What Makes a Vehicle a Lemon:

A settlement compensation is provided to the vehicle owner by the manufacturer if the vehicle is determined to be a lemon by the court or when an agreement between the vehicle owner and the auto manufacturer is negotiated. 

There are primarily three types of settlement options under the California Lemon Law to compensate owners of lemon vehicles:

• Buyback or vehicle repurchase subject to minimal deductions
• Vehicle replacement
• Cash and Keep settlement

A vehicle buyback or repurchase happens when the court deems it to be the appropriate compensation or when you reach an out-of-court settlement with the manufacturer through negotiation. Once the buyback amount is paid, the manufacturer will take possession of the defective vehicle. 

Under this scheme, the amount you are entitled to receive should cover the following:

• The purchase price of the vehicle inclusive of your down payment and subsequent installment payments. 
• Incidental expenses you paid during purchase such as financing cost, processing fees, sales taxes, registration fees, warranty and service fees, etc. 
• Repair expenses you incurred for parts and services for which you paid out-of-pocket when you took your vehicle to the shop for repairs.
• Collateral expenses incurred as a result of the vehicle’s defects such as towing fees, cab fares, car rental expenses, or medical expenses incurred as a result of the vehicle’s safety-related defects.

Under California Lemon Law, the manufacturer is allowed to deduct a certain amount from the total buyback payout to account for usage. Referred to as mileage offset, the final amount is arrived at through this formula:

  Purchase Price x Mileage (recorded during first shop visit) / 120,000

For example, if the price you paid for the vehicle is $30,000 and you drove a total of 14,000 miles before the problem occurred, the computation would be:

 $30,000 (purchase price) x 14,000 (mileage) / 120,000

= $3,500 (allowable deduction from buyback amount)

Vehicle Replacement is another settlement option where the car manufacturer will undertake to replace your defective vehicle with a brand new and presumably defect-free unit. This settlement is allowed under these conditions:

• The replacement vehicle must be reasonably identical to the original;
• The replacement vehicle has the same warranties and service provisions as the old vehicle;
• The replacement vehicle must have the same manufacturer or dealer options and perks, such as automatic emergency braking, rustproofing, forward collision warning, adaptive headlights, undercoating, park assist, blind spot warning and monitoring, etc. 
•  The car manufacturer shoulder incidental and collateral expenses incurred as a result of driving the defective vehicle. 

In reality, this settlement option is a rare outcome in a Lemon Law claim as both parties may consider this to be a disadvantageous option. On the one hand, vehicle owners balk at the prospect of driving the same model that caused them so much trouble while on the other, manufacturers consider it costly as the replacement vehicle will likely be of a later and more expensive model owing to the time that have elapsed since the original vehicle was on sale. 

The third settlement option is what is known as Cash and Keep settlement. This is where you, the vehicle owner, get to keep the vehicle and are compensated for the expenses you incurred related to the vehicle’s defects.

This is usually the outcome if the vehicle’s defects are not material enough as to have severely impaired the vehicle’s safety, use, and value and the manufacturer successfully fixed those issues to your satisfaction. 

In this case, you will keep the repaired vehicle and be paid by way of a court verdict or an out-of-court agreement with the manufacturer a set cash amount to compensate you for repair and incidental expenses incurred because of the vehicle’s defects.