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121 Dealers File $50M-Plus Suit Against Carfax

April 24, 2013

NEW YORK — Dealer law firm Bellavia, Blatt, Andron & Crossett filed a $50 million lawsuit against Carfax Tuesday afternoon, bringing forward antitrust and anti-monopolization claims on behalf of 121 dealers.

The mass action suit claims that the vehicle history report (VHR) provider, founded in 1984, has a monopoly on the industry — holding a reported 90 percent of the market share through exclusive agreements with manufacturers as well as vehicle merchandising sites like Autotrader.com and Cars.com.

“Carfax has unlawfully acquired and maintained its market power in VHRs through exclusivity agreements with numerous major players in the auto industry,” the complaint reads, citing how AutoTrader.com and Cars.com include hyperlinks to Carfax reports but exclude reports from other VHR providers.

“Carfax has stigmatized any listing without such a link in the eyes of consumers who infer that the absence means that the car has a blemished history,” the complaint states.

Leonard Bellavia, the attorney leading the case, has been looking at Carfax’s practices for the past six months as a growing number of his dealer clients questioned the quality of Carfax’s reports. Through his research and conversations with dealers, he realized Carfax was in violation of antitrust laws.

“There’s nothing illegal about having a monopoly, but the law looks very critically at an entity that has a monopoly that abuses its monopoly power,” Bellavia said. “You cannot engage in anti-business or anti-competitive behavior to either maintain the monopoly or increase the monopoly.”

Bellavia sought to first address Carfax’s alleged antitrust violations so that competing VHR companies get a fair shot at dealer and manufacturer business as well. As a result, “there is more of an incentive [for Carfax] to improve the quality of service,” which, in turn, tackles his dealers’ main concern.

The complaint lists 50 dealers from New York, 29 from New Jersey, and a handful of operators from Connecticut, Arizona, Maryland, Washington, Wisconsin, Vermont, Delaware, Florida, Virginia, California, Massachusetts, Illinois, Montana, Texas and Pennsylvania. Since the suit was filed yesterday afternoon, Bellavia said 25 more dealers were added to the complaint.

Bellavia was the lead attorney in the successful mass action fight against the U.S. Treasury in 2009, when Chrysler ordered nearly 800 of the marque’s dealerships to be closed down following its bankruptcy. He gained support of close to 20 percent of total Chrysler dealers affected by the cuts, and Bellavia said he hopes to capture at least the same share of dealers in this lawsuit within the next 60 days.

Just as in the Chrysler suit, Bellavia decided to file a mass action suit. He said it was the best option because it allows the affected dealers to “level the playing field” with such a large entity like Carfax. And if successful in court, each dealer would be given an individual hearing to argue for personal damages incurred under the mass action.

Dealers spend anywhere from $10,000 to “multiple tens of thousands of dollars per year” in order to provide customers with free Carfax reports, which the complaint claims are “inflated prices” given what other VHR providers charge dealers.

“Auto dealers would have the unfettered opportunity to purchase VHRs of superior reliability from alternative suppliers at competitive prices,” the complaint reads.

The action brought against Carfax seeks injunctive relief and to recover a collective $50 million in damages incurred “by having to pay more to Carfax for VHRs than they would have paid in a free and competitive market.”

In addition to the monetary damages, Bellavia said he expects the mere filing of the suit to open up the playing field for other VHR providers. “Through this, Cars.com and AutoTrader.com should be more receptive to recognizing AutoCheck and the other companies,” he said.

AutoTrader.com did not immediately respond for comment. Erin Mays, spokesperson for Cars.com, e-mailed the following statement to F&I and Showroom magazine:

“While we can’t comment on pending litigation or the specific terms of our agreement with CARFAX, what I can tell you is that vehicle history reports are an important part of the shopping experience. Cars.com launched vehicle history reports on our site in 2005 in response to consumer demand. It is one of many data points we bring into our site to give shoppers access to as much information as possible about a vehicle in which they are interested, ultimately helping them make more informed buying decisions.”

The suit also calls out manufacturers for their exclusive agreements with Carfax, noting that 37 of the 40 major certified pre-owned (CPO) programs require dealers to purchase VHRs from the company. Volvo is among the latest of the manufacturers to solidify its relationship with Carfax. Earlier this month, the Swedish carmaker renewed its agreement established in 1999 that requires certified dealers to provide consumers with a free Carfax report for every CPO-Volvo sold.

“We put our customers in top-quality cars,” said Jon Holl, general manager at Don Beyer Volvo, in a press release issued with the announcement. “For more than 10 years, Carfax Reports have helped reinforce this fact to anyone considering a certified Volvo or any other pre-owned unit on our lot. Carfax is a must-have for our staff and is the name people trust.”

