Road hazard: unfit and unsafe vehicles slip through the cracks in the second-hand market

The persistent practice of unfit and unsafe vehicles being put back on the road underscores the importance of caveat emptor – the age-old Latin warning of “let the buyer beware”– particularly when purchasing a second-hand vehicle.

The South African Insurance Association (SAIA), representing the non-life insurance industry, has expressed deep concern over dishonest practitioners selling or reusing unfit and unsafe vehicles, which should have been deregistered, as code 2 motor vehicles.

SAIA cautions that buyers who realise they have been deceived about the condition of a vehicle only after the seven-day cooling-off period may have limited options for recourse, unless it can be proved that the seller was aware of the status and history of the vehicle before the sale and was an active participant in deceiving the buyer.

“This is why it is so critical that the buyer of a used vehicle takes great care. Known and reputable used-vehicle brands are likely the safest, but the same precautions should apply. It is essential that the prospective buyer does not sign or pay anything until all the checks have been done and independent testing reports have been secured,” SAIA states.

The body adds that, ultimately, it is the obligation of the buyer of a used vehicle to be thorough in terms of questioning the dealer/seller and ensuring that a testing certificate from a reputable testing centre is provided. Responses from the dealer should be obtained in writing.

The scope of the problem

The four life-cycle status codes for a motor vehicle on the National Traffic Information System (NaTIS) are:

• Code 1: new motor vehicle delivered by a dealer to the first owner.
• Code 2: second-hand used motor vehicle with one or more previous owners.
• Code 3: built-up/permanently unfit for use. Code 3 motor vehicles are code 1 or 2 motor vehicles that were involved in an incident and subsequently declared unfit for use as a motor vehicle. A motor vehicle is “built up or permanently unfit for use” when the extent of the damage includes structural defects that require substantial rebuilding. Vehicles registered as code 3 may not be re-registered as code 2 but are repairable in accordance with regulation 13(4) of the Second Hand Goods Act and will have the status of “built-up”. Vehicles designated as code 3A are suitable for spare parts only and cannot be rebuilt.
• Code 4: permanently demolished. The chassis of a motor vehicle has been compacted, compressed, melted, destroyed, or damaged to such an extent that the vehicle cannot be made roadworthy, and the chassis cannot be used to build a motor vehicle.

These NaTIS lookup table values (codes) are widely used by the insurance industry. Interestingly, however, the Second Hand Goods Act and the Regulations do not define the “status codes”, so these values have no legal standing.

What’s also noteworthy is that although the issue of unfit vehicles being put back on the roads persists, the authorities seem to lack a method to gauge the extent of the problem accurately.

According to Garth de Klerk, the chief executive of The Insurance Crime Bureau (ICB), vehicles deregistered as demolished (code 4) cannot be re-registered, and code 3 vehicles (built-up) must first undergo a clearance by the South Africa Police Service before they can be re-registered after such a vehicle was deregistered as scrapped.

“If these categories of vehicles are sold with a life-cycle status of used, it cannot reflect on the original registration certificate as used,” says De Klerk.

In other words, even if a code 3 vehicle is built up to the proper standard and re-registered and sold as a used or second-hand vehicle, the registration certificate will still reflect that it is a code 3 vehicle.

He adds that loopholes in the registration system were closed over the years to prevent the illegal changing of life-cycle statuses of vehicles.

“The ICB, therefore, does not keep records of code 3 or code 4 vehicles sold as code 2 vehicles, as it is not possible to know when false documents are used to dupe buyers,” says De Klerk.

VIN-Lookup database

In September last year, SAIA launched a web-based facility for consumers to check on the status of a vehicle as reflected in a small database within the industry’s vehicle salvage database (VSD). Named VIN-Lookup, it contains records of how insurance companies have designated previously insured vehicles.

At the time of the launch, SAIA stated that the purpose of VIN-Lookup was non-life insurers’ contribution to addressing the problem of purchasing unsafe repaired cars from vehicle salvage houses. It was, however, at pains to note that of the 14 million registered vehicles in South Africa, less than a third are insured (fewer than five million). This implies that the VSD will probably have fewer than 3% of written-off vehicles, indicating it is far from a complete solution.

The database currently includes records of code 3, code 3A, and code 4 vehicles.

The South African Motor Body Repairers’ Association (SAMBRA) recently called out SAIA for not including code 2 vehicle salvage information in the VIN-Lookup database, adding it has found “a concerning number of vehicles that have been severely damaged in accidents often ending up being repaired and returned to the road with a roadworthy certificate”.

Last week, SAIA confirmed that, “following extensive discussions with various stakeholders and a comprehensive review by the relevant SAIA committees”, the association has determined that the details of vehicles deemed uneconomical to repair by insurers will not be incorporated into the VIN-Lookup database.

Vehicles are designated as “code 2 uneconomical to repair” where the total cost of the repair, including spares, car rental, and panel beating, is above different thresholds, relative to the current value of each vehicle, applied by individual insurers.

“SAIA is of the view that providing general access to code 2 salvage records would compromise those who buy these vehicles and safely undertake repairs to the manufacturer’s specifications,” the association said.

