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Claims about flood-damaged cars aren't true

Friday - 11/9/2012, 11:27am  ET

FILE -In this Tuesday, Oct. 30, 2012, file photo, cars are submerged at the entrance to a parking garage in New York's Financial District in the aftermath of superstorm Sandy. Alarming claims that hundreds of thousands of flood-damaged cars from Superstorm Sandy will inundate the used car market aren’t backed up by insurance company claim data, The Associated Press has found. The dire predictions come mostly from companies that track vehicle title and repair histories and sell those reports.(AP Photo/Richard Drew)

TOM KRISHER
AP Auto Writer

DETROIT (AP) -- In the days since Superstorm Sandy, an alarming prediction has flashed across the Internet: Hundreds of thousands of flood-damaged vehicles will inundate the nation's used-car market, and buyers might not be told which cars have been marred.

Not true, according to insurance-claims data reviewed by The Associated Press. The actual number of affected vehicles is far smaller, and some of those cars will be repaired and kept by their owners. The dire predictions are being spread by a company that sells vehicle title and repair histories and by the largest group representing American car dealers.

They claim the number of cars damaged by Sandy could be larger than when Hurricane Katrina hit the Gulf Coast in 2005 and marred more than 600,000 vehicles. But an AP analysis of claims data supplied by major insurance companies shows the number of cars reported damaged so far is a fraction of that.

The companies -- State Farm, Progressive, New Jersey Manufacturers, Nationwide and USAA -- have received about 38,000 car-damage claims.

"It's not anything near what we're talking about in the Katrina situation," said James Appleton, president of the New Jersey Coalition of Automotive Retailers, a statewide association of more than 500 dealers.

Frank Scafidi, a spokesman for the National Insurance Crime Bureau, an insurance company group that monitors fraud and other trends, concurred, saying insurers watched by his group are logging far fewer claims than they did with Katrina.

"It doesn't translate to there's going to be 2, 3, 400,000 cars out of this thing just because this is such a huge geographic storm," Scafidi said.

Other large insurers, such as Farmers, Allstate, Geico and Liberty Mutual, either did not return calls or declined to release claims information.

Because many communities are still cleaning up from the superstorm, more claims are bound to come in. But the total is not likely to grow significantly. Ten days after Sandy, the rate of claim submissions is already starting to slow. And many of those cars will have relatively minor damage unrelated to water, meaning they can be fixed and returned to their owners.

About 14,000 new cars were also damaged by Sandy while they sat on docks in the New York area awaiting shipment to dealers. But most of those vehicles won't end up on sales lots. Automakers will have severely damaged cars crushed because they don't want their brand name hurt by substandard vehicles circulating in the marketplace.

To be sure, flood-damaged cars can be a serious problem. Once a vehicle is dried out, the damage may not be immediately apparent, so the car can often be sold to an unsuspecting buyer.

Beneath the surface, the water can damage computers that control everything from the gas pedal to the entertainment system. Saltwater, like that from Sandy's storm surge, is especially harmful, causing corrosion in electrical and mechanical parts that can pose problems for years.

Companies like Carfax, a Centreville, Va., provider of vehicle-history reports, stand to benefit if more buyers are worried about the risk of purchasing a flooded car. The company charges $39.99 for a single report, although it also contracts with dealers and manufacturers, so many reports cost less. About 170 million reports are viewed each year.

Carfax, a privately held subsidiary of the R.L. Polk & Co. automotive data firm, put out a news release Tuesday speculating that Sandy's toll on cars would exceed the damage left by Katrina.

In an interview, company spokesman Larry Gamache said early indications were that more vehicles could have been damaged in the densely populated Northeast than were damaged by Katrina in 2005 along the more sparsely populated Gulf Coast. He estimated that half of them, more than 300,000, would find their way back onto the market as used cars.

"I think it's partly due to the breadth of the storm and the intensity of the storm and where the storm hit," Gamache said.

A spokeswoman for Experian, which runs a Carfax competitor called AutoCheck, said the area that got blasted by Sandy has 9 million registered cars, far more than in the Gulf region struck by Katrina.

On Wednesday, the National Automobile Dealers Association put out a statement estimating that 200,000 or more flooded cars could be resold as used.

The trade organization warned that the storm could crimp the supply of clean used cars, potentially driving up prices. But its estimate was based on reports from third parties that showed 600,000 cars were damaged in Katrina and that Sandy would cause about one-third of the dollar damage from Katrina.

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