Canadian Used Car Problem

Spokane, Wash. AP reported that It's a deal many auto dealers can't resist: buying used cars from Canada and selling them in the United States at a big profit thanks to favorable exchange rates.

But some cars are coming with more miles than their odometers show.

Last week, law enforcement officers broke up an organized ring of Canadian and Spokane-area car dealers accused of fixing odometers at falsely low settings, allowing them to inflate car prices and bilk buyers out of as much as $1 million in all.

Officials say it is growing problem from Washington state to Maine.

``This started three years ago and it's getting more prevalent,'' said Richard Morse, head of odometer fraud investigations for the National Highway Traffic Safety Administration. ``People realize they can make a lot of money.''

Before Canadian vehicles can be sold in the U.S., their speedometers and odometers must be converted from kilometers to miles. It creates an opportunity for shady dealers to roll a few thousand miles off the vehicle in the process, and then increase its sale price by thousands of dollars.

Seven people in Canada and the United States were indicted by a federal grand jury in Spokane last week for rolling back the odometers on 122 used vehicles from Canada that were then sold in the Inland Northwest, about 90 miles south of the Canadian border.

Most of the vehicles were expensive trucks and sport utility vehicles, and some had up to 50,000 miles taken off the odometer. Consumer activists estimate a dealer pockets an additional 10 cents for each mile that is rolled back, or $5,000 on 50,000 miles.

The North American Free Trade Agreement has produced a huge increase in the volume of cross-border car sales. In 1996, only 2,500 used vehicles were brought into the U.S. from Canada. So far this year, the total is about 350,000, according to Morse.

With a weak Canadian dollar, currently worth about 65 U.S. cents, the trade is likely to continue. But the U.S. Department of Transportation has only four agents dedicated to odometer fraud in the entire country, and none of them is assigned to look specifically at vehicles from Canada, Morse said.

No comprehensive study of the problem has been conducted, but the NHTSA has about ten investigations now going.

Still, used car dealers insist the vast majority of vehicles from Canada have honest odometer readings.

``I would not say this has been a huge issue,'' said Teresa Gamble, executive director of the Independent Auto Dealers Association in Seattle, which represents used car dealers across the state.

At Dealer Auto Auction Northwest in Spokane, where some 10 percent to 20 percent of the cars sold come from Canada, co-owner Greg Mahugh said his business had already detected problems with some cars before the federal government announced the indictments.

His company had already stopped working with the people who were charged, he said.

``There are a small number of players who give legitimate players a bad reputation,'' Mahugh said.

The Spokane case began when a Washington man purchased a pickup truck and began having serious problems with the vehicle, said assistant U.S. attorney Jim Shively in Spokane.

``He took it to a mechanic, who said it looked like it had a lot more miles than it said,'' Shively said.

The man researched the truck's history, discovering the real mileage and the fact it had been imported from Canada.

``Investigators started checking vehicles imported by the same person this guy bought his vehicle from,'' Shively said. ``Most of them had odometer rollbacks.''

Those indicted face a maximum penalty of 20 years in prison and fines of $250,000.

Among the suspects is a retired Royal Canadian Mounted Police officer, Ronald Simpson. He and his wife are directors of Geronimo Holdings Ltd., which allegedly bought sport utility vehicles, pickup trucks and other vehicles at Canadian used-car auctions and exported them for sale in the Spokane area.

Nationally, the U.S. government estimates more than 450,000 people every year buy used vehicles with mileage gauges rolled back. Consumers pay an average of $2,336 more than they should for vehicles with fraudulent mileage totals, for a total of more than $1 billion a year.

A National Highway Traffic Safety Administration study found the practice is most common with fairly new vehicles that accumulate significant mileage in a short period, such as rental and company cars and leased vehicles.

Most odometer fraud is committed by wholesalers who buy fleets of used vehicles and sell them to dealers, according to officials.

In Virginia, two wholesale dealers in Henrico County were indicted July 10 by a grand jury on multiple charges of tampering with vehicle odometers and making false statements on applications for vehicle titles on vehicles brought into the U.S. from Canada illegally. A Florida dealer already has been prosecuted in connection with that case.