Over 10 million vehicles are sold at dealer auctions every year. Lemon law vehicles are just a small ingredient in that fruitful recipe; and they are also the most unique.
First off, a car that was bought back under the Lemon Law is not the worst thing in the world in terms of a car's history. Flood damage cars, total loss vehicles, and those that are sold "for parts only" take a far bigger financial hit than a car with a Lemon Law announcement on the auction block.
So how bad is a Lemon Law car in the free market of retailing cars? Well here's the general Q&A we go through when we see one about to go under the wholesale hammer.
Is It A California Car?
California has the unique historical honor of having the most lemon law cars by a huge margin. In fact, there are some years when California will have more vehicles bought back under the Lemon Law statutes than nearly all the other states combined.
To quote one of the dozens of firms that specializes in California's Lemon Law:
"If you have purchased or leased a vehicle, motorhome, or motorcycle, either brand new, certified pre-owned, or used, that has been subject to four or more repairs under the original manufacturer's warranty for the same problem, you may be entitled to relief under the lemon law. This financial compensation may be in the form of a full repurchase, a replacement, or a "cash and keep" settlement."
This sounds fair and reasonable. But unfortunately, it has also formed the basis of a legalized racket. Southern California in particular has been a hotbed for Lemon Law fraud activity for well over a decade now.
What happens is a customer will buy a higher end luxury car, drive it for a little less than a year and complain about issues that don't really exist.
Before the year is up they will hire a lawyer to garner a full repurchase for the vehicle, and then go on to the next brand of car. In fact, certain individuals are now banned from buying multiple luxury brands due to their serial abuse of the law. This activity is also starting to take place in other states as well. But California is pretty much ground zero for Lemon Law Fraud.
So if the Lemon Law Car is from California, it's primarily discounted for the announcement under the Carfax history. Not necessarily because the vehicle is truly defective.
Does The Car Have A Well Known Defect That Was Later Corrected?
BMW had serious issues with their fuel pumps on 1, 3 and 5 series cars from 2007 thru 2010. As a result, the cars were recalled. But only after nearly four years of unsuccessful attempts to rectify the issue.
As a result of this latent defect, thousands of these vehicles were taken back under the Lemon Law. Similar incidences have happened with non-luxury brands as well. For example,. the engine in the Mazda CX-7, and a few CX-9 models suffer from timing chain, engine sludge, variable valve timing issues, and turbocharger failure. A fact that is highlighted in pretty stark terms in the Long-Term Quality Index and a current organized campaign to get this vehicle recalled.
So when we see a CX-7 sold under a Lemon Law Buyback, we assume that the engine is not good and discount accordingly. If you're willing to buy a car with a lousy engine, this may be your opportunity. But hopefully you'll know better than those poor folks who, "Buy with their eyes.".
Has The Car Been On The Road For Years After The Lemon-Law Buyback?
If a vehicle had a lemon law buyback five or more years ago, we generally don't care and neither should you. What you definitely should do though is make sure that the model in question isn't riddled with other quality issues.
Some cars have a ton of recalls in their early history due to excessive cost cutting and bad design. For example, if the car in question is a 2001 thru 2003 Ford Focus (which had over a dozen recalls), or any Chrysler with a 2.7 Liter engine (which should have been recycled into Chinese washing machines), I would avoid it with a 30 foot pole.
So if you're willing to buy a car that was branded or listed under the history as a Lemon Law vehicle, always get it thoroughly inspected and take extra special note of the recalls and TSBs on that model. Even if the mechanic gives it a thumbs up, you should be aware of the road ahead.
So How Much Should I Discount A Lemon Law Car?
My advice is if the car has a recent Lemon Law buyback in it's history, and you don't know the root cause, don't buy it. There are dealerships that will tell you the history of a vehicle. But others won't due to privacy issues.
So if you don't know why — don't buy. Ever.
If you do find out why, and the defect has either been recalled or doesn't bother you, I would still discount by what we call in the auto remarketing business as "cost and a half". For example, if Mazda ever sees fit to recall for the CX-7's engine issues, I would deduct the price of an engine replacement plus 50%. A new design for a given part, or a replacement, is no guarantee that the vehicle will be reliable for you. Also the value of the vehicle will take a hit if it's a recent model you plan on selling in the next five years.
I always tell folks to, "Hit Em'Where They Ain't" when it comes to buying a used car. In the pecking order of ain'ts, I would put a Lemon Law car below a vehicle that has light frame damage (a car that has either of the front side panels replaced that are above your front tires is now technically considered to have "frame damage"), or a car that is sold 'true miles unknown' but likely has low actual miles.
These are two places where the better deal is typically made in our business. Lemon Law cars don't have cooties. But they are not necessarily an oasis of value compared to the alternatives.