Information for Body Shops

9 Steps To Protect Your Body Shop From Diminished Value Claims
By David A Williams, Auto Collision Repair Specialist and DV Expert
Dec 26, 2007 - 8:12:08 AM

All across the country, shop owners cringe when the subject of diminished value comes up. The uneasiness many of them feel comes from truth they know too well - that diminished value and poor-quality repairs go hand in hand, like peanut butter and jelly. The fear many of them feel comes from knowing there's a horde of botched repairs out there that could come back to bite them at any moment. Nearly all of us have also witnessed despicable work put out by competitors. The problem is enormous, and most collision repairers have seen it firsthand.

But before we get into how you can protect your shop from diminished value claims, let's take a look at just how widespread the problem has become.

High Volume of Poor-Quality Work

How deficient is overall body shop repair quality in the United States? After nearly a decade of performing post-repair inspections in Ohio, Kentucky and West Virginia, I've seen only two jobs of noteworthy quality among the hundreds I've viewed. In the south, Florida's Peter Bartlett, Ph.D., has seen fewer than that. Even though he has been performing auto inspections since long before I was taking solid food, Bartlett says he can't remember evaluating any collision-damaged cars that were repaired as well as they could have been repaired.

For West Coast diminished value specialist Rocco Avellini, who has inspected more than 2,000 vehicles, the total number of high-quality repairs he has seen just broke double digits. Another left coaster, Washington's Mike Harbor of CrashTalk fame, upon nearing 700 inspections, reports seeing proper repairs about one time in every 100 inspections. This is a number agreed upon by several other diminished value specialists with whom I inquired.

Considering these statistics, it's my opinion and the opinion shared by most post-repair inspectors that shops' practice of putting out slothful repairs is commonplace regardless of geography. However, because post-repair assignments often come from attorneys who are working bodily injury claims and because diminished value usually isn't considered on vehicles with minor damage, post-repair inspectors are often looking at cars that were severely injured as opposed to those with superficial or cosmetic damage.

This is reflected in the fact that the average car I look at carries damage invoices of $11,316, as opposed to the average claim paid out by insurers, which, according to most sources, is around $2,000. And there's no question that heavy hits are harder to repair.

Regardless, a customer is entitled to preloss condition, irrespective of the severity of damage. Quality is not graded on a curve. Post-repair inspectors look for the same things on heavy hits as they do on light hits. It's just that light repairs may not have the same or as many elements to repair as heavy hits.

The High Cost of DV

The percentage of lost market value on the average repaired vehicle varies depending on the method of calculation employed. For instance, in the state of Georgia where the 17C formula is often used, the diminished value is, fairly or unfairly (depending on your view) capped at a superficially low percentage. Settlements offered for diminished value are seldom greater than 10% of a vehicle's actual cash value (ACV) as reflected in NADA valuation guides. But my own statistics reveal the average loss in market value is a much larger number than 10%. Currently, statistics I've compiled show the average diminished value loss to date is 32.75% of actual cash value, down slightly from a high of 33.69% in November 2005.

Viewed in real numbers as opposed to percentages with extremely high- and low-valued cars tossed out so as not to skew the averages, the stats reveal the following. The average vehicle inspected has:

Preloss value of $21,794.
$11,316 spent on repairs
DV pennies shy of $7,000.

Looking at these statistics, it's no wonder that deep inside the heart of many body shop owners, there's fear that a time will come when they'll be asked by an insurance company or lawyer to ante up. That is, pay the diminished value or buy from the consumer a car that failed to make the grade. While shelling out cash has a way of getting the attention of most body shop owners, it's not the cash that concerns them most.

You might be asking, "What could be more valuable to a business than money?" Answer: reputation. Auto body shops I contacted were reluctant to talk about their failures and none were willing to be interviewed. Hence, it's easy to conclude that the damage to one's reputation is more disturbing than any amount of cash a shop owner can throw at a problem to make it go away.

With reputation at stake, the true cost of performing shoddy repairs and paying accompanying diminished value could be much, much higher than a hit on the bottom line. It could cost a shop owner his business.

Diminished Value Is Real -- and Not Going Away

Regardless of the misinformation pumped out by insurance industry spin wizards, diminished value isn't a recently contrived con perpetrated by the minds of holier-than-thou shop owners bent on swindling insurers out of millions of dollars. Court cases that prove its existence go back nearly a century. And diminished value ain't likely to go away anytime soon.

