Is That Demo a Deal or Just a Used Lemon?

An estimated 15,000 cars are officially branded lemons each year under state lemon law buy-back programs. The cars are supposed to be designated on their registrations as lemons--cars repurchased by manufacturers because of defects.

But new questions are being raised about whether some of these cars, along with many others voluntarily repurchased as lemons, may be resold to the public without adequate disclosure.

A $1-million lawsuit was filed earlier this year in Los Angeles, alleging that a BMW dealership sold as a demo a BMW 750iL that had been registered to another owner and repurchased after a lengthy defect history.

Linda Belz, a Valencia real estate broker who purchased the vehicle in January, 1989, alleges in her suit that she took the car in for repair more than 40 times for various problems, including brake failure and transmission failure. Attempts to repair the vehicle failed, she says.

Belz seeks return of the purchase price of $90,350, civil penalties of three times the vehicle’s value--a total of $361,000--attorneys’ fees and punitive damages.

The California Department of Motor Vehicles investigated her complaints and found that the car had been previously registered. Under California law, a car cannot be sold as a new demo if it has been registered to another individual.

The previous owner had returned it four times for some of the same problems that Belz had, according to her attorney, Robert F. Brennan of Hollywood.

BMW of North America declined comment on the Belz case, but said its policy is to disclose a car’s defect history to dealerships. Whether the dealer also makes the proper disclosure to customers is not under the firm’s control, it said.

The dealership that sold Belz the car has changed ownership. Officials at the dealership denied that the car was sold as demo. In addition, Belz put 70,000 miles on the car, the dealership said. The car had 5,000 miles on the odometer when Belz purchased it.

The Belz case might be simply one where the boundaries of good behavior were crossed in the luxury car market. But Brennan and other lemon law attorneys say that it is not uncommon.

“Every car is a source of tremendous profit and when a manufacturer has to buy back a car, he really doesn’t want to give up that profit,” Brennan says.

Brennan suspects manufacturers are buying back cars voluntarily to escape the legal requirement of certifying cars as lemons. But the BMW spokesman said the firm discloses such buy-backs whether under the law or voluntarily.

Another legal loophole is that financial institutions are exempt from disclosure. When a bank or leasing firm owns a car repurchased as a lemon, it has no obligation to disclose the history, said Al Hodges, an attorney specializing in such cases.

Consumer advocate Ralph Nader has estimated that the auto industry turns out 50,000 lemons each year. Nobody wants to get stuck with one of these used lemons.

If you are considering a demo or late-model used car, exercise care. Think twice about buying a car with an unknown ownership history or that has gone through numerous ownership transfers.

Motorists are often all too willing to accept that demos are cars driven by dealership salesmen.

Finally, it pays to deal with a reputable lot.