Carfax’s business model has come under fire in recent years. Dealers liken it to extortion because the company’s marketing efforts play up negative dealer stereotypes to urge consumers to ask for its reports.  

The firm also was the focus of an article published in F&I and Showroom’s August 2010 issue after the release of its History Impact Tool, a value guideline that shows buyers how much more or less than the retail book value they should pay based on finding in the company’s VHRs. Dealers were critical of the company for not disclosing how its value guidelines worked, and questioned its accuracy.

Calls for an all-out boycott of the company seemed to dissipate until Jim Ziegler began leading a charge against the company late last year. In January, Ziegler was asked by Joseph Rhee, a producer for ABC’s “20/20,” to participate in an investigative report on Carfax after reading his blog postings on the firm. The report, which aired on March 17, raised several questions about the accuracy of the firm's VHRs.

Larry Gamache, a spokesman for Carfax, declined to comment on the pending litigation. But he did offer a comment regarding Ziegler, who noted Bellavia’s interest in Carfax in a March 2013 column in F&I and Showroom magazine.

“We have, in the past, tried to talk to Mr. Ziegler about his concerns,” Gamache said. “He has refused to talk with us.”

—    Stephanie Forshee and Brittany Swanson

Comments

  1. 1. Bubba B [ April 24, 2013 @ 03:02PM ]

    Great article - I'll be curious to see how this turns out. Most of our stores switched to Auto Check a few years ago due to the lower cost. We run VHR's mostly for our protection when taking in trades, although we'll run a Carfax for a customer if they ask.

    I've gotta hand it to Carfax though - due to good marketing, they've made themselves somewhat of a household name... kind of like Kleenex, so to speak. I'll have to find that 60 minutes episode and watch it. I was able to infer that "Tha Man" hated Carfax from his most recent column. Anyone wanna bet that Carfax settles?

  2. 2. Richard Ritchey [ April 25, 2013 @ 11:55AM ]

    I attempted to take CarFax to task in 2009. I ask them to remove them selves from any vehicle I listed in Cars.com and Auto Trader. I ask Cars.com and Auto Trader to link my vehicles to Auto Check and they reffused also. After several months of complaining nothing got done. I wwas told that CarfAX would continue their link to my units. Great job. Break them.

  3. 3. Kenny Carpenter [ April 25, 2013 @ 12:02PM ]

    It's not Carfax's fault that customers ask for them by name. Here is but one of many examples that I can note as to Carfax's superior reports. I had a customer that had purchsed a pre-owned Jeep at a local Chrysler dealership. They repeatedly asked for a Carfax report, but was told, "Here is Chrysler's version, (Autocheck), and it's just as good." The Autocheck report was in fact clean. When I ran a Carfax, it showed that the vehicle had been stolen and recovered in 2008, (which has to be announced at auction), which ultimately lowered the value of their vehicle by 7,000.00. Carfax is the benchmark in the industry for a reason. If what this group of lawyers says has any merit, then I would like for them to sue my power company, my water company, etc for the "anti-competitive behavior that they use to maintain or increase their monolopy". It's a laughable claim and mere sour grapes on the part of the dealers involved.

  4. 4. Bob Clapper [ April 25, 2013 @ 12:57PM ]

    Contrary to Kenny Capenter we have found Autocheck to provide a deeper history search. Carfax does provide a more comprehensive service history, but several times we have consigned vehicles to auctions with a clean Carfax and the auction turned up a negative history through Autocheck. I switched to Autocheck for a $900 per month savings, and have had no repercussions from customers. I agree that Carfax has branded itself well and the suit seems frivolous to me.

  5. 5. Kenny Carpenter [ April 25, 2013 @ 01:20PM ]

    We as car dealers should know better than anyone, that you get what you pay for. If a mere 30.00 per day in savings is worth having to explain to a customer why you're not wanting to give them a Carfax report, (just like they have seen on their commercials), then I guess you're getting your money's worth. The majority of customer's either has had a bad experience at a car dealership, or they know someone that has. If you find yourself trying to explain what Autocheck is, or why you're not using Carfax, you may find, (perhaps unjustly), that most customers may think that the reason that you are denying a Carfax report is more sinister in nature. With all of the objections that we have to overcome, why open yourself up to this, for 900.00, (which is less than 1 car deal)? If a customer has to choose between two identical vehicles, one at a dealership that uses Autocheck, and one that uses Carfax, they'll choose Carfax the majority of the time, because unfortunately, the public's perception is that it is failsafe and they are protected by Carfax's buy back guarantee. The perception is 100% because of Carfax's marketing. I'll continue to pay the 900.00 difference, and will continue to do so, until someone walks away because I can't provide an Autocheck report for them. So far, that's never been an issue, and won't be in the forseeable future. :-)

