If anyone read the Trust Doesn't Rust book (Knight Rider 2), there's some info in that. But I do believe that the DVD version of the episode, Devon does mention that while they were moving FLAG to Wilton's remote mansion to hide from Tonya an gang, they DID forget to dismantle KARR. There simply wasn't time between KARR's deactivation, the move, and then Michael's shooting and reconstructive surgery during which time the techs were ordered by Devon to work "24/7" on the Knight 2000 (K.I.T.T.)
However, AFTER Micheal got rid of Tonya in his first mission, there were 6 MORE missions before the discovery of KARR so you would have thought that by then, Devon at least would have known to get someone to dismantle the vehicle. And, as in the show, there WAS a guard at the building. If there was nothing more useful there, and the city was to take it over (why leave useful things worth guarding in a building that someone ELSE would take over?) then Devon would have at least seen to it that whatever was guarded was to not be there anymore. Perhaps that was to be Michael's job to "secure" the building, ie. remove anything left that was being guarded that they didn't intend to go to the city.
And, I think both in the episode (and I am very sure in the book), the building was to become the "Knight Museum of Technology" and KARR wasn't really supposed to be dismantled, but used as a museum piece. At least, that's what the book said. The book was written by Glen A. Larson and Roger Hill.
So from the info I get form the DVD episode, plus the Knight Rider 2: Trust Doesn't Rust book, here's how the scenerio of KARR was played out:
1. THE BIRTH AND DEACTIVATION OF KARR
Wilton designed KARR to be the "Car of the Future". But when they went to test KARR, they gave the order for him to complete the coarse as fast as he possibly can. No other instructions. He went through the test course, but also ran over planted dummies including one of a woman and a tram with a baby doll in it. KARR thought he did well, since he got through the course in record time. But the scientists, technicians and Wilton Knight was horrified. They also tried to get Wilton's Nephew as KARR's driver, initially, but KARR said that the "Kid" was "unacceptable" and rejected him. Thus KARR was seen as not usable, dangerous, and thus deactivated and put into storage.
2. KNIGHT INDUSTRIES SECRETS STOLEN / MOVE of OPERATIONS
Tonya and her gang are in the business of criminal black market sales of high technology secrets. They had stolen and sold some of Wilton's secrets already and he was in a bad situation. They were on his trail obviously after his secrets for his "Car of the Future". This is another reason why Wilton never wanted to release KARR's design to auto makers to make these cars go to production. Wilton had to hide, including his whole Knight Industries operation. Thus he relocated everything, including FLAG to his mansion properties. KARR was brought along and stored there.
Wilton by that time also had his old friend Devon working on the other part of the project which would involve the car - Foundation for Law and Government. Also to try and help rid himself of Tanya's gang (operating above the law, etc.) and in the future others like them.
3. RUSH TO SAVE WILTON'S SECRETS
Wilton knew he was dying, and just at the same time Tonya was on a blood-hunt for him and his secrets. Wilton knew if his prototype car ideas and FLAG were to survive, just moving them would not be enough. They'd be discovered eventually. So, he had Devon rush to build the Knight 2000 from scratch, since KARR was too dangerous to reactivate to reprogram and had too much wrong with him. There was no time to loose. So in the span of TWO MONTHS and some 24/7 work, K.I.T.T. was created and activated. Wilton dies shortly after.
4. K.I.T.T. UNFINISHED
Even though K.I.T.T. was activated and working, and found to be much safer than KARR, he was unfinished. For instance, at the end of the pilot, note that he had to be towed in for repairs. Reading the script at the Knight Rider Archive, KITT mentioned he was suffering from "Acute Exhaustion" (something that was cut out of the final episode filming). Not all of KITT's system were even working at 100%. While some things were tested for safety, KITT himself didn't even know if he could turbo boost through a truck, for instance (that is in the epsiode)). Devon even told him he didn't remember testing THAT part of his systems! As KITT and Michael went on, Bonnie continually finished KITT's primary building and then added on as they went along. Also noticed in the pilot Michael didn't have a comm link to KITT even (he had to use pay phones).
So, all this went on in a span of 2 months. After the demise of Tonya and her gang, though, Devon certainly had some time to remember to dismantle KARR. Certainly all the other "missions" Michael went on should have left Devon enough time for one simple call to technicians to do this work. KITT was out on the field, Bonnie in the Semi at times. Bonnie did mention "other technicians" as did KITT if I remember right, so they did have them.
So in that sense, I can't see how they could have forgot KARR for THAT long. Maybe for awhile while they got KITT on the road and finally finished, but after that, there was time for dismantling KARR.
This is all from what I have found in the DVD episode and the book though. And as we all may know, TV shows don't always have a very consistant story line throughout. Star Trek had a lot of YATI's too (Yet Another Trek Inconsistency

) When you have several script writers doing things (as any show does) sometimes it's hard for them to keep things straight as to what went on when and why. If they had kept an "overall outline" as they built the show though, they might have had better luck explaining KARR's existance.
KARR was to be KITT's "older brother" as such. But oddly, I do NOT see any mention of "Brother" in the book or the episode if I remember right. KARR did call KITT his "Twin" but that's not accurate since Twins are born pretty much minutes or days apart, not months. Guess it was assumed KARR was a brother of KITT.
And KARR calling KITT an "inferior production line model" is incorrect because KITT wasn't a production line model to begin with and not meant to be. KITT too was to be a prototype (a second and better try, of course) from which hopefully more cars would be developed from using the technology build around KITT. I guess that was the premise of Team Knight Rider - Those vehicles were the production line models, and KITT of course the prototype for them. And may be why KITT (Shadow) was used as a "guide" for one of the drivers, etc.
Just my guess at what was going on based on all that I currently found out about the show.
