Consumer in Dark : Body Shops: A Mystery of Pricing

When his 1980 Jeep Cherokee hit a pole at a gas station last July, Steven Miller wasn’t alarmed at the damage--a dent in the fender, some scraped pinstriping. “I’d heard of the high cost of body shop work,” he says now, “but it didn’t occur to me in my wildest dreams it could cost $1,000 to fix my dent.”

What particularly got Miller, field director for Common Cause in Los Angeles, was the estimated time to make the repairs: “I couldn’t believe that unbolting the front grill would take 1.2 hours, for instance. And how can they take another whole hour to put three strips of stick-on pinstriping on the fender?”

Well, they do and they don’t. Those hours are not really clock time, or “straight time,” in industry parlance. They’re “funny time”--a measure unique to the body shop business and perhaps even double the actual time spent.

Odd Pricing Structures

Welcome to one of the oddest pricing structures in the modern marketplace, grown out of the relationship between the two principals in the transaction--insurer and repairer. And a familiar relationship it is: 80% to 90% of a body shop’s work is paid for by auto insurers, and such repairs represent a goodly share of the insurer’s claims losses--$2.5 billion, for example, of the $5 billion paid out in 1984 by industry leader State Farm.

Small wonder their constant exchange has produced its own strange system, including what both sides admit is “fictional pricing” for “phantom labor.” But never mind, they say to puzzled outsiders, it’s just a formula, a system, and the system works.

But the negotiations are mysterious and exclude the consumer, who doesn’t understand the hours estimated or the price and rarely even participates in the negotiations over what will be done and with what materials. It’s all decided, sometimes in advance, by the insurance company, which must look after its own interests while it looks to the policyholder’s.

Bad enough that the repair estimates are so misleading. So, too, may be the repairs. A further result of this system, said Donald Randall, Washington attorney for the Automotive Service Councils, may be “that vehicles are not repaired to their pre-crash condition.” Replacement parts, he said, may be the cheapest available; dents may be covered with filler instead of straightened, and hidden problems--with the suspension or emission systems, for example--may be ignored.

‘Body Work Is Cosmetic’

Unfortunately, the customer can’t always tell when he drives off. Indeed, the consumer understands little, starting with the fact that “people typically underestimate the extent of the damage in collision repair,” said Rick Dinon, spokesman for Los Angeles-based 20th Century Insurance.

Miller’s fender, for example, looked just pushed in a bit behind the bumper, but an uninvolved repair specialist found damage to the bumper, valance panel, rubber impact strip, side marker light, core support, stone deflector, and left front fender, fender extension and fender stripe.

Body work also takes more time than most consumers expect. Car bodies aren’t just hollow shells; it could take an hour just to get to a dent high on a door or deep in a fender. “Straightening” dents can involve working with a hammer and mallet on the outside, drilling a hole to “pull” the metal out--a lot of metal--sanding, filing, smoothing. Some sheet metal parts require welding rather than just bolting on, and painting may take several stages--priming, painting, sanding down, polishing.

But not as much time as they say. Whatever the official estimate, a Los Angeles body shop owner said, “a good man should be able to do it in half the time.” And everybody knows this. In short, the arrangement is that the hourly labor rate is kept low--$20 to $22 an hour in many places--and the hours are padded to compensate for a wage that most believe is out of line for skilled craftsmen.

Same Bottom Line

Where such “fictional pricing” is the norm--and it’s said to be widespread, even prevalent--low rate times high hours may yield the same bottom line as in places where body shops charge $35 to $40 an hour and estimate fewer hours, making one wonder why the method persists. “Everyone in the industry does it,” another body shop manager shrugged, “and insurance companies accept it.”

“It” is thought to be descended from the flat rate system auto manufacturers devised to pay for dealer warranty work on new cars.

“They weren’t just going to say ‘Send the bill,’ ” said John Goodman, executive director of the Automotive Service Councils of California, “so they said a valve job should take, say, 3 1/2 hours.” Since such times were formulated for an average worker, the flat rate system is believed a better incentive to work fast and beat the time than an hourly rate, which encourages slowing down.

The principle, said John Growe, chief of California’s Bureau of Automotive Repairs, “just oozed over into everything else,” including the industrywide, commercially sold manuals later compiled to set times for all kinds of repairs. These are the bibles of the auto repair industry, as anyone learns when they question the time spent on a particular repair. “They can’t really rip you off,” said one young woman who saw the light. “It’s all mostly written in a book.”

‘Slow-Moving Body Man’

To many, of course, these manuals seem “put together for a rather slow-moving body man,” said Pete Ingham, State Farm’s associate general counsel. It’s said they don’t always take into account up-to-date power tools and equipment and may be purposely generous on allotted hours because their purchasers--the repairers--want the books to justify their bills.

As for the “judgment areas” of body shop estimates--labor hours for “straightening” or finishing problems not standardized in any manual--they are most generous where the labor rate is lowest.

“One can only speculate how (this system) got started,” said Bob Mecherle, State Farm’s vice president of claims. “People were trying to attract insurance company business. The low rate gets them in the door, and then they make it up on the hours.”