  6. 6. MANUEL AZOCAR [ April 25, 2013 @ 01:54PM ]

    PERSONAL EXPERIENCE WITH CARFAX,THEIR INFO IS ONLY AS GOOD AS WHAT IS REPORTED,HAD A TOYOTA TUNDRA BOUGHT AT AUCTION WITH EXTENSIVE HAIL DAMAGE,NOTHING REPORTED IN CARFAX,YOU CAN DO A TITLE SEARCH AND FIGURE OUT 90 % OF VEHICLE HISTORY I AGREE CARFAX HAS NOT ONLY MONOPOLIZED THE INDUSTRY BUT SOLD ITSELF AS A IRON CLAD PROVIDER OF THE TRUTH WHERE VEHICLES ARE CONCERNED

  7. 7. Bill Elliff [ April 25, 2013 @ 02:43PM ]

    Carfax has portrayed itself as "the Gospel" to the used car industry. I am on a unlimited plan because they have forced me to pull a VHR on every car knowing full well that the info could be incorrect. They are killing the values of vehicles when they say accident reported and do not always describe what happened. If you hit a pole in a parking lot and turn into your insurance you are screwed.

  8. 8. Nathan Taggart [ April 25, 2013 @ 05:14PM ]

    The problem with Carfax is their marketing. They portray dealers as crooked and dishonest if the dealer doesn't use or provide the Carfax product. If the dealer will pay Carfax $1000/month he can become "honest" again. Sounds like extortion to me. This lawsuit will be successful in changing the way VHR's are marketed and provided to customers. Anything that stops a marketing campaign that smears dealers is good for our industry.

  9. 9. sal s [ April 26, 2013 @ 09:23AM ]

    I am amazed that some dealers actually support carfax. As Nathan Taggart puts it..'its extortion'. They portray us as crooks unless we pay for a carfax, which contains pretty much useless information most of the time. I'm sure we all have examples of how they hurt us. I cant remember them ever helping us. They are not a partner..they use us, but they act like we need them. The truth is that they need us and we don't need them. We can determine if a car has paintwork or flood damage without them. Its deplorable how they advertise to the consumer to spend our money. Hope this lawsuit puts a dent in their distasteful marketing against dealers.

  10. 10. Mike O [ April 26, 2013 @ 02:39PM ]

    I have seen at least one dealer more than happy to hand a carfax to a prospective buyer when they knew it had no damage history reported yet they purchased the car at auction announced with frame damage which autocheck did indicate. Because there are a few bad apples that misuse vehicle history reports, nothing surpasses have a vehicle examined by an expert collision post repair inspector for prior damages on behalf of a prospective buyer.

  11. 11. Andrew N [ April 27, 2013 @ 09:47AM ]

    I (as a owner of a car dealership) am very happy to see this law suit!! Carfax is stilling our money and we really do not need Carfax reports. I am educating our customers to do not rely on the Carfax report and am seriously considering quiting using them in our dealership. They are out mind with their high charges! We can easily show customers if a car has a paintwork or not, even without using a paint meter. However, on some occasions we use the paint meters instead of using Carfax report. I sincerely hope that Carfax looses this law suit!!!!!!!!

  12. 12. Roger G [ April 28, 2013 @ 08:03PM ]

    Sour grapes. If the customer wants it, b/c Carfax has spent millions of dollars to make it so, they will get it.

    Or... you will lose the sale. Good for Carfax!

    Now, quit your whining and get to work.

  13. 13. sarah [ April 30, 2013 @ 11:52AM ]

    I'm currently going round and round with carfax. I went to trade my 2010 Tundra and according to carfax it was a total loss in 2011. I have documentation from my insurance company as well as the bodyshop that has done any work on my vehicle (I've hit 3 deer living in the country) and they sill refuse to remove it because their report shows a total loss. VERY infuriating!!!!

  14. 14. sarah [ April 30, 2013 @ 11:52AM ]

    I'm currently going round and round with carfax. I went to trade my 2010 Tundra and according to carfax it was a total loss in 2011. I have documentation from my insurance company as well as the bodyshop that has done any work on my vehicle (I've hit 3 deer living in the country) and they sill refuse to remove it because their report shows a total loss. VERY infuriating!!!!

  15. 15. gabGabriel salcedo [ May 08, 2013 @ 06:58PM ]

    I don't like carfax but lets face it is not about what we like is about marketing yourself above the rest. Carfax has done just that. Where is AUTOCHECK in all this? I never seen one commercial for them. When we are face with competition what do you do? Sue the competitor? Are you kidding me? Can someone out there give carfax a run for the money without suing them? Is a free market let the best win.

 

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