More Than Money Behind Dealers Suing Carfax

“With a history, there’s no mystery,” used-car expert Tim Deese likes to say.

He’s referring to used-car shoppers feeling more comfortable and more likely to buy a vehicle if they know it is without past problems. Has it been in a major accident? That could affect the structural integrity, even after repairs. Has it been in a flood? A waterlogged car that’s dried out still has serious issues.

Vehicle-history reports giving clean bills of health have become selling points in the pre-owned market. The oldest car-history provider, Carfax, has about 90% of the business. It has done well since it began about 25 years ago, initially faxing reports to clients.

Now, a $50 million class-action federal lawsuit claims Carfax has done too well at the expense of dealers who typically pay for the vehicle histories and provide them to customers.

The anti-trust suit alleges Carfax unfairly has carved out a monopoly, allowing it to overcharge dealers and freeze out competitors, such as Experian’s AutoCheck.

Lead attorney Leonard Bellavia complains Carfax has setups with AutoTrader.com and Cars.com. Those major automotive marketplace websites only post Carfax as the available vehicle-history provider.

Either a dealer purchases Carfax services for car listings on those sites or the spot for a vehicle-history icon is blank. That conspicuous absence hurts the chances of a customer clicking a listing, let alone buying the car.  

Carfax also has deals with most auto makers’ certified pre-owned vehicle operations. Many dealers beef they must pay higher prices to Carfax because of its exclusive arrangements with 32 of 38 CPO programs.

The plaintiffs’ lawyers say no vendor should dictate terms like that or “otherwise force dealers to do business with them.”

Beyond the suit’s legal language and tort talk is a heap of dealer ire. That stems from Carfax ads. Many of them essentially say the company’s vehicle-history reports protect consumers from potential dealer rip-offs.

The nerve of it all is that Carfax overcharges dealers, then uses some of the loot to bankroll anti-dealer ads, says Bellavia, a dealer’s son who paid for his legal education by working at the family store.

Other critics claim Carfax vehicle histories sometimes are inaccurate and incomplete. That can leave dealers liable if, say, a consumer discovers a purchased car didn’t deserve a good report after all. WardsAuto columnist Jim Ziegler has written about that: http://wardsauto.com/blog/carfax-gets-its-facts-wrong

About 120 dealers are part of the lawsuit filed in a U.S. District Court in New York. Still signing up dealer clients, the plaintiff attorneys could do well for themselves. In addition to a $3,000 upfront charge per participant, they would collect a 20% contingency fee that would amount to $10 million were a court to award the full damage claim of $50 million.

Carfax is lying low, as civil-case defendants often do at first. The firm’s communications director, Larry Gamache, thanks me for asking, but says, “We do not have any comment about the lawsuit.”