In fact, insurers even reluctantly admit to its existence when their backs are to the wall. Remember the Mabry case (2001) that caused insurers to begin paying Ddiminished value claims as a normal course of business in the state of Georgia? Georgia Supreme Court Justice Robert Benham wrote the following Nov. 28, 2001, and all Georgia Supreme Court Justices concurred:

"... The first question, whether diminution in value occurs even when physical damage is properly repaired, is one of fact. The trial court found that there is a potential for a diminution in value loss in every event of loss, and that diminution in value can occur even when a vehicle is repaired properly. In support of those findings, the trial court relied primarily upon documents produced by State Farm during discovery and upon the testimony of State Farm's witnesses. The documents from State Farm acknowledged that there is a common perception that a wrecked vehicle is worth less simply because it has been wrecked. Witnesses for State Farm testified that a potential for diminution in value exists in every automobile accident, and that the public perceives a loss of value in any wrecked vehicle and would choose an unwrecked vehicle over a wrecked one, assuming the vehicles are otherwise the same ..."

What was proven true in 2001 is still true today. DViminished value is a reality, even in cases where repairs eliminate all visual evidence of damage.

Shops aren't always to blame

Many factors that contribute to a vehicle's lost market value are clearly beyond the capability of body shop personnel to control. For example, the loss of factory warranties that are purchased as part of a vehicle's sticker price. Once panels are altered from their original state by virtue of being crashed, a portion of the OEM warranties paid for by the consumer becomes null and void. One has to look no further than a vehicle owner's manual to find language that supports this. Aftermarket warranties substituted by collision repair shops are in no way comparable to OEM transferable warranties that an owner or subsequent buyer could have benefited from before a loss occurred. And, cars void of some or all of their factory warranties are less desirable and marketable than those of like kind with all original warranties intact. Thus, without payment to make up for the loss of warranties (i.e. diminished value payment), a consumer could never be made whole, even in the event that repairs were made to perfection.

This same argument could hold true with regard to lost eligibility for inclusion in pre-owned certification programs, mandatory disclosure of damage by law and title branding.

Additionally, VIN decals typically can't be purchased (and missing VIN decals raise a red flag), and there's also the potential for breakdown and failure of a repair, even one that appears perfect. The list could go on and on.

The fact is, repairing cars to their true preloss condition is, in my opinion, impossible to achieve in the aftermarket, a world almost eternally separated from the utopian environment of jigs, carthodic dip tanks and crash testing used by auto manufacturers during the build process.

With the perfect repair, there would be knowledge of a vehicle's ability to fold with predictability in a future crash, and knowledge that it would perform and wear in a manner identical to that of a car that had never been damaged.

Inherent diminished value, as it's often known (diminished value resulting from factors beyond the ability of a shop to control, as opposed to a fault-based diminished value that can be attributed to the shop or insurer), ordinarily wouldn't be the type of loss shop owners need to concern themselves with. After all, it wasn't the shop owner who sold an auto insurance policy promising indemnification to the consumer. It was the insurer.

But insurers have cleverly shifted the burden, in many cases, to body shops by getting them to sign contracts and agreements that make a shop responsible for liability that results in inherent diminished value. This is in addition to liability they have for producing a high-quality repair with long-term durability.

Can shops operate in a manner that eliminates the possibility of being burdened with Ddiminished value and legal maneuvering? Probably not entirely because there's always the potential for a part or product failure, despite shop's best efforts to follow directions and provide workmanship second to none.

But in the remainder of this article, collision shop owners and managers will find some safeguards that can put into place to minimize a shop's risk and keep the burden on insurers and at-fault parties -- where it belongs.

9 Steps to Reduce Exposure to Diminished Value and Litigation

Consider the following nine steps your shop can take to better position itself to avoid high legal bills and costly diminished value claims:

1)  Seek customers who actually want to do business with you. A shop will always find it tougher to please a steered consumer than one who decides for himself which shop to patronize. According to J.D. Power and Associates' Collision Repair Satisfaction Index Study, consumers who use an auto insurance provider that requires a vehicle to be taken to one of its "preferred provider" body shops for collision repairs or body work are less satisfied overall than those who are able to choose their own repair shop. The study, which measures customer satisfaction with insurance carriers when claims are filed, finds that consumers whose insurance provider stipulated which body shop they had to use expressed the greatest dissatisfaction. Consumers whose insurance provider gave them a choice of two or more body shops to select from were slightly more satisfied, but remained less satisfied than those who selected their own body shop.

Even if a shop's work is perfect, a customer who's pushed into a shop and feels aggrieved for any reason may, at the very least, score a shop poorly on CSI. They may also complain about the repair, even when it isn't justified. Customers like this are often the ones who seek out lawyers -- lawyers who need facts and who hire post-repair inspectors to gather them. Right or wrong, aggrieved car owners will probably find an attorney to take their case.

