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Letter to the Editor

Sex in the Shop

Technical clinics and panel discussions provide a wealth of automaker information and answers

You've just been defrauded. There's no sex in this story. INSIGHT doesn't have a "sting operation." We've told you you're going to get one thing - a sexy exposé - but are delivering something else: an article about fraud within the collision industry.

The reason for the game-playing? First, INSIGHT believes the majority of our readers are among the most honest and ethical in the industry and therefore might skip over an article about fraud, thinking it doesn't apply to them.

But second, we wanted to drive home a point: If the recently-released report from the California Bureau of Automotive Repair (BAR) is to be believed, INSIGHT could "defraud " readers with phony front page headlines in five of its 12 annual issues yet still not equal the percentage of fraud the BAR says is being perpetrated by collision repairers.

That kind of dramatic statistic - that 42 of collision repair work includes some level of fraud - despite some obvious weaknesses in how it was determined, impacts everyone in the collision industry, even those outside of California and even those not involved in fraudulent activity. How? It's that kind of headline-making statistic that is already starting to show up in news reports, legislative discussions and lawsuits throughout the country.

BAR inspects 1,315 vehicles

The BAR report was the latest result of a legislative-mandated "Auto Body Repair Inspection Program" launched by the regulator in 2001. As part of the program, consumers could call a toll-free phone number to request a free inspection of their vehicle at their home or workplace. To qualify, the vehicle had to have had at least $2,500 in collision repairs completed within the preceding 120 days.

Over a 2-year period ending this past summer, the BAR inspected 1,315 qualifying vehicles. Of those vehicles, according to the report it issued this fall, "551 (or 42 percent) had parts or labor listed on the invoice that were not actually supplied or performed. The average dollar amount per vehicle where this occurred was $811.93."

Based on these findings, about fifty administrative actions were filed by the state's Attorney General, and an equal number of referrals were made to local district attorneys for possible criminal or civil action. The BAR was also able to secure more than $500,000 in direct refunds, rework or adjustments to the bill.

The BAR report recommends that the California legislature, department of insurance, insurance industry, consumer advocates and the collision repair industry work together with the BAR to explore ways "to reduce unfair and illegal practices in the auto collision repair industry."

"As part of this strategy, protocols should be developed that better define the roles of, and the relationship between, the auto insurance and auto body repair industries," the BAR report states. "These discussions should also include a serious consideration as to reforms in the methods of estimating collision damage."

The BAR recommends, for example, that the document produced by adjusters be called a "visible damage assessment" rather than an estimate, so the vehicle-owner knows "it may not be a comprehensive, complete and itemized" listing of all the repairs necessary.

Statistics questioned

Not surprisingly, the BAR report has been played up in media reports and has not been warmly received by collision repairers. Perhaps the biggest concern: The study didn't look at randomly selected collision repair jobs, but only those for which the vehicle owner requested a reinspection by the state. Critics say it is consumers who suspect they may not have gotten what they paid for that are more likely to ask for such a reinspection, leading to the higher rate of fraud found.

"Coverage of the BAR study has been presented as a representative sample of the work of our entire industry," Chuck Sulkala, a Massachusetts shop owner and executive director of the National Auto Body Council, said. "That is clearly not a fact supported by the BAR's research methodology."

The BAR counters that "the consumers who took part in the pilot did not appear to have any pre-conceived ideas about the repair, the auto body repair shop, their insurance company, or the pilot inspection program." But it does not offer more information on how it based this assessment of participating vehicle-owners' attitudes.

David McClune, executive director of the California Auto-body Association, said his organization supports efforts to reduce fraud in the industry, but also has some misgivings about some BAR statistics and regulations.

"The definition of ‘fraud' being used by the BAR is overly broad," McClune said. "From a legal standpoint, to find fraud you need to find intent. The BAR defines fraud so broadly that it may include unintentional mistakes."

That's an argument put forward by Caliber Collision Centers, which operates about 40 shops in California. Last year, the BAR shut down Caliber's Costa Mesa, Calif., location for five business days for violations of the state's auto repair regulations. Although a few of the violations included some parts that were allegedly charged for but not installed, most revolved around careless paperwork.

Caliber admitted to the violations but said the problems were caused by human error and simple oversights, not intentional fraud. It paid $8,000 in cost-recovery to the Bureau of Automotive Repair, and, according to Caliber's chief operating officer Bill Lawrence, spent $200,000 to modify its internal systems to prevent such procedural errors.

"The real problem is…that the regulations fail to make important distinctions between minor technical violations or reporting mistakes and more serious violations that really hurt consumers," Matthew Ohrnstein, CEO of Caliber, said. "As a result, automobile repair companies doing business in California are being treated unfairly."

Indeed, the BAR is even cracking down on something as common and seemingly innocuous as a parts price increase, according to Bob Matejzel, a past chairman of the Collision Industry Conference (CIC) Estimating Committee.

"If through your estimate you have an agreement with the owner of the car that the cost of a part is $35, but then when the part arrives you find out it costs $38.20, it is illegal for you in California to charge more for that part without contacting the owner of the car - in advance of putting the part on the car - and telling him there will be a $3.20 parts price increase," Matejzel said.

Sulkala said part of the national concern of the NABC, which works to improve the image of the collision repair industry, is that other groups, particularly insurers, have started using what he called the BAR's pseudo-statistics as part of advertising and public relations campaigns.

"In essence, they are trying to improve the image of their segment of the industry at the expense of another segment, and are doing so by misusing BAR information they should know lacks any statistical validity," Sulkala said. "The National Auto Body Council finds this behavior unacceptable."

Using the data

Indeed, it only takes a quick read of Allstate's lawsuit over the new Texas law halting the growth of insurer-owned shops in that state to see evidence of what Sulkala is talking about. On page 4 of the 43-page suit, Allstate cites the 42 percent fraud statistic as evidence of the need for insurer-owned shops that "have no incentive for the types of abuses that have been widely reported" within the industry.

Because the law limits the ability of an insurer to steer claimants to shops owned by the insurer, Allstate says, it could have the inadvertent effect of actually misleading consumers. By requiring the insurer to recommend independent shops to the same extent they recommend Sterling facilities, Allstate says that "policyholders and claimants will be misled into believing that Sterling and local auto body shops are of equal quality." This lack of information, Allstate argues, could lead a policyholder to choose "a less efficient, or worse, fraudulent, local body shop."

At the Collision Industry Conference (CIC) in Boston last month, Ric Pugmire of Auto Body World in Phoenix, Ariz., urged CIC participants to read the Allstate-Sterling lawsuit, saying he felt some response from the industry was appropriate.

"Careful reading shows it to be defamatory of the industry, inaccurate, contradictory and probably deserving of some attention on our part," Pugmire said. "It says we're generally crooks and that we need Sterling in order to cure our ills and ensure good quality work."

Sulkala agreed, saying NABC is considering responding through the media as it did to the release of the BAR report.

"It's absolutely unacceptable when you have that kind of statement [made in the lawsuit], especially from someone that considers themselves a part of this industry," he said. "The National Auto Body Council has supported numerous efforts to inform both the public and repairers on both the issue and methods necessary to prevent repair fraud. The misrepresentation of results from the BAR's report on autobody fraud only serves to confuse consumers further."

One key, he said, is getting the industry across the country to understand that just as fraud is a problem nationwide, so are inaccurate fraud statistics or ill-conceived regulator attempts to address it.

"This isn't just their problem," Atlanta area shop owner Gene Hamilton said of his counterparts in California. "It's going to become our problem if this trend moves out from that state like a lot do."   o

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