The Justice Department, signaling the government's increased willingness to pursue suspected auto-retail fraud, yesterday charged a Maryland dealership with knowingly selling used cars as new.
In a complaint filed in U.S. District Court in Baltimore, the government accused Ourisman's Rockmont Chevrolet in Rockville of failing to disclose "that certain vehicles represented as new had previously been sold to retail purchasers."
Ourisman's Rockmont Chevrolet agreed to pay $50,000 in civil penalties to settle the case brought on behalf of the Federal Trade Commission.
The penalty was a two-part fine, $30,000 stemming from similar charges that the government made against the dealership in 1988, and $20,000 because the dealership "continued to engage in those practices" of misrepresenting cars as new to consumers, an FTC spokeswoman said.
Ourisman officials declined comment on the matter. But a local dealer association representative called the government action "a new and unusual widening" of the government's enforcement of laws governing used-car sales.
"In the past, the FTC would go after dealers for technical violations of the commission's used-car rule," which requires that dealers display stickers indicating the mileage and any existing warranties on used cars, said Gerard N. Murphy, president of the Automotive Trade Association of the National Capital Area, representing nearly 200 franchised car dealers.
The FTC's new thrust is against what dealers call "prior use," Murphy said. "Prior use" generally occurs when a dealer, anxious to reduce inventory and attendant property taxes, delivers cars to a buyer on condition that the buyer will return the car if a loan cannot be obtained for the purchase, Murphy said.
A number of cars come back, especially in a time of tight credit, Murphy said.
"Often, the mileage involved is very little and it does not represent a loss for the consumer. But the dealers should disclose that the car has had prior use," Murphy said. "The FTC never went after this area before, even though they had the power to do it. They're getting militant."
Consumer groups lauded the agency's aggressiveness.
"The FTC is beginning to go after these cases around the country, and we think that's good," said Clarence Ditlow, executive director of the Washington-based Center for Auto Safety. "Selling used cars as new is fairly common activity. It's not isolated to the Washington area. We're seeing this all of the time," Ditlow said.
The argument that so-called "prior use" cars have low mileage and thus represent no threat to the consumer is specious, Ditlow said. "The bottom line is that consumers are getting short-changed," he said.
Yesterday's action marked the third time in four years that an Ourisman dealership has been cited for selling used cars as new. In 1986, a Prince George's Circuit Court jury awarded buyer Richard Jenkins $22,000 in a "prior use" case against Ourisman Chevrolet of Marlow Heights.
Yesterday's ruling affects only one of the Ourisman chain's six area dealerships.