Bottom line: Bad stuff happens when consumers are steered -- the most logical that many will be in a shop under duress, which makes them harder to please. Also, the shop that loses a customer to steering will likely have the direct repair shop that gained the customer in its sights and will look to help customers who are unhappy with the network shop's work.

My point is this: Work only for customers who want to do business with you. Walk-away power is one of the most important assets a shop possesses. Use it to get the customer base you desire and to avoid jobs that leave you saddled with lots of liability for little pay.  What I'm saying here holds true for referrals from any source, insurance or otherwise. For best success, a shop shouldn't think it can make happy customers of those who don't want to do business with it in the first place.

2)   Be honest about your shop's abilities. Body shop owners and managers should never oversell their shop's capabilities or promise what can't be delivered. While it may not be an exaggeration of the truth to proclaim repairs are the best in one's particular market, claiming repairs to preloss condition is nauseatingly overstated. The strategy at play should always be under-promise and over-deliver.

Additionally, shops shouldn't fraudulently claim to repair cars to a nonexistent standard. Using language like "industry standard repair" to indicate peer acceptance of one's work is deceptive and misleading to customers when such a repair standard has never been defined. Shops should be open and honest about the fact that no business, regardless of equipment or personnel, can produce repairs that have the capability of erasing damage history from a car once it's been in an accident. While customers rarely like hearing confirmation that their car's value will suffer, many report that it's refreshing to at least find a shop that tells the truth about it. Never promise goods and services of one grade and deliver goods and services of a lesser grade.

3)  Sign no agreements or contracts that limit your shop's ability to provide proper repairs. Between insurer direct-repair programs and vendor programs, it seems nearly everyone has a deal designed to make body shops more money. At least that's how it's presented. Usually, continued participation in these programs is tied to product usage and meeting performance objectives. But signing agreements and contracts that restrict the ability of a shop to do its best work aren't in the best interest of body shops or customers they serve.

The litmus test: If you're not proud enough of your deal to frame it and hang it on the wall for all customers to read, or if you'd be embarrassed to see an expose on it, along with your picture, on the front page of the local newspaper, you probably shouldn't be participating in the program.

Also, never forget that one of the best sources of referrals for post-repair inspections are competing shop owners who believe they've been wronged by having been steered against. If your shop participates in direct repair programs, make sure you're putting out work you can stand behind.

4)  Get the paperwork right. From the initial estimate to the final invoice, a customer has the right to make choices and be informed. But documentation is as much about protecting a body shop as it is about protecting a consumer. If your work is ever called into question, such as it would be if your customer filed a diminished value claim, wouldn't you want the ability to show that a customer knew what he was getting and agreed to it ahead of time?

Yet even with law to reinforce rights of consumers to know how much they're paying and of shops to collect for the work they do, rarely do I see repair authorizations signed. Shops simply take their chances and start working on cars in hopes that somebody will pay them. Moreover, there's often no documentation to reflect which technician worked on a job and which specific products were used, nor is there verification that product shelf life on adhesives and other perishables were within the product manufacturer's time stamp.

Additionally, most body shops have no proof that technicians knew the proper methods of repair or that the OEM repair directives were even followed. The lack of paperwork leaves so much to chance. Nevertheless, it has a flavor that attorneys love to sink their teeth into.

5)  Honor your customer's privacy. Keeping information regarding your customers' repairs private unless given specific permission by them to release it for a stated purpose is not only a nice thing to do, it's the law. This means, for example, that a body shop shouldn't be negotiating behind a consumer's back with insurance adjusters who attempt to interfere in an effort to save a few bucks for companies they represent.

6)  Provide tooling and conditions that allow technicians to do their best work. Technicians need top-notch tooling and optimal conditions if they're expected to do a job correctly the first time. For example, can even the best technician know where to stop pulling on a damaged car without use of an accurately calibrated measuring system when the specifications are almost invisible to the naked eye? Can chemicals dry properly in extremely high or low temperatures? Can a technician paint well with limited lighting or with other technicians horse-playing around him?

If shop owners or managers are forcing technicians to repair cars without the benefit of the manufacturer's instructions, proper tooling and optimal conditions when such are readily available, lawyers will have a hoot watching them squirm in their seat, listening to them as they attempt to defend an indefensible position.

7)  Document all damage, and repair only what you're paid to repair. Few bopdy shops document all damage or make use of the Notice of Deficiency to keep liability at bay. Instead, many follow the instructions of insurance company claims adjusters, writing only what can be seen without using knowledge of previous repairs to seek out damage they anticipate finding. In short, this isn't good business because it shortchanges less knowledgeable consumers. On the other side of the coin, there are well-meaning body shops that blend panels and perform work that nobody has given them permission to perform. Instead of doing too little work, these shops do too much. This usually happens because shops prefer not to stop for additional authorization in the middle of a repair when supplemental items are noticed.

