If a used car salesman is trying to rip me off, I walk away from the deal. I don't need to be able to short his inventory! And the supply / demand dynamics of the used car market will trend toward equilibrium without any such shorting.
Your example would make more sense if the car they were selling a what may seem as a perfectly fine Lambo, but in actuality it was a lemon. And the only way to find out if it was a lemon or not is to tear it apart piece by piece.
Getting my money out is all the incentive I need! I bet plenty of Theranos investors would've loved to do exactly that. And there was no shorting involved in that company.
The standard answer is the government. Which is fine but reduces a moral position to an operational one.
Sure, you could point towards regulators but we know that the advantage will always be with the regulated.
On a side note, this is one aspect that religion addresses. Ripping people off is not going to end up well when facing God.
that's because it wouldn't do you any good. if, however, the used car salesman is engaging in fraud and selling expensive cars way under their market value while buying inventory at inflated prices, you could expose this by borrowing a friends mercedes, selling it for USD 100000 (then buying it back at USD 1000, so you can return it to your friend) making a nice profit along the way.