New car lemon rights Australia: what to do when your car keeps failing

You drove a brand-new car off the lot, and now it spends more time at the dealership than in your driveway. The engine warning light keeps returning, the transmission shudders, or the car has cut out in traffic more than once. The dealer keeps "fixing" it, but the problem comes back.

Australia has no single federal "lemon law" for new cars. Lemon rights here come from the Australian Consumer Law's consumer guarantees — above all acceptable quality — and its major-failure remedies, supplemented by state and territory processes. That framework is strong, and it includes the right to reject the car and seek a refund or replacement in the right circumstances.

Quick answer

Whether you can get a refund or replacement depends on two things: whether the failure meets the ACL's definition of a major failure, and whether your right to reject is still available.

If the car has a major failure — one a reasonable consumer, fully aware of it, would not have bought the car knowing about — you may reject it and seek a refund of the purchase price, or a replacement car of the same type and similar value if one is reasonably available. You choose between them. If the failure is non-major, the dealer gets the first reasonable opportunity to fix it.

These rights run primarily against the dealer who sold you the car, and apply where you acquired it as a consumer under section 3 of the ACL (see below). The manufacturer is a separate route: sections 271 and 272 may support a direct damages claim against them for certain guarantee failures — but that is damages only, not the refund-or-replacement choice you have against the dealer.

What the law actually says

The Australian Consumer Law (ACL), Schedule 2 to the Competition and Consumer Act 2010, attaches consumer guarantees automatically to every qualifying sale of goods. You cannot sign them away, and no clause or invoice disclaimer removes them: under section 64, any term purporting to exclude, restrict or modify them is void to that extent.

For a new car, the guarantees that matter most are:

• Section 54 — Acceptable quality. The car must be safe, durable, free from defects and fit for the purposes cars of that kind are commonly supplied for. Acceptable quality is judged in context — the nature of the car, its price, any statements made about it, and the surrounding circumstances — so more is expected of a new car than a well-worn one.
• Section 55 — Fitness for a disclosed purpose. If you told the dealer you needed the car for something specific — towing a caravan, say — and it was reasonable to rely on their skill and judgment, the car must meet that purpose.
• Section 56 — Match the description. If the car was sold as having a particular engine variant, safety rating or factory-fitted option, it must match.

Remedies flow from sections 259 to 263. Section 259 gives you the right to require a remedy; what you get depends on whether the failure is major or non-major.

Major failure

A failure is major under section 260 if any of these applies:

• A reasonable consumer, fully aware of the nature and extent of the failure, would not have acquired the goods.
• The goods depart significantly from their description.
• The goods are substantially unfit for their common purpose and cannot be made fit within a reasonable time.
• The goods are substantially unfit for a particular purpose the consumer made known, and cannot be made fit within a reasonable time.
• The goods are unsafe.

One serious failure can be enough — and several smaller ones can be considered together. There is no rule requiring a set number of repair attempts before a failure counts as major. A history of recurring defects, unsuccessful repairs, repeated breakdowns, substantial time off the road and an overall loss of safety or reliability may collectively show that a reasonable consumer would not have bought the car had they known the full position.

Where a major failure exists and the right to reject has not been lost, you choose: reject the car and seek a refund, or reject and seek a replacement of the same type and similar value if reasonably available. Alternatively, keep the car and seek compensation for the reduction in its value.

Non-major failure

For a non-major failure — a rattle, a cosmetic blemish, a feature that underperforms without affecting driveability — the dealer gets the first reasonable opportunity to remedy it, and under section 261 may choose repair, replacement or refund. If they refuse or fail within a reasonable time, section 259 lets you have it fixed elsewhere and recover the reasonable cost, or reject the goods, subject to the rejection rules below.

When the right to reject can be lost

Under section 262, the right to reject is lost if:

1. The rejection period has ended. This is the point most often misunderstood. It is not a fixed number of days, and it does not simply start when you notice the fault. It is the period from supply within which it would be reasonable to expect that kind of failure to become apparent — judged on the type of goods, the use they are likely to be put to, and the length of time and amount of use that is reasonable for them. A drivetrain fault on a new car would be expected to surface over a longer window than a scratch.
2. The car has been lost, destroyed or disposed of.
3. It was damaged after delivery for reasons unrelated to the failure.
4. It has been attached to other property in a way that cannot be undone without damage.

If you reject: tell the dealer in writing, state the grounds, and make the car available to them. Return and collection arrangements for a vehicle can be costly, so confirm the process before paying for transport. Do not sell or materially alter the car once you have rejected it.

When this applies (and when it doesn't)

The consumer guarantees apply when:

• You bought from a dealer (a business), not a private seller.
• You acquired the car as a consumer under section 3 — the price is $100,000 or less, or the car is of a kind ordinarily acquired for personal, domestic or household use — and it was not acquired for re-supply or for use in a production, manufacturing or repair process.
• The failure is a genuine defect, not damage you caused.
• You can show proof of purchase — receipt, finance agreement, registration papers or bank statement.

