I hardly think he would have a leg to stand on in court, that is a bluff. Best way he can protect his good name is to give you your money back plus any expense incured by you, then have the car crushed. What year is the vehicle?
IMO it's definately a bluff, I doubt it will get to court but if it did it would be shown without doubt that he mislead you and sold you an unroadworthy vehicle, which as a trader would get him in deep **** and when made aware of the defects by you he should have offered a full refund or repair.
Everything is stacked in your favour, like everyone says don't back down and don't let a lawyer intimidate you. If you do take a voice recorder to the meeting make sure you let them know you are recording them, otherwise you have no way of proving who the voices belong to in court.