Returning a faulty vehicle

In summary...

If your vehicle has suffered a major fault, required numerous smaller repairs, or has been off the road for multiple weeks in the first couple of years after purchase, you are likely to be entitled to a full refund or replacement vehicle. This entitlement goes beyond the manufacturer’s warranty.

Despite recent attention ACCC attention in the industry, many dealers and manufacturers are not facing up to their legal obligations. They don’t want to talk to you about refunds or replacements, and insist that you are only entitled to a repair. In this article, we outline your rights, and give some practical tips on enforcing them.


Under the Australian Consumer Law, motor vehicle traders provide you with guarantee that any vehicles you buy from them are of ‘acceptable quality’, meaning that they are safe, durable, free from defects, fit for purpose and are acceptable in appearance and finish.

There are also other guarantees, including that the vehicle match any descriptions and specifications in the marketing materials.

When these guarantees are not met and the failure to meet them is major, you are generally entitled to a full refund or replacement vehicle from the dealer.

What vehicles are covered by the guarantees?

Generally, all passenger vehicles (new or second hand) are covered. Some vehicles or situations are generally not covered by the guarantees:

  • Commercial or industrial vehicles that cost over $40,000;
  • Purchases at live auctions (for example, through Manheim or Pickles);
  • Private purchases (for example, from a private person that you found via Gumtree);
  • If you knew about or were informed about the fault before you bought the vehicle; or
  • If you caused the fault yourself or by improperly modifying the vehicle.


What are the guarantees?

The most important guarantee for a vehicle is it is of acceptable quality. This means that it:

  • has no faults;
  • is safe;
  • is acceptable in appearance and finish;
  • is durable; and
  • does all the things that someone would normally expect that type of vehicle to do.

Other important guarantees include that the vehicle:

  • matches the demonstration vehicle, or any descriptions given in advertising or by salespeople;
  • is suitable for any purposes that the dealer told you it would be, or any purpose that you made known to the seller before purchasing; and
  • meet any voluntary warranties given by the dealer or manufacturer, like manufacturer’s warranties, money back offers or satisfaction guarantees.


What are you entitled to?

If the vehicle does not meet the guarantees, then you are entitled to a refund, repair or replacement.

When the fault is minor, the supplier can choose to repair the vehicle for you. If the supplier cannot do so within a reasonable amount of time, or when the is a major fault, you generally have the right to demand a full refund or replacement.

Whether the fault is major or minor, if you also suffered foreseeable damage or loss (such as alternate transport costs or repair costs), then you are also entitled to compensation.


So what's a major failure?

This is where it often gets complicated. Even if there is a major failure, there are also some situations that stop you from being able to claim a full refund or replacement.

Under the law, a vehicle has suffered a major failure if:

  • it is unsafe;
  • a reasonable customer would not have purchased it if they had known the problems that the vehicle would suffer;
  • it is not fit for purpose, or does not do what you asked for it to do, or it does not match its descriptions or specifications, and it cannot be rectified within a reasonable time.

In practice, this means that brand new vehicles that face the following issues in the first year or two are very likely to be major failures:

  • a major repair to a core drive system (for example, the engine or transmission);
  • numerous smaller issues, particularly if some of them stop the car from being driven;
  • issues that render the vehicle undriveable and are not repaired within about 2-3 weeks; and
  • major issues with the paint job, particularly for luxury and performance vehicles.

Another indicator of where the line is drawn is that Volkwagen and Holden have recently agreed in written undertakings with the Australian Competition and Consumer Commission that they will provide a full refund or replacement if a new vehicle has any defect that prevents the vehicle from being driveable during the first 60 days of ownership.


The rejection period and damaged vehicles

If there is a major failure, the law provides that you may have lost your right to a full refund or replacement if:

  • the vehicle is damaged (for example, you’ve been in an accident or it has hail damage); or
  • the ‘rejection period’ has passed.

The ‘rejection period’ is the period during which it would be reasonable to expect that the major failure becomes apparent. The courts have not given clear guidance on what that means. In our view, as a rule of thumb:

  • For a brand new vehicle that period would be at least two years for most mechanical faults, and shorter for cosmetic faults;
  • At the other end of the scale, in our view, a vehicle that is older than five years and/or has been driven more than 90,000kms is most likely past the rejection period.

So don’t delay if you become aware of a fault – you might lose your right to a full refund!


How to obtain a refund or replacement?

Some manufacturers now have a formal vehicle rejection or refund process. Ask your dealer or call the manufacturer’s customer support line about this, and if they do, fill in the relevant forms with as much accurate information as possible as a first step.

If your application is rejected, or the dealer / manufacturer does not have a formal process, then you would usually formally write to reject your vehicle, setting out in detail the problems with the vehicle, and demand a refund or replacement. If you have suffered other losses or costs, set those out too and ask for compensation.

At this stage you may also wish to get your State consumer protection agency involved, engage the brand on social media and/or engage a lawyer to assist.

If that still does not work, you should speak to a lawyer about lodging a formal application at VCAT or the equivalent tribunal in your state or territory.


The dealer keeps saying they cannot diagnose or replicate my problem

Some problems are intermittent, and others are hard to replicate. Cars are very complicated machines and we often see manufacturers return a vehicle without repairing it because they could not ‘fault’ the vehicle.

If this has happened to you, retain your own evidence of the problem. Keep good notes of when and under what conditions the problem presents, and take videos or recordings of the problem if it can be done safely. You may also wish to engage an independent mechanic for an independent opinion.

If it comes to proving in court whether the vehicle has a problem, such evidence is invaluable.


Second-hand and ex-demonstrator vehicles

Second-hand vehicles sold through a dealer or vehicle trader are also covered by the guarantees. However, they are judged to a slightly lower standard when it comes to ‘acceptable quality’ or a ‘major failure’, because it would not be reasonable to expect that, for example, a 5-year-old vehicle would be in as good shape as a brand new one. As for how much lower the standard is, it depends on just how old the vehicle is and how much you paid for it.

Every State and Territory also imposes a separate statutory warranty on the dealer who sold the second-hand vehicle. In Victoria, the warranty applies if the vehicle is less than 10 years old, and has travelled less than 160,000 kilometres. Generally, the dealer must repair any faults that presents within 3 months or 5,000 kilometres (whichever occurs first).


If you are a dealer or manufacturer

It is very important to ensure that your policies and procedures comply with the law. The ACCC continues to investigate dealers and OEMs. Recent high profile cases and investigations into the industry include Ford, Volkswagen, Holden and Hyundai.

These cases cause substantial reputational harm, as well as disruption to the business during the investigation and legal action.


Lucy Dong 29 January 2019

About the author

Lucy Dong, property and tax lawyer, former State Revenue Office senior compliance officer

Lucy is an experienced commercial, property and tax lawyer.

Lucy assists clients with pursuing their consumer law rights, liaising with Consumer Affairs Australia and where necessary, enforcement at VCAT.

Find out more

Call us on +61 3 9041 7733 if you would like to find out more.

We can also help you with pursuing a claim, or if you are a dealer or OEM, help you review or implement a compliant refund and replacement policy.

About this publication

Kai Legal publications provide general information, and are not legal advice. These are not complete summaries of the law, and only touch on select points and scenarios that may be relevant to our readers.

This fact sheet is current as of 29 January 2019.

© Kai Legal 2019