Smashing Car Shop Fraud
The banged-up 1992 Toyota Corolla that rolled into Encino Body Works seemed to be a garden-variety repair job and thus a prime candidate for juicing up a little extra profit.
After looking over the bashed-in left fender, Alfonso Outumuro, the owner of the shop, assured the customer that he had nothing to worry about because “I am going to try and save you some money.”
Unfortunately for Outumuro, the customer was an undercover state investigator. Outumuro billed the customer $1,901.59 for a new hood, a radiator support bar and a right side panel. None of those parts was replaced, according to the complaint by the California attorney general’s office.
The sting was executed by the Bureau of Automotive Repair, or BAR, a state agency that brings about 400 cases of consumer fraud and other types of violations, including 180 criminal actions, against auto repair and body shops each year. In most cases, operating licenses are revoked.
BAR’s undercover operations are run from seven secret labs that prepare its fleet of hundreds of automobiles and trucks used in stings. No other state in the country has anything resembling the sophistication and breadth of California’s effort.
“BAR’s operations are impressive,” said Ken Zion, one of the state’s top private investigators specializing in auto body fraud and a longtime Southern California college instructor. “Most shops are aware of BAR stings, but they don’t think it will ever happen to them.”
Next week, BAR will begin its largest initiative against auto body fraud, which the agency contends taints 40% of all body repairs in the state. Under legislation passed last year, BAR will inspect thousands of vehicles after they leave body shops to determine whether the repairs and charges match the invoices and bills presented to customers.
The auto body industry, although it does not generally fault BAR’s approach, says that it is getting a bad rap, and that the majority of shops operate honestly.
But investigators for the state agency and the insurance industry contend that auto body fraud permeates the repair industry. They describe scams in which cars get an extra bashing inside shops to enhance damage, substandard repairs that put unsafe vehicles on the highway, and billing for new parts when the repair is made with Bondo, a plastic filler.
In one case, the owner of a 1993 Mercedes-Benz 500SL sports car found that his compact disc player wasn’t working after his car was repaired for front-end damage. His mechanic found dangling wires that were unattached, though as it turned out, that was the trivial part. The entire right front structure of the car was held in place with a series of spot welds covered up by Bondo, a repair job that had $7,844.70 in fraudulent charges, said Allen Wood, BAR’s director of consumer protection. The car is now in the possession of BAR, too unsafe to be returned to the road.
Plenty of Opportunity for Repair Shop Scams
Nobody is immune from becoming a victim. Game show celebrity Vanna White was named as a victim of auto body fraud in a complaint BAR brought against Distinctive Coachwork by Guest, which charged more than $30,000 to repair White’s 1990 Bentley. White’s agent did not return calls for comment. BAR later revoked the shop’s license.
Auto body shops, of course, are the beneficiaries of the great crumpling of metal and smashing of glass, which occur with amazing frequency. The insurance industry says it pays out about $3.2 billion for body repairs in California at the estimated rate of $2,843 per claim.
Those numbers suggest that 1.1 million cars in the state lose their shape every year. That means an accident occurs in the state about every 30 seconds. Not included in that estimate are accidents not reported to insurers or not covered by insurance, major factors that could double the total. Nobody is sure how many cars get smashed, because state and local authorities no longer require that non-injury collisions be reported.
Whatever the exact volume of highway mishaps, BAR has its work cut out. It receives about 25,000 complaints every year involving mechanical and auto body repairs, said Douglas Laue, its chief. Every complaint is investigated, and shops that leave a trail of unhappy consumers are targeted for a sting.
Investigators Give Attention to Detail
BAR’s labs, one of which was shown to The Times, are in unmarked buildings and protected with cyber-locks on the doors. Inside, they are jammed with hundreds of vehicles being prepared for stings. With more repair bays than many dealership garages, the state has scores of master mechanics and body technicians to tear down engines and transmissions to their smallest components.
Parts are carefully marked with nearly invisible imprints in the metal. Bolts are put on that point in a particular direction. Special devices that sling crud are used to make new parts look old and worn out. In the case of auto body stings, BAR technicians have developed methods to smack dents into cars that would duplicate real-world fender benders. And each step is carefully documented with photographs and notes.
“We put in new parts, mark them, photo them, assemble the vehicle and then truck it to within one mile of the [targeted] facility,” Laue said. “It goes in with a known problem. Then we see if the garage does an honest repair.”
After the repair, it is driven a mile away and again trucked back to the BAR lab, a procedure meant to deflate any later defense that the mechanical problems could have developed in driving on the way to or from the lab.
Once back in the lab, the car is again taken apart and carefully photographed. Technicians look for their secret markings to determine whether parts listed by the repair garage as new actually are the original parts.
BAR technicians use electronic tools that enable them to look underneath the paint to examine the repairs. A “mil film thickness gauge” can measure the depth of paint and bond to determine whether a part is new, for example.
In many cases, BAR will take a second undercover sting car into the same garage to establish a pattern.
That’s what happened at Encino Body Works. Several months after the Toyota Corolla repair job was documented by BAR in late 1997, it took in a Toyota Tercel with rear quarter-panel damage. When the car was returned, the repair order listed a new wheel and a new quarter panel, neither of which was installed.
