Editor's choice
12 Jan 18

'EU Car-Pass' could eliminate €8.5 bn in mileage fraud

A cost-benefit study conducted by the European Parliament has concluded that Car-Pass, the odometer fraud prevention system used in Belgium, would provide a benefit of €8.5 billion per year if used in all EU member states. 

The report, titled 'Odometer Manipulation in Motor Vehicles in the EU', is a detailed European Added-Value Assessment (EAVA) by the Committee on Transport and Tourism (TRAN) of the European Parliament (EP), in support of an upcoming legislative initiative at EU level. 

Risk and cost

As the report points out, odometer readings of second-hand cars trade across national borders in the EU are manipulated more frequently than those of used vehicles traded nationally. Difficult to track, odometer fraud creates risk and cost for consumers, and challenges to the EU internal market.

Underlining the impact of odometer fraud is the fact that the EU second-hand car market  is much larger than the new-car market. The malpractice affects up to 50% of cross-border-traded used vehicles, but with considerable geographic variation: up to 3 times more frequently in the newer member states in Eastern Europe than in the western ones. 

Residual values

Second-hand car buyers bear the main consequences of odometer fraud: their rights as consumers are breached, their expenses for maintenance and repair are increased, their road safety is negatively impacted, and their confidence in the market is lowered – which in turn negatively affects overall residual values. 

The total economic costs of odometer fraud in second-hand cars traded cross-border in the EU can be estimated to be at least €1.31 billion, with the most probable fraud rate scenario yielding €8.77 billion of economic loss.

Mileage certificate

The EP report identifies five weaknesses in the EU's current legal system, which should be addressed to limit odometer fraud in the cross-border trade of used vehicles. 

Consequently, two policy options which could help solve the problem are presented, each
comprising two variants. Policy Option 1 foresees creation of a Car-Pass-like system (which eliminated 97 % of odometer fraud in Belgium) in all EU countries with a cross-border EU information exchange. 

Variant 1 of this first consists of creating a mileage certificate accompanying a car sold abroad. Variant 2 envisages a mileage information exchange system between the Member States. Assuming the same success rate of odometer fraud reduction for the whole EU as for Belgium, this option could bring a benefit of €8.51 billion to the European economy.

Tamper-proof solution

Policy Option 2 envisages installation of a tamper-proof technological solution in vehicles – newly registered cars in Variant 1 and additionally in the entire existing fleet in Variant 2 – to better protect their odometers from manipulation. Assuming that the new technology could reduce odometer fraud by 70 %, it would yield benefits of €6.1 billion in the most probable research scenario.

The report concludes that, from a cost-benefit point of view, both Policy Option 1 (with its Variant 1 and/or Variant 2), as well as Policy Option 2 (Variant 1) have a clear European added value, though each to a different extent. However, “these policy options and their variants do not have to be exclusive. If implemented jointly, they would surely provide even greater European added value”.

Authored by: Frank Jacobs