Even though, in many cases, body shops don't charge for these particular items on a supplement, preferring to give them away instead of doing the additional paperwork, technicians have no right repairing them without the car owner's permission and their acknowledgment of the costs involved. Look at it this way: If you go to the market to buy ingredients to make a cake and find the cost of flour a bit too high, you can always choose not to bake a cake at all, or you can cross the street and buy flour at another store that has a more accommodating price. What if, while you're at work, I went to your house with a painting crew and gave it a new coat of paint? Cool, you say. But what if I did it all free of charge without asking your opinion and chose a glossy hot pink for the main color with lime green trim? I expect you'd be upset -- and rightfully so. I had no right to do that work even though I paid for it in its entirety and you paid nothing.

The car owner has the same ultimate veto power to decline repairs in whole or in part. There's no law that I'm aware of that says a consumer must repair anything on his car to be paid fairly for his loss. As a repairer, you must give consumers the opportunity to choose everything, nothing or something in between. If you don't and you make choices for them, you're operating outside the bounds of what the law allows.

8)  Make wise repair recommendations based on OEM guidance. Auto manufacturers go to great lengths to provide repair information to the aftermarket even though few follow their advice. When estimating and repairing cars, body shops should use to their benefit the full gamut of technical service bulletins, OEM position papers and repair documentation.

A body shop can't expect technicians to perform work correctly if it won't purchase the how-to-do-it publications from car manufacturers. Trial and error in our business can cost lives since the measure of one's work quality often doesn't get revealed until the car suffers another crash. If OEM advice were followed verbatim, post-repair inspectors, as an example, wouldn't find instances where cars have been reengineered (i.e. adhesives wouldn't be used where the manufacturer intended MIG weld plugs to be used). In essence, what they would find are safer repairs. I think we would all agree that providing the safest possible repairs for our customers is indeed a goal worthy of our attention. Not to mention, it keeps the risk of diminished value and litigation to a minimum.

9)  Inspect the final product to assure workmanship of the highest quality. During post-repair inspections, we look primarily for three things. 1. To make sure all the damage is repaired. 2. To make sure damage is repaired properly. 3.To notice of areas of loss that are beyond the ability of a technician to rectify with repair.

On a consistent basis, we find tell-tale signs of damage like marred pinchwelds, poor fit of new parts, tape lines, water and wind leaks, overspray in jambs and runs in the paint. All are clearly avoidable by asserting some care during the course of repairs, and all can easily be caught before a vehicle leaves the shop, assuming someone is in charge of overseeing quality. This is probably the simplest and least expensive thing a shop can do to limit exposure to diminished value claims. Remember, if a shop accepts any amount of money for performing a line item on a repair sheet, technicians have an obligation to perform that work correctly.

When quality-checking technicians' work, look especially for egregious, fraudulent cover-ups performed with intent to deceive car owners -- things like large washers covering holes that were slotted to accommodate ill-fitting parts. These are the ones when, if caught, will cost you more than you would ever dream of paying. But don't stop there. Put some effort into seeking out and fixing every flaw and defect in the repair area no matter how minor before presenting the car back to the customer. By performing work in a manner that keeps customer confidence high, you'll have a less litigious life and you'll be better able to hang onto your money.

content & design ©2002-2007 David Williams and SafeCollisionRepairs.com

About Safe Collision Repairs

For more than ten years, David Williams of Wheelersburg, Ohio's Safe Collision Repairs has worked with consumers and attorneys in the tri-states of Ohio, Kentucky and West Virginia to expose unsafe auto repairs and maximize recovery on auto insurance claims. Some of the company's services include Post-Repair Inspections, Prepurchase Inspections, Auto Damage Assessments, Lemon Law Investigations, Expert Court Testimony and Diminished Value Calculations using an advanced version of Network Information Communication's WreckCheck program.

Inquiries can be directed to: Safe Collision Repairs David A. Williams Post Office Box 70 Wheelersburg, Ohio 45694 (740) 456-1111 (740) 355-4056

Disclaimer

The content expressed on this website and in the article above represents the opinions of David A. Williams. Williams is neither an attorney nor public insurance adjuster, but is an expert, consultant, and writer specializing in the field of automotive collision repair and valuations. The information provided herein is not intended to be a substitute for legal or insurance advice. Because collision repair is a continually evolving science, any text, materials or links found herein are provided without claim or guarantee to their accuracy or completeness.