Solutions to the Auto Repair Fraud Issue

Whether it is for family matters or to commute to work, most of us depend on a car every day. And, while new cars, domestic and foreign, have become more reliable and require less maintenance than older models, the fact is that cars break down and must be repaired. An individual who needs his car repaired promptly is susceptible to being charged for unnecessary repairs. Moreover, most consumers are not sufficiently knowledgeable to know when what a mechanic is recommending to them is an unnecessary repair.

Even if a consumer thinks he has been defrauded, it is virtually impossible to prove that a repair facility did anything improper once a repair has been made. State law enforcement efforts, using stings and inside informants, can identify wrongdoers, but these efforts are unlikely to lead to redress for consumers who have been defrauded.

Traditionally, the automotive repair industry has been licensed and regulated at the State and local level. Some States, for example, require auto repair facilities to give consumers a written statement estimating the cost of repairs, and also require the repair facilities to obtain further authorization from the consumer before proceeding with work not listed on the estimate or if the cost of the repair will exceed the estimate by a specified amount. Other States impose licensing or certification requirements on auto repair facilities and on auto repair mechanics.

While recent cases have drawn much attention to national auto repair chains, these chains constitute a limited portion of the industry. For example, in 1990, mass merchandisers accounted for only 4 percent of the automotive after-market service outlet market share. The three greatest market share segments, together accounting for 62 percent of the market, were service stations, with 25 percent, new car dealers, with 22 percent, and general repair shops, with 15 percent.

Most auto repair problems continue to be local in character. Nevertheless, this is an important consumer issue, and the Consumers Commission is committed to assisting State and local law enforcement efforts whenever it is feasible, and to identifying cases that can more appropriately be addressed by the Consumers Commission, rather than by State and local agencies.

There are some proposed changes that will make this industry fairer, and reduce the problems faced by consumers.

First, the widespread use of flat rate manuals, which list the average length of time needed to make specific repairs. Repair shops may charge consumers labor costs based on those averages, even though the actual repair times may be substantially less.

A second area of interest involved incentive compensation systems in the auto repair industry. These systems, which include the use of quotas, commissions, or similar compensation may provide incentives for sales personnel to sell unnecessary auto repair services in order to meet quotas or receive larger commissions.

The final concern is low-balling, a practice where repair shops advertise deceptively low prices to lure consumers into the repair shop, even though only a few vehicles will be eligible for the advertised price. The staff of the Commission is in the process of examining these factual, legal, and economic issues.

Another possible law enforcement approach that has been identified is to focus on national franchised auto repair outlets, such as tune-up, transmission, and brake repair shops. These types of specialty repair shops held about 13 percent of the automotive aftermarket service outlet market share in 1990.