Buyers fight to get liens paid after some car dealers fail


After he lost his job, Jeremy Andrews took his Ford Mustang to the lot of a used-car dealer to trade it in for more affordable transportation. The deal nearly ruined him.

A few days after Mr. Andrews and his wife, Amy, had bought a used Jeep, Brooke Boyle Motor Cars Ltd. closed its doors -- without paying off the Andrewses' loan from Ford or the previous owner's debt on the Jeep.

Within weeks, the young Bel Air couple discovered they were stuck with two car loans and no car. Ford was dunning them for the $14,000 they still owed on the Mustang, which had disappeared from the lot, and they couldn't get a license plate for the Jeep.

"This isn't fair," Mrs. Andrews said. "Our credit has been ruined because of this. We can barely get a check-cashing card at the grocery store. And we may still have to pay Ford."

The Andrews are not alone.

Dozens of area car buyers have been stunned to find that they were stuck with bills ranging from $100 to several thousand dollars after the closure of a few financially troubled dealerships.

Many, like the Andrewses, discover that trading in a car doesn't release them from the loan they took out when they bought it.

And when the burned customers have tried to collect, they have sometimes found that the $15,000 bond the state makes dealers keep to pay off just such claims is woefully inadequate to cover all that is owed.

Though U.S. car sales fell to their lowest level since 1983 last year, the vast majority of the nation's approximately 34,000 car dealerships are surviving. And owners of strong dealerships say they treat customers better than ever these days in order to win lasting allegiance.

But weak dealerships may not have that luxury. Last year, the squeeze on sales and profit margins sent the number of failures soaring by nearly 40 percent, to 355 nationwide, according to the Dun & Bradstreet Corp.

"What happens to any business, not just the auto dealers, before they go out of business is that they stop paying their bills," explained Kevin Higgins, who investigates consumer complaints about cars for the Maryland Attorney General's office.

Most closures haven't left car buyers with unpaid bills. But a survey of complaints filed at the Maryland Motor Vehicle Administration reveals that in the last two years, some failures have left customers with delinquent trade-in loans, cars they can't register because the dealer failed to pay state titling fees and extended warranties that aren't any good.

Take, for example, the case of Donald Lee Cassatt, a 71-year-old retired psychology professor at Towson State University. Mr. Cassatt bought a used Ford Taurus station wagon from Sherwood Ford in Baltimore in the summer of 1989. He became concerned when he received the canceled check for his extended warranty but no card from the warranty company. He called the warranty company and learned that they had never received the money. The dealership closed a short time later.

Though he said he filed claims with the state and with Sherwood's attorneys, Mr. Cassatt never got reimbursed. He ended up forking over another $500 to get the extended warranty.

Mr. Cassatt said he has purchased 10 cars over his lifetime, and this was the first time he ever had a problem like this. "I was disgusted," he said.

Until recently the number of complaints like Mr. Cassatt's fell as car sales declined, said Ron Forbes, head of the dealer investigation unit at the Maryland Motor Vehicle Administration.

Last year, for example, the number of complaints against dealers handled by the MVA dropped 7 percent from 1989's level, to 3,316. During the same period, Maryland car sales dropped 8 percent, to 258,085.

But since the beginning of the year, he said, "We've seen an increase in complaints as dealers started experiencing financial problems."

Though car sales are still flagging and Maryland has lost three new-car dealerships so far this year -- equal to the total loss last year -- the number of consumer complaints to the MVA through the end of February has risen 3.4 percent, he said.

Disputes over slow license payments and extended warranties have been problems for years, Mr. Forbes said. But the boom in unpaid-lien complaints is new and especially troubling because of the financial havoc it can wreak on unsuspecting customers.

The Andrewses' case is more severe than most, investigators say. Their dealer, Robert Brooke Boyle, is facing 76 counts, ranging from theft to writing bad checks, for allegedly bilking more than two dozen customers after his October 1989 closure.

Mr. Boyle's attorney, William H. Murphy, declined to comment for this article.

But even when there are no charges of fraud, the closure of a dealership can cause a host of similar problems.

When All Star Chevrolet Oldsmobile of Crisfield Inc., All Star Chevrolet Buick of Chestertown and All Star Chrysler Plymouth Dodge of Denton closed late last year, dozens of customers were left with unpaid loans, taxes and warranties.

It took three months, but Mike Meagher, founder of the All Star chain, said he finally paid off all of the approximately $140,000 worth of customer claims against the closed dealerships.

Mr. Meagher, owner of All Star Dodge on the Baltimore National )) Pike, said that he is simply an investor in the Eastern Shore All Star dealerships but felt a moral obligation to help the customers.

The closures, which are part of a consolidation that has reduced the All Star chain from 12 dealerships to six, were a result of poor sales and bad decisions, he said.

Mr. Meagher said he borrowed on his personal assets to pay off the claims and feels badly that it took three months to pay them.

His remaining outlets are strong, he said. But unless sales pick up soon, other dealerships will end up closing some of their stores, too, he said.

"There are going to be a lot more of these," he predicted.

Customers always had to be on their guard against unscrupulous salesmen, but now consumer investigators say car buyers may have to worry about the financial strength of the dealership.

If the dealership goes bankrupt leaving unpaid bills, customers can be hurt in two ways, the investigators say.

Though they may not realize it, customers often sign standard car purchase contracts that have no clauses explicitly requiring the dealer to pay off a loan on a trade-in.

"It is not in the contract or agreement, but there is a general understanding," explained Mr. Higgins of the attorney general's office.

So, when a dealership closes, it can be difficult for a customer without a specific claim in writing to win some of the remaining assets of the failed business, those who have been in the position say.

Secondly, even if customers got a written agreement to pay off the trade-in lien from a car salesman, they may not be able to collect. The bond that dealerships must post to protect customers from such problems is tiny -- only $15,000.

Mr. Forbes said he has unsuccessfully tried to get the legislature to increase the bond, which was last changed more than 14 years ago, because his office has now had to work on several closures in which the bond didn't even begin to cover the claims against it.

The Maryland New Car and Truck Dealers Association, the group that represents new-car dealers in the state, agrees that the bond is too small and has also supported moves to raise the amount.

But some dealers oppose anything that would add to their costs at a time when they can ill afford it.

"In today's economic climate $15,000 is certainly not enough," concedes Gary Hurley, owner of City Oldsmobile in Baltimore. "But as a businessman, I wouldn't want to see it increased."

Dealers say the best way for customers to avoid problems is to deal with a well-established dealership and keep their wits about them.

"If the public sticks with a tried-and-true dealership, these things are not going to happen," said Wilson Howes, owner of Wilson Pontiac in Silver Springs and president of the Maryland New Car and Truck Dealers Association.

"In hard times we are going to take care of the customer," Mr. Howes said. But, he added. "The customer has a responsibility. You have got to be aware."

Dr. Arlie Cole, minister of the Emmorton Baptist Church in Harford County, said he thought he was being careful when he traded in his 1985 Chrysler for a 1989 Ford at Sherwood Ford in the fall of 1989.

"Sherwood Ford had been there umpteen years," he said.

And Dr. Cole said he even had the salesman write a clause on the sales contract assuring that Sherwood would pay off the lien on his used car.

But Sherwood Ford closed a few weeks later, and shortly afterwards Mr. Cole got a "nasty letter" from his bank warning that his old loan was overdue.

In the end, he said, Ford repaid his old loan. But Dr. Cole said he had a worrisome couple of months.

"Fortunately, it came out well for me," he said, explaining that state consumer investigators helped resolve his problem.

But he said he can't figure out how he can prevent similar problems in the future.

"I don't know what else I could do," he said.

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