Relief for stiffed car buyers?

A bill moving through the Legislature would provide protection for California car buyers who are left holding the air bag by unscrupulous or insolvent dealerships.

The bill, SB 729, would create a restitution fund financed with a $1 fee levied on new and used vehicles sold in the state. The fee would be paid by the dealer and wouldn’t apply to sales between individuals.

The fund is designed to compensate consumers who lose money or are faced with unexpected payments when a dealership goes broke or fails to follow proper procedures. These losses include:

- License and registration fees paid by car buyers but not passed along to the state by the dealer, as required by law. Under current law, if the dealer goes out of business, the buyer is responsible for the fees.

- Unpaid loan balances on vehicle trade-ins. About one-third of trade-ins have outstanding loan balances, according to some estimates, and dealers pledge to pay off the balance as part of the deal. That doesn’t always happen.

- Dealers sometimes fail to pass along the proceeds from a consignment sale to a car’s original owner.

In all of these cases, the car buyer loses out -- and the losses can be big. An analysis of the legislation listed cases from around the state, including one involving a Solano County dealership that affected more than 100 consumers who lost $1 million.

It’s particularly tough on people who end up having to make two monthly car payments -- one on the car they purchased and one on the car they traded in.

“It can be devastating,” said Rosemary Shahan, president of the Sacramento advocacy group Consumers for Auto Reliability and Safety. “It’s driven some consumers into bankruptcy.”

In some cases the dealers have been criminally charged, but that hasn’t helped consumers get their money back, said Brian Maas, director of government affairs for the California Motor Car Dealers Assn., which supports the bill.

“From our perspective, whenever a dealer goes belly up or skips town without paying trade-in or consignment obligations, that puts all dealers in a bad light,” Maas said.

He compared the bill to the travel-industry-funded program set up to reimburse consumers damaged by bankrupt travel agencies, cruise lines and the like. The bill would apply only to losses incurred after July 1, 2008.

There are about 1,600 new-car dealers in California and between 8,000 and 10,000 used-car dealers, Maas said.

Slightly more than 2 million new cars and light trucks were sold in the state last year. About 1.5 million used cars were sold by franchised dealers. Maas said he couldn’t estimate how many were sold by independent dealers, but said the restitution fund should have no problem reaching the $5-million cap set by the bill. (Annual payments would be capped at $2,500 per dealership.)

The bill, sponsored by state Sen. Alex Padilla (D-Pacoima), has been approved by the Senate and is expected to reach the floor of the Assembly next week after making it out of the Appropriations Committee on Thursday.

Gov. Arnold Schwarzenegger, who rolled back a big increase in vehicle licensing fees during his first term, hasn’t announced a position on the bill.

“We’re cautiously optimistic,” Maas said, noting that the legislation is particularly important now because the auto industry is in a downturn, which typically results in an increase in dealership closings.