Buyer Beware: Cars Flooded by Hurricane Could Turn Up on the Market

Many cars submerged by the floods caused by Hurricane Sandy could eventually turn up on the automotive market. Consumer advocates warn that buyers need to beware of vehicles that have suffered water damage, only to be dried out and marketed by sellers who conceal their histories. However, new federal regulations could help protect car buyers.

On Wednesday, Geico had already received 20,000 auto claims for flood and other damage, from throughout the East Coast, according to a statement issued by Tony Nicely, chairman of the company. State Farm said it had received 4,000 claims. Those numbers are expected to grow, and many of the cars are sitting in salty water, a particular threat to electrical systems, including air bags.

After a total-loss claim is paid, insurers typically sell the vehicle to the salvage market. Because flooded vehicles often bear no signs of physical damage, “they offer a prime opportunity for con men to clean them up and sell them,” said Larry Gemache, a spokesman for Carfax, adding that after other flood events like Hurricane Katrina, “the percentage of cars that ended up in the market was alarming.”

But because of strengthened federal regulations, consumers have more access to information about vehicle histories than in past major storms. In 2009, the Justice Department began requiring insurers to register vehicles designated total losses in the National Motor Vehicle Title Information System within 30 days of the designation. Salvage yards and self-insured companies, like dealerships and car-rental businesses, must also report totaled vehicles. The reports can be accessed at vehiclehistory.gov .

In the past, consumer advocates and legislators had worried that differences in state laws could allow a car described on its title, or “branded,” as a flood vehicle in one state to emerge with a clean title in another state. Now, title-washing, as it is called, “is much less of a problem,† said Rosemary Shahan, president of Consumers for Auto Reliability and Safety. Her group and other consumer advocates successfully sued the Justice Department in 2008, demanding that regulations be issued.

The result, Ms. Shahan said, is that vehiclehistory.gov tells consumers whether a vehicle has been totaled regardless of lax state titling laws or interstate sales. (The Web site notes, however, that compliance with its federal regulations varies by state, with 88 percent in full compliance.)

Paid for by user fees rather than federal funds, there's also the National Motor Vehicle Title Information System.  Fees range up to $12.99 for vehicle history reports. Mr. Gemache noted that Carfax, which charges $39.99 for a comprehensive vehicle history, lets consumers check for free whether a vehicle has been in a flood at carfax.com/flood. Ms. Shahan noted, however, that some states do not brand vehicles as flooded.

Vehicle histories and stronger laws have mad e fraudulent car sales more difficult, said Mark Schienberg, president of the Greater New York Automobile Dealers Association. Still, he said, his group warns its members to be alert when buying cars from the auction market. He said transactions through private sellers, which account for about half of all used car sales, call for caution.

Even detailed vehicle histories can miss flood damage, said Walter Hedge, owner of Walt's Water Works, a car repair shop in Chesapeake, Va., that dries out minor leaks but will not attempt repairs on serious water damage. Customers have brought in vehicles with clean histories only to discover that “the car was four feet under water,” Mr. Hedge said. After that, he added, “the only thing that's good is its sheet metal.”