Car Salesman (© Jeffry W. Meyers/Corbis)Click to enlarge picture

Has this guy got a deal for you. Or is it an ordeal? Car scams are on the rise, especially among used car and small, independent dealerships.

Kyle G. Martz is outraged. In late 2007, Martz, 46, of Erie, Colo., purchased a 2007 Volkswagen Passat 4Motion with 1,200 miles on it for around $43,000 — several thousand dollars less than the sticker price. He was told it had been driven for only a short time by the owner of the Volkswagen dealership that was selling it. But that was only half the story.

"Within the first month, the car was back in the shop at least three times," says Martz, a national sales rep in the food business. "There were electrical glitches through the whole car — GPS, parking sensors, stability control. None of it worked." When Martz's mechanic stripped off some of the trunk's interior panels, he exposed a bunch of shoddy spot welds, indicating the car had been in a severe rear-end collision.

According to the Department of Motor Vehicles officials and state fraud investigators we surveyed, Martz had fallen prey to one the most common scams dealers commit — fixing a totaled car off the books and then reselling it "as is."

While experts say only a small number of dealers actually partake in such illegal activities, the number of consumer complaints from potential car buyers about the ones that do are on the rise. And while well-capitalized dealerships are less likely to deceive than small independents, they aren't innocent. "We've had some big dealers shut their doors for this reason alone," says Mike Marando, a spokesman with the California Department of Motor Vehicles.

For example, last September the California DMV had Shayan Rahbarian, owner of Suzuki of Sacramento, arrested on fraud charges, alleging that he failed to pay Brasher's Auto Auction more than $4 million for 192 new vehicles he bought wholesale and resold to consumers or other dealers.

To help you avoid getting scammed when purchasing a car, we've put together a list of the most common dealer deceptions being perpetrated today, along with what you can do to avoid them.

Scam: Selling Cars Without Proper or Clear Titles
Title fraud is on the rise because of the current recession and is often the result of poor business management on the dealer's part, says Willy Hall, detective supervisor for the Office of the Inspector General at the Arizona Department of Transportation. It mostly happens when struggling dealers without enough money to keep operations going can't pay off the liens on titles for the vehicles they've purchased and sold. Surprisingly, a lot of dealers don't technically own the vehicles they sell. They borrow money from financiers, called "flooring agents," to pay for them. Once a dealer sells a vehicle paid for by a flooring agent, he or she is supposed to pay off the agent to get the title — or clear the lien on the title — and pass it on to the buyer. The problem arises when the dealer doesn't pay off the loan. In such cases, car buyers will return to pick up their license plates and title, only to find that they aren't available and the dealer is nowhere to be found.

Have you ever been scammed by a car dealer? Tell us your story.

The same applies to trade-ins. The dealer is supposed to pay off the lien on a trade-in, but either is unable to pay or pockets the money and shutters the business after pulling this stunt a number of times. As a result, the original owner of the trade-in is left with a car payment on a vehicle he or she no longer owns, and the new owner, who bought the trade-in with a title that has a lien on it, now technically owns nothing.
Warning Signs: "People who say they don't have a title but they can get it — that's a warning sign," says A.D. Reeves, executive director of the dealer services division for the Indiana secretary of state's office.
How to Protect Yourself: You should always ask to see the title and examine it carefully, says Hall. If the dealership owns the car or is on the up and up, it will have the title on hand or be willing to produce it. If it doesn't or won't, then something's not right. And never trade in a financed car with a balance left on the loan. If you can't pay it off for any reason, insist that the dealer put in writing that he will pay off the trade-in within 10 days, recommends Jeff Ostroff, founder of CarBuyingTips.com, whose Web site receives several e-mails a week from disgruntled car buyers. If the dealer is trustworthy, he or she shouldn't have a problem with this request.