Marcia Modiba, the acting national director of SAMBRA, asked why SAIA was not equally concerned about compromising the safety of the end consumer.

“The bottom line is that once a vehicle has been declared uneconomical to repair by an insurer and ends up at a salvage yard, it is then fair game for anyone, and that is where we lose total control,” Modiba said.

When a written-off vehicle is not a write-off

SAIA clarifies that “write-off” is a colloquial term and can have various interpretations.

“This term is especially unhelpful when it comes to accident-damaged vehicles,” the association states.

For insurers, a vehicle can be deemed uneconomical to repair, passed to salvage agents for auction, and designated as code 2 on NaTIS.

“Code 2 vehicles may not be roadworthy but are not deemed to be unsafe to the extent that they should be scrapped entirely. Code 2 vehicles can be repaired to manufacturer specifications, just not at a cost that the insurer is prepared to carry at a particular moment in time,” SAIA says.

Such repaired vehicles must be put through roadworthy tests to obtain the relevant certificate.

SAIA explains that an insurer’s criteria for determining whether a vehicle is uneconomical to repair include the vehicle’s age, make, model, mileage, availability, and the cost of parts, and the nature of the individual insurance policy to be applied in each case.

At present, there is no single industry-wide set of criteria for determining whether a vehicle is uneconomical to repair.

“Declaring a vehicle uneconomical to repair is, therefore, based on each insurer’s own proprietary systems and processes for making such a determination,” says SAIA.

The association states the fact that thresholds are different for each insurer is another key aspect of its decision not to include “code 2 uneconomical to repair” vehicles in the database.

“Making such information available would also provide the appearance of a single industry-wide set of uneconomical to repair thresholds where none exists,” SAIA states.

SAIA says insurers regard their respective criteria, levels, and limits as highly competitive and sensitive information.

“Further, insurers are of the view that sharing such information and making it publicly available would in any event create the risk of intervention by the competition authorities,” the association states.

Cloned motor vehicles – a growing scourge

Another bane of insurers and consumers’ existence is the prevalence of cloned motor vehicles.

SAIA explains that vehicle cloning usually involves copying the identity of a legitimate vehicle and applying it to another vehicle.

“This typically includes swapping the licence plates, VIN numbers, and other identifying information from the legitimate vehicle onto the cloned vehicle. This can make a stolen vehicle appear to be legitimate,” the association states.

According to the ICB, vehicle cloning can be defined as the copying of identifiers from a similar non-stolen onto a stolen vehicle. The bureau has previously reported that “tapping into the lucrative market for cloned vehicles has evolved from the classic tampering of identifiers and introducing the vehicle with false identifiers on registration systems to the sophisticated cloning of vehicles with existing records on NaTIS”.

The ICB has estimated that 3 000 to 5 000 cases of cloning are reported each year.

The Retail Motor Industry organisation previously reported: “It is estimated that more than 20 000 unrecovered motor vehicles, valued at more than R4 billion, are illegally entering the South African motor vehicle market annually and are filtered back into the hands of consumers, mostly as cloned vehicles.”

However, De Klerk says the actual figures are difficult to compile.

“The theft of motor vehicles is a market-driven crime. Most of the demand is for vehicles going to the domestic second-hand car market as complete units, or to be used in other crimes, as well as for spares (chop chops), then secondly for the cross-border market.”

He adds it is estimated that up to 60% of vehicles stolen in South Africa are destined for the domestic market.

“And this is the market that includes the cloning of vehicles.”

As to which vehicles are most likely to be targeted by criminals, De Klerk says the makes and models of stolen vehicles, cloned on the detail and records of similar non-stolen vehicles, are in line with the makes and models tending to be the most popular with the public “and thus in demand in the used car market”.

How to avoid being caught out: essential tips for savvy buyers

The ICB provides the following advice to consumers who are in the market for a second-hand vehicle:

• Buyers should ensure that the vehicle is registered in the name of the seller.
• Be cautious if the registration certificate is recent and be cautious if the seller’s “story” or sales pitch does not match what is stated on the registration certificate.
• Be cautious about cash deals, a seller who insists on a meeting in a public space, or if you cannot confirm the seller’s domicile.
• Ensure the vehicle has all the keys, and the keys unlock all the locks.
• Be on the look-out for marks around the dashboard where clips and screws are missing. When vehicles are stolen, they are often stripped to remove tracking devices, resulting in damage to the dashboard.
• Compare the dates on components such as safety belts and restraining systems with the vehicle’s year model provided by the seller.
• Compare the registration certificate and licence disc with the stamped VIN, as well as the data label of the vehicle. The location will be indicated in the service book and/or manual.
• If there is no service book or the first owner’s details have been removed from the service book, walk away.
• If there are any signs that the surface over the stamped VIN was repainted, walk away.
• If nail-polish remover removes any lettering or background on a data label, walk away.
• Do not rely on a roadworthy certificate as proof that a vehicle was not stolen or badly repaired. Instead, have the vehicle inspected at a reputable institution of your choosing.
• Buy from reputable vehicle dealers and do research on the dealership where you intend to buy a vehicle.
• If the deal seems too good to be true, you will probably end up agreeing with this saying after you have parted with your money.