Insurers help to force the situation, another insurance executive said, “because they direct business to body shops with low prices,” demanding even lower prices in return for their business. In the view of Randall of the Automobile Service Councils, “it’s a system of domination by the insurance industry. It’s reverse price-fixing; the purchaser sets the price.”

Body shops and insurers alike claim that they had rather deal in real time, but that it’s impossible to change habit.

Attempt at ‘Straight Time’

Oddly, both mention the fiasco about eight years ago when State Farm asked California body shops to change to “straight time,” noting actual hours spent and their chosen hourly charge. There was an immediate increase of at least 50% in the hourly rate and a temporary decrease in hours. But soon everyone was “estimating hours the old way,” Ingham said, and all State Farm got was a huge increase in repair bills. State Farm’s conclusion: The traditional system is “not so bad,” Ingham said, “and it ends up the same place.”

It’s “not a matter of right or wrong,” 20th Century’s Dinon said, “but of what is the custom.” Businesses add in overhead expenses in many ways, he said. Building contractors add to the final bill a percentage for overhead and profit. Body shops that charge $35 an hour include overhead in the hourly rate. Here, he said, it’s added in the form of extra time. “Not as clear a system,” he said, but “we know what an hour means and they know what an hour means.”

Apparently the only party bothered is the consumer, who doesn’t know what this hour means. Both insurer and body shop quickly say it need not bother the consumer-- an assertion meant to be soothing but symptomatic of the whole business, a closed transaction from initial appraisal to final bill.

Gone, for instance, is the tradition of the consumer’s getting several estimates. Now, Dinon said, “the consumer generally doesn’t get into this. For the average fender-bender, most insurers write their own independent appraisal and that is taken to the body shop.” Then, said Walter Smith, claims manager for the insurance arm of the Automobile Club of Southern California, “it’s between the adjuster and the body shop. We work it out.”

‘Leave It to Us’

The body shop may call the insurer to say some damage was overlooked; the adjuster may grant a supplement; they may agree to cut out or substitute some procedure. But whatever they do, they do by themselves. “Leave it to us; we’ll work it out,” one Pomona woman was told by both her chosen body shop and her insurance adjuster when the former estimated $1,490 worth of repairs and the latter estimated $985.

(The insurance industry’s general stance is that it is holding the line on body shop prices by always “negotiating them down,” as one adjuster puts it; the unprotected, uninsured consumer probably pays through the teeth. Many consumers report, however, that every body shop’s first question is whether the repairs will be insurance-paid. Miller specifically asked what difference it makes, tempted to cover the cost himself and avoid a premium hike: “I was told it would be a lot less.”

(In explanation, insurers surmise that body shops may seem to be cutting the price for uninsured consumers just to get the business but would probably stint on the repairs instead. Auto repairers, on the other hand, say they estimate higher for insurers, knowing the price will be haggled down. Consumers, once again, cannot even surmise what’s going on.)

Many insurers make it easy for the consumer to do what they, the insurers, want. They now provide not only an appraisal, including their chosen repairs and the price they will pay, but also a list of local body shops expected to accept it. They will “use a group of six or eight shops in an area,” a former insurance claims supervisor said, “going out and negotiating their own deal ahead”--the hourly rate they’ll pay, the discount on parts, the amount of business they will refer.

“You’re taking away my free will,” protested one Volvo owner, whose car was sideswiped in a parking lot and whose insurer told her just to bring it to the drive-in claims office.

Preferred List

“You can have it done anywhere you want,” her adjuster said, “but we have a preferred list. You just give them the appraisal and pay them the deductible.” Anywhere else, she would have to pay any difference in price.

At best, the insurer functions as protector ordering repairs--properly priced--that fulfill what one State Farm adjuster called “our contract to put your car back as it was before.” More often, critics say, the negotiation focuses on price, which means, Randall said, that vehicles “are returned to their owners in a mediocre rather than a totally restored condition,” or so he is told by the 2,500 established body shops that are members of his organization.

What’s more, the former claims supervisor said, there are always “junky shops doing poor quality work, and they get a lot of insurers because of their labor rate and discounts. One authorized shop on our list was just a house in a commercial section--’shade tree mechanics,’ we called them--and we had to use them.”

Moreover, for all that insurers take over in the negotiations over what repairs will be done, they lose interest in the execution or result. Even a big company like State Farm, 80% of whose adjusters have had actual repair experience, only does a “random check to see that it was done right,” in Ingham’s words.

The assumption is that the current system of ordering and pricing repairs--even with its exclusive formulas--is fine because it works, that “anything you can understand, that makes sense to you, becomes acceptable,” said Ken Varden in the California Insurance Department’s policy services bureau, “as long as it’s consistent.”

‘Corruption-Breeding’

Randall disagreed. If the claims-settling system is not really corrupt, he said, “it’s corruption-breeding. The price may not be outrageous, but the practice (of calculating it) is truly criminal.”

Many in the industry assert their willingness to see it changed. “It worries me,” said Herschel Burke, who owns an auto body shop in Long Beach, “that customers could think, ‘Well, gee, how did that come about?’ ” But no one seems able to change it. “How can you fight the Pacific Ocean?” Burke said. “It just rolls in on you.”