FREDERICK, Md. -

The nature and size of the schemes are often wide-ranging, and the devices used to perpetuate the fraud can be purchased inexpensively. And auctions ought to be on alert.

That’s the message that Frank Hackett — executive director of the National Auto Auction Association — is trying to get across to his association’s members.

Apparently, there has been an ongoing issue at auctions with odometer-mileage programming devices being used to fraudulently manipulate vehicle mileages.

Hackett told Auto Remarketing on Thursday that around six parties (including manufactures and auctions) have reported issues about mileage tampering to the association since March, which is when NAAA first began receiving reports of this problem.

In response, NAAA communicated with David Sparks, the director of the Office of Odometer Fraud Investigation at the National Highway Traffic Safety Administration.

Hackett send out an alert to NAAA’s members on Wednesday, warning them of the problem and what the odometer tampering schemes and mileage adjustment tools entail. And after sending the notice out Wednesday, Hackett said one auction has already responded saying it had been impacted.

“I’m kind of anxious to see what kind of a response we get back from auctions that may have experienced this, but just haven’t said anything as of yet,” Hackett explained to Auto Remarketing. “I really don’t how prevalent it is, (but) I do know it’s been an issue for several months now.

“We put this blast out because we think it was that important that the auctions were aware of the potential scheme,” he said.

Hackett is urging people to be on the lookout.

“I just think that they need to be aware that this can happen, has happened and probably will happen,” he emphasized. “They may see it in a whole different scheme than in any of the ones that I’ve described. So I think as long as they’re aware of it, their staff’s aware of it, they may be able to prevent it.”

Hackett said auctions should look out for any changes in mileage that may occur between when a vehicle is checked and when it is sold. Also keep your eyes peeled for any mileage changes from the time of assignment to when the vehicle is delivered to the facility, he stressed.

Hackett said any mileage discrepancies “could be an indication that the vehicle was tampered with to decrease its value and provide a fraudulent benefit to the ultimate buyer of the vehicle.”

As far as the impact on individual auction companies, Manheim told Auto Remarketing on Thursday that its exposure to this issue has been “limited.” ADESA and ServNet declined to comment.

“While our locations are aware of NAAA’s Odometer Mileage Programming Device alert, Manheim has seen limited exposure,” responded David Reeder, Manheim’s director of corporate security.

“Our locations continue to work closely with the National Odometer and Title Fraud Enforcement Association and local law enforcement to identify trends in odometer fraud and ensure this information is passed along to our auction-level security teams,” he added.

Devices Are Cheap to Buy

Moving along, the NAAA executive delved into more about what makes up these tools. They are actually intended for automakers to be able to correct mileage issues.

“They’re inexpensive to purchase,” Hackett highlighted.

“What we’re finding is that they’re just not being used for what they were intended to be used for,” he shared. “I think it’s just the beginning of some potential problems that we’re already beginning to experience.”

In the alert, Hackett explained further, noting: “Odometers rarely malfunction, and all manufacturers have authorized repair centers in the event of a malfunction, but because malfunction is possible, there is a legitimate purpose to what they are selling.

“Manufacturers provide the ‘seed and key algorithm’ to legitimate companies so that these companies can produce tools that will turn these indicator lights off,” he added. “These codes are most likely being hacked, and that is how these online companies are able to create these devices.”

In the alert, Hackett further explained that current odometer fraud laws came prior to “the current electronic age” and have not been adjusted for electronic odometers.

“A gap in the law exists pertaining to these programming devices,” he stressed.

What Fraud May Entail

So who, exactly, is supposedly perpetrating these crimes? Hackett exercised caution and said he did not want to “label any specific group or individual” but did give “an example of something that could occur or may have occurred.”

“An example might be that a car coming in off-lease that’s exceeded its mileage. You can adjust that. You could adjust the odometer so that the miles are different,” Hackett contends.

“I think you can be creative in any way imaginable if you’re the person who’s trying to benefit from changing the mileage,” he continued. “It can be anything from scheming to change the mileage before it arrives at the auction or even changing it once it’s at the auction to buying a car that has a different value and changing the odometer back and creating an added value and re-selling it. So there are a number of different ways that a scheme could be put together.

“And it can involve anything from one individual to many that may be a part of that scheme,” he added

If any issues arise, parties are advised to contact local authorities, NHTSA or NAAA.

NAAA is also tackling this issue in further detail next week in Chicago at its Legislative Committee Meeting at its national conference. The meeting is on Thursday.

For more information, visit www.naaa.com.

NHSTA Offers More Background

Moving along, NHTSA also shared with Auto Remarketing a little more background on the devices, the problem at hand, how widespread it may be, and more.

As far as how the tampering works, NHTSA noted: “Tampering with an electronic odometer using a programming device can occur by a variety of means. In some instances components of the vehicle’s electrical system are removed from the vehicle and tampered with in a ‘workbench’ environment.

“In other circumstances, handheld programming devices are plugged into the vehicle’s onboard diagnostics port and the procedure is completed in less than two minutes,” the administration continued. “In either situation, a software application is used to defeat vehicle security protocols designed to protect the vehicle’s stored recorded mileage data. After compromising the vehicle’s security, the programming device is used to alter stored data.”

NHTSA added: “We don’t believe these particular devices are built for legitimate use. They ‘hack’ through vehicle security protocols. The manufacturers have authorized service centers to perform legitimate repairs. Under those circumstances, service records are kept. Illicit devices and programming services are sold via the Internet. Manufacturers have not provided their security codes to the entities selling these types of programming devices and service.”

Who is said to be doing the tampering?

According to the agency, “Percentage-wise, a small group of unscrupulous wholesalers involved in selling motor vehicles.”

Moving along, NHTSA stressed that the auction industry is not alone in terms of being affected by this fraud. Other parts of the auto business have been impacted.

“Unscrupulous wholesalers practice their craft at auctions in order to quickly turn inventory and insulate themselves from the public and legitimate used-car dealers,” the administration noted. “Reports have surfaced concerning the use of these devices in the leasing market, in fraudulent warranty claims, and in classified advertisements.”

The problem is not a limited one, nor is it a new one. But tampering has become much easier.

“Odometer tampering isn’t new by any means. Not so many years ago, tampering with an electronic odometer required significant knowledge and skill concerning electronics. Today, these illicit programming devices require virtually no electronic skills and are quite simple to use,” NHTSA added.

While the administration stressed that it “cannot speak to the ease of manufacturing” the device, it noted that the “ease of illicit programming device availability coupled with potential profits from odometer fraud is exacerbating the problem.”

Should a buyer fall victim to buying a car that has been tampered with, NHTSA offered a few steps to be followed.

“Document the circumstances and report the incident to state motor vehicle enforcement authorities. If a dealer is involved, report the incident to the state level entity that issues licenses to sell vehicles,” the administration stated.

If it’s a large-scale interstate odometer fraud scheme, the NHTSA’s Office of Odometer Fraud Investigation should be contacted at (202) 366-4761.

NHTSA also urged individuals to consider hiring a private attorney for civil action.

So, how can auctions sniff out this problem?

“Transparency in a vehicle’s history is the greatest deterrent to vehicle fraud,” said Sparks.

NHTSA added: “Invest and utilize resources geared at providing vehicle history data, regardless of vehicle age. It is illegal to rollback an odometer, regardless of vehicle age. The 10-year exemption applies only to odometer disclosure statements. Auctions should report suspicious patterns of behavior to NHTSA’s Office of Odometer Fraud Investigation at (202) 366-4761.”