What to do if a dealer failed to disclose engine problems regarding the sale of a used car?

Fraud is the knowing (or intentional) misrepresentation (or lie) of a material (or important) fact, which is made to induce the other party to enter into a transaction. It can also be be the intentional (or deliberate) omission (or failure to state) a fact which there is a duty to disclose--such as the fact that a car is a "mechanic special."

From what you write, the dealer may well have committed fraud, by not disclosing significant issues of which they were aware, therefore misrepresenting the shape or condition of the car. Fraud can provide a basis for rescinding a contract--you return the car, get your money back--or for seeking monetary compensation; in many states, there is a consumer fraud statute which even provides for additional or enhanced damages (compensation) when a vendor or business defrauds a consumer. If the dealership will not voluntarily make your son whole, he and you should meet with an attorney to discuss your options; from what you write, you son may have rights and may be entitled to compensation of one sort or another.