Champion Motors and Volkswagen to Pay 5.6 Million NIS in Compensation for Vehicle Defect

Even if a recall has not been announced, when there is a serial defect in a vehicle, the importer and manufacturer must notify consumers and fund its repair, according to a ruling in a class action lawsuit (34358-08-19) against Champion Motors and Volkswagen, which was accepted at the Lod District Court. The companies will compensate consumers 5,583,400 NIS for repairs they paid for out of pocket.

The two class representatives who filed the lawsuit through attorneys Elad Ophir, David Mizrahi, and Pinhas Or, claimed that after purchasing Volkswagen Golf and Seat Leon vehicles, they discovered a serial defect in the gear selector assembly and the micro-switch in Volkswagen, Seat, Skoda, and Audi vehicles from the 2015-2019 production years. The defect was discovered, among others, in the Golf, Jetta, and Skoda Octavia.

According to estimates, following the defect, repairs were carried out on about 7,924 vehicles out of 65,000 on the market. At least 500 vehicle owners were forced to pay for the repair out of their own pockets in the amount of hundreds to thousands of shekels, and that is only at the importer's garages.

The court determined in its ruling (after an appeal to the Supreme Court was rejected) that the manufacturer and importer must disclose to buyers a defect known to them in one of the vehicle's systems, even if it is not a classic safety defect, and even if the defect does not completely prevent regular use of the vehicle, and certainly when it is a serial defect in the design or production of the component and not reasonable natural wear and tear. In addition, in such a case, the company cannot shirk responsibility just because the warranty period has ended.

Consumers will be compensated for the cost of the repair and for emotional distress.

The court determined that the defendants breached the duty of good faith in fulfilling a contract and were unjustly enriched by refusing to repair a known design defect at their expense after the warranty period ended and rolling the cost onto the consumers.

Consequently, every vehicle owner who repaired the mechanism, whether in the importer's network garages or in other authorized/external garages, will receive, following the ruling, a full refund of the repair cost they paid upon presentation of documentation/invoice.

In addition, every vehicle owner who was forced to pay out of pocket for the repair after the warranty period ended will receive compensation of 100 NIS for emotional distress.

If the customer does not have an invoice, the defendants will return the amount that will appear in their declaration, provided that the payment amount for replacing the gear selector in its entirety until 2019 does not exceed 2,400 NIS plus VAT, and the compensation amount for replacing the micro-switch does not exceed 800 NIS plus VAT.

The defendants will contact the Ministry of Transport and the Anya company within 30 days for the purpose of locating everyone who was or is still the owner of the relevant vehicles and sending a notification letter regarding the eligibility for a refund and compensation as detailed above. The necessary documents for receiving the refund will be attached to the notification letter. Receiving the refund is conditional on transferring the necessary documents within six months. The refund will be made within 90 days from the date of the request.

Every member of the group who claims they are entitled to compensation will sign an attorney's affidavit in which they will detail the nature of the repair and the payment they made. The affidavit will be submitted to the settlement administrator within four months from the date of the administrator's appointment. The procedure will be published in a detailed advertisement to the public.

The defect allowed the key to be removed too early

This is a defect caused by the accumulation of silica material covering the electrical contacts of the micro-switch, which leads to the electrical circuit not closing properly and therefore to an incorrect reading of the gear lever position.

As a result, at the end of the trip, it is possible to remove the key from the ignition switch when the vehicle is in gear D (Drive), despite the existence of a locking mechanism that allows the vehicle key to be removed from the ignition switch only when the vehicle is in gear P (Park).

It was also claimed that while driving, an indicator message appeared in some of the vehicles stating that they were required to shift the gear to position P in the middle of the trip.

According to the position of the plaintiffs and their expert, when the key locking mechanism does not work properly and the key is removed when the vehicle is not in gear P, there is a fear that the vehicle will roll if the driver forgets to pull the handbrake. Such rolling could cause an accident, property damage, and endanger human life.

The plaintiffs claimed that the manufacturer and importer knew about the design defect as early as 2016 following recall notices published in the USA, Canada, and South Korea, but did not disclose this to buyers in Israel and charged full or partial payments for repairing the defect after the warranty period ended.

The defendants claimed for their part that this is not a "safety defect," since the danger of the vehicle rolling is not a direct result of that alleged defect but could only occur if the driver does not pull the handbrake and also does not shift the vehicle to gear P.

The defendants also claimed that one should not learn from the recall notices in the USA for our case, because there, there is regulation requiring the installation in vehicles of a system that prevents the removal of the vehicle key from the ignition switch when the vehicle is not in gear P, while in Israel and Europe there is no similar instruction. The plaintiffs claimed in response that this led consumers to pay for repairs and that at the very least the company should compensate them for this.

In the end, the defect was repaired in the garages. The manufacturer instructed the garages to replace the faulty micro-switch or clean its contacts, at the first stage, but the problem reappeared. It turned out that the mechanism was designed in an unsuitable electrical environment. Therefore, it developed a dedicated repair kit (external switch/bypass) designed to fit over the existing assembly and bypass the contacts that accumulate silica, and then fundamentally changed the design of the gear selector assembly on the production lines of 2019 models and onwards, so that the defect did not repeat itself in the new vehicles.

---

No evidence of rolling vehicles

In January 2024, the lawsuit in Israel was approved as a class action. The defendants' claim that the vehicle's functioning "is not affected in any way" was rejected. It was also determined that this is not reasonable wear and tear, but a defect in the design of the component or its production. The fact that Volkswagen solved the defect using a new gear selector mechanism supports the claim that it is a design failure and not wear and tear.

The conduct of Volkswagen, which made repeated attempts to solve the problem until the development of an alternative component and changes in the production line, proved that the manufacturer itself viewed this as an exceptional design failure and not natural wear and tear.

However, Judge Hana Kitzis determined that this is not a serial safety defect, because the key locking mechanism is not a safety system or a braking means, but an auxiliary function that is only a reminder, whereas according to traffic regulations, it is the legal and basic duty of the driver to secure the vehicle against movement by using the handbrake and shifting to gear P.

In addition, she emphasized that the plaintiffs did not present any evidence or report of an incident of a vehicle rolling or damage actually caused as a result of this defect, neither in Israel nor in the world.

Therefore, the plaintiffs' demands for sweeping compensation for all vehicle owners in the group who did not experience the defect or did not pay for its repair were rejected, and the claim for a decrease in the vehicle's value was also rejected.

The class representatives will receive 30,000 NIS each, and their attorneys 400,000 NIS.