State Imposes 45-Day Shipment Ban on Chrysler

In the latest twist in a long-running case, the Department of Motor Vehicles on Thursday banned Chrysler from shipping vehicles into California for 45 days as punishment for violations of the state lemon law.

Chrysler said it will appeal the ruling, a step that would postpone the ban indefinitely. The DMV said its decision, if implemented, could cost Chrysler and its dealers as much as $15 million in lost sales.

The unprecedented ruling is the outcome of a DMV investigation that began in 1993. The department has accused Chrysler of selling 116 “lemons” to unsuspecting used-car buyers. Chrysler has denied wrongdoing.

The decision, if upheld, would not prevent dealers from selling cars already on their lots. It would not affect shipment of replacement parts to dealers, either.

“We have attempted to target Chrysler, not the dealerships,” said DMV Director Sally Reed. “There is no doubt the dealers will be affected, though.”

There are about 200 Chrysler dealers in California, which accounts for 8% of Chrysler’s annual sales.

Consumer activists applauded the DMV’s ruling, calling it “historic.”

“This is the first time a state has suspended a manufacturer’s license or has said it should be suspended,” said Rosemary Shahan, director of Sacramento-based Consumers for Auto Safety and Reliability. “The DMV deserves a lot of credit for standing up for California consumers.”

Besides suspending vehicle shipments, the decision would place Chrysler on probation for three years. Chrysler would have to comply with certain restrictions during that period.

The decision would require Chrysler to file quarterly reports with the DMV on cars repurchased from customers. The ruling would prohibit Chrysler from reselling lemons in California during its probation--in effect, requiring Chrysler to unload them in other states.

“I am not anxious to see other states have the same problem we are facing,” Reed said. But she said the restriction addresses “the problem we have with buying lemons and selling them without full disclosure in the state.”

Reed said she did not know how many vehicles would be affected by the restrictions.

Under the statute, the DMV’s decision cannot take effect until Nov. 25. But Chrysler’s decision to appeal puts it on hold until the appeals process is exhausted or the ruling is overturned.

Chrysler said it will appeal the decision to the New Motor Vehicle Board, an autonomous nine-member body that reviews automotive matters. If Chrysler does not prevail before the board, which includes consumer, industry and dealer representatives, the auto maker can file a civil suit in Superior Court.

Chrysler could settle the case with the DMV, but that did not seem likely. The two sides halted negotiations three weeks ago, divided on a DMV demand that Chrysler admit wrongdoing as part of any settlement. In hearings in the case more than a year ago, the DMV had sought a 10-day suspension.

In reaching Thursday’s decision, the DMV rejected a recommendation from Administrative Law Judge Keith Levy to suspend vehicle shipments into California for 60 days. Levy made his recommendation in May and reaffirmed it in September, satisfied that it would not unfairly harm Chrysler dealers.

But Reed disagreed. She said the 60-day suspension would cost Chrysler and its dealers $25 million in lost sales, a penalty she considered as harsh to dealers.

“One of the things we struggled with was the impact on dealerships; they have not been found in violation,” Reed said. “Unfortunately, we cannot fully protect the dealers.”

While the DMV may negotiate a monetary settlement, it does not have the authority to fine manufacturers or dealers.

Chrysler dealers said the decision, if implemented, would damage their businesses. They said that while they typically have 45 to 60 days’ worth of inventory on their lots, they would quickly run out of popular models. And Chrysler said it would be too disruptive for factory schedules to build up those inventories ahead of time. What’s more, their star salespeople would likely defect to competitors rather than lose sales opportunities.

“This is an injustice to the dealers,” said Carl Cannata, longtime owner of Van Nuys Chrysler-Plymouth. “It would be a severe hardship.”

Lorina Estes, who with her husband purchased a used lemon from Chrysler, questioned the DMV ruling.

“I’d rather see Chrysler pay a monetary penalty,” she said. “The company is so big, it can sell the cars someplace else.”

Estes, of Concord, purchased a used Dodge Dakota without realizing Chrysler had repurchased it from its original owner because of defects with the passenger seat and the drive line. Chrysler reacquired the truck from Estes after the DMV filed its case.

The case is the first major ruling for Reed, who became DMV director in June after serving as Los Angeles County chief administrative officer, guiding the often-fractious supervisors through a painful budgetary process.

“I get the tough decisions,” she said. “They seem to wait for me.”