A default decision was issued by the bureau last year, revoking the shop’s license. It is still operating under a new owner. But Outumuro still works there. In a brief telephone interview, he denied knowing anything about the enforcement action and said the new owner was not available.
“I don’t remember exactly what it was,” he said.
Many Agencies Have Units to Target Fraud
With so much money at stake, BAR is not the only organization policing body fraud. The California Department of Insurance runs its own auto body fraud program, investigating more than 14,000 cases in the most recent fiscal year. In the 1997-1998 fiscal year, the agency’s fraud division opened 295 cases and arrested 418 suspects.
And major insurers have their squads of fraud busters. The Automobile Club of Southern California, for example, trains all of its adjusters to spot fraudulent repairs and has a separate investigative staff of nine employees, said Dan Brogdon, who oversees the special investigations unit.
“Fraud is very prevalent,” Brogdon said.
Among the scams Brogdon said his investigators watch for are staged collisions, sometimes right inside the body shop.
Crooked shops use large payoffs to tow truck drivers to route damaged vehicles into their shops, he said. If owners later demand that another shop repair the car, they “get a huge tow bill and storage fee,” Brogdon said.
“An honest shop can’t afford a $3,000 cut to the tow operator, but [the dishonest shops] make it up with unscrupulous practices,” Brogdon said.
The auto body industry sharply disputes that the problem is as widespread as BAR or the insurance industry claims.
Asked about the BAR estimate that 40% of repair bills have some degree of fraud, David McClune, executive director of the California Auto Body Assn., said, “No, no, no, no. We felt that is very unfair and there wasn’t anything to back it up.”
McClune’s organization represents 800 of California’s estimated 5,500 body shops, which range from modern, well-run shops to dirty and disorganized operations. “We want people to know that the majority of collision repair facilities are very honest. And if they aren’t, then we want BAR to take them out.”
BAR’s estimate was made in a July 1, 1994, report that documented a long list of unsafe repairs, fraudulent billings and inadequate training in the auto body industry. The report cited insurance industry surveys that found 95% of the shops in some areas were not competent, lacked necessary equipment and employed poorly trained technicians.
The 40% figure was reiterated by BAR in a hearing last year by the state Senate Insurance Committee, which subsequently passed AB 1988, mandating the new inspection program that starts July 1. BAR is expected to unveil the program at a news conference today. (Consumers can request free inspections of their cars after they have been repaired at an auto body shop by calling  881-1332.)
Some Blame Insurers for Industry Problems
The program requires the insurance industry and BAR to separately conduct random vehicle inspections over the next two years to develop a new fraud estimate, said Sen. Jackie Speier (D-Hillsborough), committee chairwoman and an advocate of industry reform.
“The payback to the public will be extraordinary,” Speier said. “When you don’t have inspections and enforcement, you have fraud that permeates the industry.”
Jake Tomlinson, an auto body shop owner in Auburn, Calif., acknowledges that there is significant fraud in the industry but blames at least some of the problem on the insurance industry. He recalled being hounded by often poorly trained adjusters to squeeze down his costs below the threshold where he can competently and honestly fix a car. For example, Tomlinson said one major insurer allows him 18 minutes of labor to prepare and undercoat a car, not enough time to do it properly.
“To run an honest business today is real tough,” said Tomlinson. “If insurers have a choice, they want the cheap, screwy job.”
Insurers deny they bear any blame, saying that there are good profits in fixing cars honestly and that they go by standard industry “rate books” that specify how long a particular task should take. Rate books are put out by independent automotive publishers.
Compounding the picture is the increasing sophistication of cars, said Zion, the private investigator who runs Automotive Collision Consultants in Long Beach. Auto body technicians not only bump and paint sheet steel, they are intimately involved in electronic systems like air bags and anti-lock brakes.
Reform Program Will Leave Resale Loopholes
Even if the new BAR inspection program tightens up practices in the auto body industry, there are still gaping holes in consumer protection, experts say. When body shops are caught doing substandard repairs, their first line of defense is often to buy back the vehicle. They then turn around and sell it in the used-car market without having to disclose that it was in an accident.
Steve Knauer bought a 1988 Acura Legend after being assured it was never in an accident, but he later learned it had substantial damage. He eventually sued the now defunct Newport Beach dealer that sold him the vehicle, settling for $27,500. His advice to used car buyers: “Get them to put down in writing that it has never been in an accident.”
Knauer’s attorney, Mike La Cilento, said California’s tough consumer laws provide for treble damages and attorneys fees in cases of auto body fraud, creating strong incentives to sue. He adds, “Juries hate mechanics almost as much as lawyers.”
Another loophole in state law involves the disposition of cars deemed total losses by insurers. An estimated 7% of all vehicles in California have been previously totaled by insurers and sold into salvage pools that cater to the auto body industry.
They are resurrected with often substandard repairs and put back on the road with only minimal state inspections of their lamps and brakes, said Wood, the BAR consumer protection chief.
Speier vows to close that loophole in her next legislative thrust.