‘Storm cars’ could take consumers for a ride

Roland Jones Business news editor • Profile • E-mail

As the Gulf Coast region struggles to return some semblance of normality after Katrina’s battering, consumer advocates are raising a new alarm: Thousands of cars soaked by the hurricane are expected to enter the U.S. car market over the next few months and could be snapped up as bargains by unsuspecting buyers.

Each year, as severe weather ravages the Midwest, southern and coastal areas of the United States, thousands of cars are damaged or destroyed by floods. Most of these so-called "storm cars" are usually sold for parts, but others make their way into the hands of dishonest people who try to fix them and pass them on to unwitting consumers in other states, or sometimes overseas, without disclosing that they have been damaged by flooding.

While it’s too early to have solid numbers, the destruction path left by Hurricane Katrina is likely to lead to flood damage to tens of thousands of cars, notes Robert Hartwig, chief economist with the Insurance Information Institute in New York.

“This is arguably one of the largest flood events in U.S. history, and so car consumers should be more vigilant in the months to come as there could be large number of these vehicles in the market,” said Hartwig. “They usually turn up for sale in the areas where a disaster occurs, but they can also be transported for sale anywhere in the United States.”

Flood damaged cars can often be restored to working order, but they can have mechanical problems for years afterward. In fact, flood damage can lead to serious problems, including the malfunction of headlights, windshield wipers, brakes and even airbags, and so many insurance adjusters simply write off a vehicle if it has been flooded above its dashboard where most of its electronic components are housed.

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But there is a market for flooded cars. They are often sold for parts and buyers are attracted to them because once the damage is disclosed their value drops dramatically.

The problem comes when the flood damage is not disclosed, as is required by law in each state, usually because fraudsters have tampered with a car’s paperwork. They can take a car damaged in one state and sell it in another state with brand new ownership documentation.

After last year’s bout of hurricanes, many flood-damaged cars were patched up, refurbished and issued with new documents, industry observers say. These vehicles were sold to unsuspecting consumers without full disclosure of their damage history. In 1999, for example, over half of the estimated 75,000 flood-damaged vehicles from Hurricane Floyd returned to the road, according to Carfax, which provides car consumers with vehicle history reports.

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