They are less likely to apply, or apply differently, when:

• You caused the damage. Misuse, modification or neglect that caused the failure is generally not covered.
• The fault was disclosed before purchase and the price reflected it.
• The vehicle is an unusual commercial one. Business use does not automatically remove ACL coverage, and a car above $100,000 can still qualify if it is of a kind ordinarily acquired for personal, domestic or household use. Purpose-built commercial vehicles, and cars acquired for re-supply or specified production uses, need closer analysis.
• The manufacturer's warranty is the only issue. The warranty is a contractual promise from the manufacturer; the consumer guarantee is a statutory right against the seller. Both can apply, and they operate differently.

What to do today

1. Stop driving it if it may be unsafe. Arrange towing or an inspection rather than a test drive. Keep photographs, warning messages, diagnostic reports and towing receipts. Continuing to use an unsafe car to preserve evidence can worsen the damage and complicate causation.
2. Document every failure. A log — date, what happened, how long the car was off the road, what the dealer said, what was done — plus every job sheet and repair invoice.
3. Get independent evidence where it is contested. If the dealer disputes the cause or seriousness, a written diagnosis from an independent mechanic carries far more weight than your own account.
4. Write to the dealer. Email the service manager and, separately, the general manager or owner. Set out the failures, dates and repairs attempted, say you consider the car to have a major failure under the ACL, and state the remedy you are choosing. Give 14 days to respond in writing.
5. If you allow another repair attempt, put it in writing that the problem remains unresolved and you do not accept the repair as settling your claim. This is useful evidence, not a magic formula — the ACL requires no particular words. If you already say the failure is major, name the remedy you are choosing and do not agree to open-ended repair attempts without advice.
6. Keep the car. Do not sell or trade it in while the dispute is live — that can extinguish the right to reject.

Not sure how to write the demand letter? fairgo can generate one for you in about 90 seconds. The wizard identifies the relevant ACL sections and produces a letter you send under your own name.

What if the business refuses

• Your state's Fair Trading body. A free conciliation service that contacts the dealer for you. It is voluntary — the body cannot make binding orders or compel payment — but it is free and often prompts a response. Find yours at /agencies.
• The manufacturer. Many manufacturers run an internal escalation procedure; availability and independence vary, so check what yours actually offers. This can run alongside Fair Trading conciliation.
• A binding forum — court or tribunal. Only these can compel payment. The right forum depends on your state, the dispute type and the amount. Tribunals such as NCAT (NSW), VCAT (Victoria) and QCAT (Queensland) hear some ACL disputes, but jurisdiction depends on their enabling legislation; for many ordinary ACL disputes a court may be correct instead. Confirm jurisdiction, thresholds and fees before filing — see our guide to tribunals.
• The ACCC. Investigates systemic conduct, not individual disputes. A report may point you to the right state body but will not resolve your claim.

The section 260 major failure test is the central question in most lemon disputes — understanding it before you escalate puts you in a stronger position.

Common mistakes

• Treating a written reservation as a magic formula. Confirming in writing that a repair does not settle your claim is useful evidence and avoids ambiguity, but no particular wording is needed to preserve your statutory rights — and a long repair history can itself support a major-failure case rather than undermine it.
• Confusing the manufacturer's warranty with the ACL guarantee. That the warranty has expired or excludes the fault says nothing about whether the consumer guarantee applies. The guarantee runs against the dealer and does not expire on a fixed schedule.
• Waiting too long. Delay makes it harder to establish the fault existed at sale, and the rejection period may pass. Raise it in writing as soon as a recurring problem appears.
• Disposing of the car mid-dispute. Trading it in or selling it can extinguish the right to reject.
• Overstating the claim. Asking well beyond the purchase price, or for losses you cannot substantiate, undermines an otherwise strong case.
• Going to a tribunal with no written demand. A written demand is strongly advisable and most forums expect a genuine attempt to resolve first, though the exact requirements vary by forum.
• Assuming the finance company is the target — or simply stopping payments. Your ACL rights run against the dealer, and the finance contract has its own terms. Linked credit arrangements can be legally interconnected, so get advice before stopping payments or trying to unwind finance.

A lemon dispute feels overwhelming when the dealer is dismissive and the car is still under finance. The ACL gives you a clear framework: document the failures, write formally, and escalate through the right channels.

Related reading

• Bought a used car from a dealer? Your rights under the ACL
• What "major failure" really means under section 260 of the ACL
• Business refused your refund? Here's what to do next
• Caravan defects consumer rights: ACL guarantees for big purchases

This article is general information about Australian Consumer Law, not legal advice. The ACL is complex and your situation may have details that change the analysis. The article also describes complaint and escalation pathways — including state Fair Trading conciliation services, state tribunals, courts, and the ACCC — whose scope, rules, thresholds and processes sit outside the ACL and can change. Confirm the current position with the relevant body before lodging any complaint or claim. For advice on your specific case, see your state's Fair Trading body — full list at /agencies.