Ministry Drops Plan Informing Buyers of Cars' Dangerous Past

Transportation Ministry backtracks on plan to force used car dealers and insurance companies to come clean about vahicles' records.

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A Transportation Ministry proposal aimed at forcing insurance companies and auto dealerships to inform potential buyers of used cars whether the vehicles have undergone a serious accident was mysteriously dropped a few weeks ago.

Some sources believe that this is due to the major sums of money involved in concealing the history of these cars.

Used car dealers won't have to tell you your new car's a lemon. Credit: Abdullah Shama

Three months ago, the Transportation Ministry stated that it would force insurance companies to note "constructive total loss" on the registration papers of used cars that had undergone such accidents.

At the time, Transportation Minister Yisrael Katz announced proudly: "Marking vehicles as constructive total losses in their registration papers will, for the first time, give the public important information about these vehicles, and will give buyers full transparency. It will also cut back on the theft of vehicles for spare parts."

But two months later - this time without any media announcements - the ministry suddenly dropped the idea. In a laconic letter to the state vehicle appraiser, the ministry stated, "The directive is being limited to 60 days since this is a complicated matter with professional and economic implications that need further review."

Many say that the about-face came due to pressure from the parties that reap millions by hiding these vehicles' past, including insurance companies, appraisers and used car dealers.

Take for example the story of Edva, a young woman from Haifa who recently complained to the Transportation Ministry that the used car dealer that sold her a car did not tell her it had been through a serious accident. She paid NIS 80,000 for the vehicle, but had she known its background, she would have realized that its actual value was closer to NIS 30,000.

But money was probably not even her main concern; she had been driving around in a vehicle that had gone through an accident that was so serious that its ownership had been transferred from private citizens to the insurance company. The company, in turn, sold it to the used car dealer.

Insurance companies use three categories for defining cars that have been involved in accidents. The first is vehicles that go through minor accidents, which are repaired and returned to their owners. The second category is vehicles that sustain damage that will cost more than 60% of the car's value to repair. Such vehicles are called total losses, lose their registration papers and are sold for parts.

The third category, which is in the middle - constructive total loss - applies to cases where the damage is valued at 50% to 60% of the car's value. In these instances, the insurance company may compensate the driver as if the car were a total loss, and then sell it to a used car dealer who repairs and resells it - often without telling the buyer what the car went through. The insurance company and the dealer are not required to list themselves as the car's past owners, meaning that a vehicle with one previous owner will be marked second-hand, not third-hand. Furthermore, there is no requirement at present to report the vehicle's state to the Transportation Ministry.

In these cases, the insurance company gets out of having to pay for expensive repairs, the used-car dealer profits handsomely - and the innocent buyer pays too much.

In such cases, the buyers find out what their vehicles are really worth only if they send the cars to a thorough check by a mechanic, if they demand that their insurance company reimburse them after another accident, or if they seek to sell the car.

"The only way to find out if the vehicle was owned by an insurance company is through connections, and a private customer doesn't have access to that information," said Trade-In Autodeal CEO Tomer Dotan. "Only when the insurance company needs to pay up does it reveal what it knows and declares that the car was previously classified as a constructive total loss. Therefore, it needs to be written in the car's registration, period."

Three months ago, the Transportation Ministry tried to implement a reform that would do just that.

"Since the directive took effect, the Association of Life Insurance Companies Transportation said auto garage union chairman Ronen Levi. "The insurance companies pressed and pressed. They argued that they were being treated discriminatorily compared to the leasing companies [whose vehicles do not have comprehensive insurance and were therefore exempted] and threatened to petition the High Court of Justice. The ministry looked into including leasing companies as part of the order, but ultimately dropped it altogether."

Sector sources said leading Likud activists were drafted to pressure the ministry as well.

Following the announcement of the new directive, the number of vehicles declared total losses in theory dropped from 800 a month to 120, as insurance companies decided they were better off sending drivers to repair their vehicles than they would be selling them at a loss.

The Association of Life Insurance Companies declined to respond to this report.

Uzi Yitzhaki, the Transportation Ministry's deputy director general for traffic, said the ministry had reversed its decision after being advised that it was legally problematic. The mandate needed to be applied equally to all cars, not just those that were insured, he said.

Meanwhile, consumer advocates and some sector players are calling for the order to be reinstated.

"To the best of our knowledge, this order was canceled due to pressure from parties interested in hiding information from consumers," wrote car importers association head Yehuda Roded.