are selling. Cars are a lot more complicated to inspect than second-hand clothing. Add to that reputation issue dealers’ cost of holding inventory, and a 13% hit to the value (according to a Wall Street Journal Article earlier this month that looked at Kelly’s Bluebook and other sources), and any dealer that hadn’t offloaded his TDI Volkswagen or Audi A3, or even a non-TDI model from those brands, before the fraud out of Wolfsburg was detected is really hurting. Every day a dealer holds onto a car, his costs multiply. Even if he is paying cash to do so instead of using financing, he still has to pay. In fact, he still has to pay for a car he markedly overpaid for. If he’s paying interest on those costs, the pain multiplies with his interest costs.

Dealers re-sell their cars to other dealers precisely because it costs money to hold onto dead weight. Many sales are at a loss, and all affected vehicles will now likely sell at the mother of all steep discounts. Again, dealers that borrow to finance their operations pay interest for the privilege of using someone else’s money. They have even less ability to withstand hardship because they must make payments on their unsold inventory. Payments are even due on their sales at a loss. Think of what would happen if you sold your house or car for less than it was worth – now multiply it by several vehicles. A dealership that has more money tied-up in inventory than is absolutely necessary can see red, really fast. Even those that operate on a cash basis (without loans) could see lean years of the sort that drove Joseph’s brothers to Egypt back in the day when their fields and pastures didn’t produce any better than Volkswagen and Audi occupied sales floor space.

These poor dealers also face problems like the time value of money and opportunity costs. Every VW which takes a dealer an additional several weeks or months to sell is one more drag taking up valuable advertising and inventory space at his facilities, or distracting eye-balls on his website. Every unsellable or suddenly rock-bottom car on his lot is some other car he could have sold at a profit. Then there is the time spent likely fending off poor would-be sellers who are eager to end their own vehicular pain by offloading their now far-less valuable vehicles, vehicles almost no owner wants to sell for the loss the current price dictates. Few have the licenses and capacity to ship these vehicles to countries that care little about nitrous emissions (look south on a map), and some fear they might face regulatory scrutiny of the unpleasant kind were they to do so.

So pity the unfortunate used-car dealer stuck with fraudulently manufactured and marketed Volkswagens and Audis. Whatever else late-night comedians and frustrated would-be sellers and disappointed buyers blame him for, he’s not responsible for this mess. He’s a victim. He’s a victim who doesn’t even get to drive this car while it sits on his lot, sucking money out of his business. The used car dealer – just a hard-working man in a loud plaid suit, with the beast of Wolfsburg draining his wallet as people laugh at him.  If you are a used car dealer who holds Volkswagens or Audis in inventory, give us a call at 800-222-9128 or visit us at www.vwemissionslawyer.com for a free consultation.