In CARFAX We Trust?

February 7, 2022

CARFAX has been a true game-changer for car buying since it got started in 1984. Only a generation ago, it was pretty easy to sell a dodgy car by simply tampering with the odometer or not disclosing prior accidents or flood damage. Now we have a security blanket when buying, which has heavily fueled remote purchases through online sites and auctions.

CARFAX, and similar services like AutoCheck, ingest mountains of data to create a generally reliable third-party history. These vehicle history services make the car world a much better place by helping us police our industry. The problem is that we treat these reports as infallible, but fallible they are. There are many ways to circumvent the system to avoid information appearing in these reports -- and these techniques are not even illegal. 

Let’s first look at how the system works, where it comes up short, and how to protect ourselves from the ne’er-do-wells who try to pass off a “clean CARFAX” vehicle that really isn’t. Finally, an idea or two on how to make it better.

How CARFAX Works

This is a brief primer for those who may not be familiar with vehicle history services. It all started with the introduction of a standardized, 17-character Vehicle Identification Number or "VIN" by the National Highway Transportation Safety Administration in 1981. Manufacturers had already numbered each chassis before this, but they each did it differently, making it hard to track.

Having a single “fingerprint” for each car in a common format was the key that unlocked the power of “big data.” These services are huge databases that track vehicles based on their VINs across the United States and Canada. 

The “secret sauce” is the multitude of sources of data from numerous public and private entities. The vehicle histories are built by data sourced from every state’s DMV, insurers, dealerships, collision repair shops, warranty suppliers, and law enforcement and first-responder agencies. In total, CARFAX has 112,000 different sources and its database has more than 26 billion records.

By pulling data from multiple third-party sources, CARFAX tracks the ownership history, damage reports, maintenance records, mileage, theft, liens, salvage titles, and other critical data that should be known about the car. Everyone plays along because it’s in their best interest and some policies and regulations have grown around this concept.

Anyone can then look up a VIN in one of these services and will have a baseline set of information instantly. These searches can be purchased from CARFAX for $39.99 each. That’s a reasonable amount to spend when compared to the cost of a car purchase.   

The Pitfalls and Loopholes

To reiterate, in almost all cases the CARFAX data is solid and can be relied upon. If there are questions and things that you want to confirm, it is possible to go to the primary source such as a DMV or insurance company. Following are ways that it can go wrong, in order of severity.

Missing classic cars. The 17-digit VIN is 41 years old, so cars earlier than that may not be recorded. While you might get lucky, the data will likely be incomplete. Alternative sources include the Sports Car Market database and other sources that track public sales of cars by whatever identification number is available. Finally, a car club may be able to help as oftentimes cars are passed from member to member.

Delayed Reporting. Reporting is not instantaneous and it may take months for an accident to appear. Some people understand this and move an automobile before the news reaches CARFAX. Be sure to ask if they are aware of other incidents that have not appeared. Since most know the news will get out eventually, reputable sellers will speak up.

Overreaction. This happens on the buyer side since any report of repair is an immediate disqualifier for many when it shouldn’t be. If there is an accident, inquire about its severity and how long ago it happened. A high-quality repair on a non-structural accident is probably something that is barely detectable and should have little impact on value. If it was more structural, again, the owner at the time may have taken it to Ferrari Classiche with a blank check -- then it might be the best one around! Get more information on it, it can actually build trust if everything is meticulously documented. 

Errors. Sometimes the incident reported never happened or is grossly misrepresented. These errors can result in a significant “hit” to the vehicle’s value. It could be an honest mistake, such as a typo in a VIN that assigns an incident to the wrong car. If this happens, contact CARFAX and present evidence to that effect, and they will amend the record. For an excellent overview on dealing with errors, I highly recommend Sports Car Market’s Legal Editor John Draneas’ article on this topic.

