When a vehicle is deemed a “lemon” under applicable state or federal law, the relief available to the consumer generally falls into two categories: a statutory repurchase (buyback) or a cash compensation settlement (often referred to as “cash and keep”). Understanding the distinction between these remedies is vital for consumers evaluating their legal options.

The Statutory Repurchase (Buyback) The repurchase remedy is designed to restore the consumer to the financial position they were in prior to purchasing the defective vehicle.

• The Refund: The manufacturer typically reimburses the down payment, all monthly principal and interest payments made, and collateral charges such as taxes and registration. They also satisfy the remaining loan balance with the lienholder.
• The Deductions: Most state laws allow the manufacturer to deduct a “usage fee” or “mileage offset.” This is calculated based on the mileage driven by the consumer prior to the first repair attempt for the defect.
• The Outcome: The consumer surrenders the vehicle and the title to the manufacturer.

Cash Compensation (Diminished Value) In scenarios where the defect does not render the vehicle inoperable, or where the consumer wishes to retain ownership, a cash compensation settlement may be appropriate.

• The Concept: The manufacturer pays a lump sum to the consumer to account for the diminished value of the vehicle due to the defect and the inconvenience caused.
• The Outcome: The consumer retains possession of the vehicle and continues to be responsible for the loan or lease. The warranty typically remains in force for future repairs.

The choice between these remedies often depends on the severity of the defect, the amount of equity the consumer has in the vehicle, and the specific usage deductions applicable under state law.