POSTED: 01:30 a.m. HST, Jan 13, 2013
BORDENTOWN, N.J. » At the far end of an enormous hangar, used cars rolled up one by one to the auction block. They had been buffed to a shine, but some carried telltale signs of damage. Puckered leather seats, a hint of mildew, headlights beaded with condensation. Just over two months ago, they had filled with seawater during Hurricane Sandy.
One buyer at the Manheim car auction last Wednesday, Hakim Shittu, kept his hands in his pockets. He was looking for totaled vehicles to export to Nigeria, where they would be fixed up and resold; but these, he said, were too far gone. Saltwater destroys cars, he explained, and even when rebuilt they can be unsafe. "I never buy the flooded ones," he said.
But all around him, other buyers showed no such compunction. The flooded cars sold briskly, for prices like $2,600, $5,300, $3,000. Some were to be dismantled into salvageable parts, like wheels and fenders; some were to be melted down for their rubber and steel. And yet, while all have titles branding them flood cars, not all were destined for the scrap heap.
Many were headed to out-of-state resale markets where, because of inconsistencies in state laws, buyers will have no inkling that the vehicles were so damaged by floodwaters that insurance companies deemed them a total loss.
"People masquerade those things as perfectly good vehicles without any hint that they had been flooded or exposed to water," said Frank Scafidi of the National Insurance Crime Bureau, an industry-financed nonprofit organization that investigates insurance fraud and vehicle theft. "There is a market for these vehicles, even though we might never want to see them on the road again."
Though this practice provoked outrage in the aftermath of Hurricane Katrina and other major storms, dealers and industry experts said the brisk trade in flood-damaged cars since Hurricane Sandy had highlighted how legislative efforts at the state and federal levels have failed to stem the resale market.
The Insurance Crime Bureau said over 230,000 cars were damaged by the hurricane, predominantly by the ocean water that surged into seaside communities, filling engines and interiors with sand and corrosive saline.
In Broad Channel, Queens, scores of dead cars sat at crazy angles for weeks after the storm all along Cross Bay Boulevard, a reminder of the brute strength of the waves. In areas like Lower Manhattan and Hoboken, N.J., car owners returned to expensive parking garages to find their cars floating in the soup of sewage and river water that had poured into the underground lots. Even the FBI and the Secret Service lost cars, according to line items in Congress' hurricane-relief package.
Yocasta Lachapelle had watched in shock as water poured into her garage on Cherry Street in Lower Manhattan during the storm; her 2011 Prius sank underneath. By the time the water was pumped out nearly a week later, the car was a total loss. "It still had water inside it when I opened the door, in the glove compartment and the cup holders," she said.
Lachapelle was fortunate: she had total-loss insurance. A few weeks ago, her 2012 Prius arrived. But for the destroyed car, like the 150,000 other New York cars that were flooded, according to the Department of Motor Vehicles, the odyssey had just begun.
Once the cars are declared a total loss, specialized firms swoop in on behalf of insurance companies to tow away, spruce up and resell the cars. One of those companies, Insurance Auto Auctions, which estimates that it is handling about 40 percent of the region's storm-damaged cars heading to the salvage market, employs people to study weather forecasts and predict where the next disaster will be.
For the hurricane, the company dispatched 400 tow trucks to the area and leased huge holding facilities even before the storm hit. One of those was an airport in Calverton, on Long Island, where the runways were leased at a rate of $2.7 million for the year, according to Sean M. Walter, the town supervisor of nearby Riverhead. Since the storm, about 18,000 cars have packed the tarmac end to end, he said. "When you sit there and look at these cars with their children's seats in them and the briefcases and the uneaten lunches — it's just surreal," Walter said.
Cars that had suffered storm damage can arrive at auction branded improperly, or have their titles fudged after they leave. In most states, cars destroyed by flooding are required to have their titles marked, or branded, to indicate that fact. But clearing that scarlet letter can be as easy as re-registering for a title in another state that does not require the flood brand carry-over, a process known as "title washing." Unscrupulous dealers pile their purchases on flatbeds and head straight for those states, like Colorado and Vermont.
The prospect of title-washed cars from Hurricane Sandy entering the market raised alerts thousands of miles from New York. Officials warned consumers in Georgia, North Carolina and Illinois, where the secretary of state's office is scrutinizing all new title applications for cars coming in from states affected by the storm.
A foreign market for these cars is also booming, unfettered by U.S. regulations.
Federal legislation that would require total-loss status to be affixed permanently to a car's title was introduced in Congress before and after Hurricane Katrina, but was never passed. In 2009, the Justice Department began the National Motor Vehicle Title Information System, a database fed by insurers and states. It contains reports on the movement of cars sold at salvage auctions but is limited by sporadic reporting and incomplete data.
These shortcomings have provoked certain groups to warn about a deluge of unsafe cars hitting the market in the aftermath of Hurricane Sandy, including the National Automobile Dealers Association, which represents car dealers; and companies that sell reports on vehicle histories, like CarFax. Watchdog groups say that insurance companies sometimes contribute to the problem by underplaying the damage to a car at auction. In 2005, the State Farm insurance company reached an agreement with the attorneys general of 49 states and the District of Columbia for failing to properly title cars, reimbursing over 30,000 affected consumers. Rachael Risinger, a spokeswoman for State Farm, said the company was complying with the laws in each state affected by Hurricane Sandy.
The explosion of car sales over the Internet, where vehicles can be sold person to person and bypass official channels, has made the problem harder to resolve.
Larry Scheiber, 58, never bothered to buy replacement insurance for the 1996 Nissan Altima he had used to ferry his two dachshunds around his Belle Harbor neighborhood in Queens. After it was soaked, he sold it for $250 to a junk-car buyer who had left a flier under the windshield wiper. Such uninsured cars are even more susceptible to ending up back on the road with no indication of their soggy history — they are often rebuilt, reinspected and retitled, without their true affliction ever being reported.
Not all owners are ready to discard their waterlogged cars, to be rolled out potentially into a commerce of deception. Though her insurance company deemed her 1969 Land Rover a total loss, Leisah Swenson, 44, took the vehicle, which was steeped in saltwater in Red Hook, Brooklyn, to a mechanic for a second opinion.
But just last week, Swenson gave in, and her beloved car, which she calls "Landy," was towed to a salvage auction. "It's hard to wrap your head around it," she said. "And what happens to all that stuff? Where does it go?"