Omissions of Accidents. The big scam is not reporting an accident. For damage to appear in CARFAX, it has to meet one of these conditions: the accident is documented by law enforcement, an insurance claim is filed, or a repair was done by a reporting business. If none of those are met, it might as well have not happened. It’s a loophole so big you could drive a car through it.

The main event we look for in CARFAX is an accident, and accidents get reported because an owner files a claim. If that is not in the owner’s interest, they might pay for the repair out of pocket. When it comes to collector cars, the incentive to do so could be huge. The bigger the car’s value, the more reason to keep an accident off the books, as it could mean a loss of hundreds of thousands of dollars in value. 

Importantly, it’s not illegal. Imagine a private owner has a very special car. They decide to enjoy it on a track day or on private property, have a shunt, and then have a private mechanic repair the car. No laws have been broken and there is no obligation to proactively contact CARFAX with a voluntary update. It simply falls outside of the system that feeds data through the channels to CARFAX.

Now if the car is misrepresented at the time of sale as not having had an accident, then it would be fraud. However, if nothing is ever mentioned and no one asks, then caveat emptor. 

In this hypothetical scenario, it’s probably a wealthy person who can choose to not make an insurance claim, or someone outside of the reporting area. It doesn’t take a lot of imagination to realize this is probably not uncommon. In a 2009 article in Consumer Reports, their investigation turned up quite a few issues.

This Ferrari Enzo had a bad day on January 18, 2022.

Protect Your Interests

CARFAX has become essential, but it is far from perfect. Scammers will always scam, and the good ones may be the ones you least expect. Even though you really want that car, take the time to do what is necessary.

Review provided documents. The seller should be able to provide paperwork for the maintenance, repair, and ownership history. Go over it with a fine-toothed comb and make sure it syncs up with what’s in the CARFAX. Get a friend to look it over, since you may view it with rose-colored glasses.

Never skip the PPI. The pre-purchase inspection (PPI) is your best defense. Having a neutral set of experienced eyes look through the car can catch troubling details that could reveal hidden damage. It’s amazing what you'll find when a car is on a lift! Since the car may not be in your area, do your research to arrange an inspection on your own, and don’t take a seller’s recommendation. 

Tap tribal knowledge. If buying a collector car, try to get a marque expert to look it over. They take great pride in spotting the out-of-place, i.e. a nose clip from a year later than the year indicated. If buying remotely, members of a local car club can be your eyes on the ground. 

Put a backstop in the contract. Have the seller attest in writing that the CARFAX is accurate and complete. If any subsequent events appear after the sale due to delayed reporting, you have cause to reverse the sale. 

Ideas to Improve CARFAX

These are two truths: No system is perfect, and people who have an incentive will exploit the imperfections. A couple of adjustments could provide some backstops to make vehicle history reporting more robust.

Add PPIs. When a reporting shop does a PPI, require them to submit a copy to CARFAX. This would amend the vehicle history and could flag unreported accidents. It would be another check in the system. 

Include auction “no sale” data. When a car sells, that detail is already in there. However, what could be important is when the vehicle does not sell. If a car turns up a few times at auction and is not sold, that’s a red flag and could help inform a potential buyer. Some cars bounce around on the auction circuit for years, and this would append that data where someone can find it easily.

Whistleblower hotline. Crowdsourcing helps us avoid bad restaurants and unsavory businesses. The “peanut gallery” on Bring A Trailer is a key element to that site’s popularity. What if someone could report a major repair or accident directly to CARFAX? It could help provide more accountability. Say you saw a car biff it at a track day and then an owner lists it as “never in an accident?” Submit the photos and your observations and have CARFAX investigate the claim. Sure, this would require more resources but I think CARFAX is doing alright and it would add a valuable new layer of protection. 

To sum it up, CARFAX and similar services are amazingly powerful tools that have provided much-needed protection in the marketplace. For this, we should all be thankful. However, it works counter to many unsavory interests, so don’t be lulled into complacency. Always do your homework. In time, CARFAX will more than likely continue to adapt and close loopholes to help shut down those who subvert and exploit the system. 

References

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