Who Is More at Fault for Improper Repairs: Repairers or Insurers?

We are sure most of you reading this have seen at least some of the Facebook, LinkedIn and other social media posts and/or news reports about the epidemic of bad, improper or incorrect repairs plaguing the auto industry. The insurance companies, auto rebuilders associations (recyclers) and aftermarket alternative parts industry are all saying the parts utilized in the repair process on these cases meet or exceed the OEM component, and that these are just isolated incidents. The body shops are saying they are being forced by the insurance companies to use these inferior or rebuilt parts and perform substandard repairs. As you can see, there's a lot of finger pointing and "he said, she said" going on. Both sides sound believable, and both sound like they are making their point. So who is really at fault here? This article will look at what we think is the reason behind why the collision repair and insurance industries are in so much turmoil right now.

OEMs' General Position

The OEM's primary business is selling new vehicles. They produce and/or have parts produced for building their vehicles, and these components not only service the aftermarket field for mechanical service and failures but serve the collision repair industry as well. Over the past few years, many OEMs have produced specific repair procedures and parts usage "Position Statements," basically stating "we recommend," "we require" and/or "we suggest" to do this or that or use only this to do this or that in a certain way. In a nutshell, the OEMs state that their parts are superior to those of the copies, and that using recycled parts - although originally produced by the OEMs - may cause an issue due to the unknown condition of the part. Now, we may agree with the copied parts (a.k.a. aftermarket) not being the same as the original. Original parts can be broken down into three categories:

• New OEM: Components produced during manufacturing when the vehicle is first made.
• New OEM replacement: Components produced for the sole purpose of being replacement components for mechanical and body repairs. These components are held to strict guidelines as to how many times the dies can be used prior to replacement, the type and thickness of the substrate and the type of coatings applied.
• Used OEM: Components taken from a donor vehicle that are either new OEM and/or components that were replaced with new OEM replacement components.

Any one of these three options may be used during repairs, but keep in mind that many OEMs do not recommend the use of used components, even if they originally produced them. We feel that most bolt-on body components can be a viable replacement option, if there are no safety or crash management issues that may arise; the component is in good condition and has no previous repairs; and the consumer has approved of their use. Please make sure to inform the consumer if the OEM does or does not recommend the use of used parts; if the consumer elects to use them anyway, it is their decision. Remember: If you as the shop go against the OEM recommendation, then you are fully liable. We do not endorse or recommend the use of used safety components or weld-on components.

Aftermarket components are, well…knockoffs. In many cases, there are fit and finish issues and differences in substrate material, tensile strength, material thickness, corrosion coatings, dimensional inconsistencies and so on. Most OEMs have position statements against the use of aftermarket components and reconditioned wheels. Reconditioned wheels can cause a multitude of dangerous situations and should never be used if the OEM has a position statement, if there are any structural deformities or if any welding or if adding or removing material is required. Generally, refinishing is approved by many.

Insurance, Aftermarket and Rebuilders Industries' General Position

The representatives or lobbyists from these industries will have you believe that the use of used and aftermarket components keep insurance rates low as they control costs. They will tell you that if you replaced every part on a 2012 Toyota Camry with new OEM, it would cost over $125,000. Who would pay $125,000 for a 2012 Toyota Camry? They're right, but what they DON'T tell you is, if you replaced all the same parts with aftermarket and/or used, the cost would exceed $75,000 - $90,000. And who would pay that for a 2012 Camry? All that they prove is that a vehicle is worth more money in pieces then it is as a whole unit. They don't, however, discuss the issue of underwriting and the calculations that go into determining insurance premiums. Obviously, the costs of repair are a consideration on these calculations. But do they use OEM component prices, or aftermarket?

There may be a savings to using alternative and used parts, but the overall replacement cost still exceeds the value of the vehicle. So what's the truth? Well, a small part of the savings does come from parts usage, but the big savings come from the Direct Repair Program (DRP) agreements. Now, we are not privy to the actual agreement parameters, but common sense and industry articles can give us a basic idea of what the following advantages to the DRP process could be for the insurance industry:

• A capping of prices on Labor Rate and material charges
• More control over claim process with a cost savings (DRP repair facilities have a certain number of days to make the repairs in; otherwise, the facility may have to absorb some costs)
• Control over rental costs, as facilities that cannot make the repairs in the required days may have to pay for rental overages
• Low repair costs due to no-charges on many procedures and fees (many DRP agreements require repair facilities to not charge for pickup/drop off, detailing, additional procedures, parts discounts, rentals and more)

For the insurance company, there are a lot of savings in using the DRP system, with some additional savings following the use of aftermarket and used parts. Many times, we hear shops complain that the insurance companies want them to try to repair something when the shop knows it can't be repaired. Now, no insurance company would ever want an incorrect repair performed or have an unsafe vehicle go back out on the road. However, it happens. But why does it happen…and how?

The insurance company has three basic options to repair a vehicle as follows:

• Control the repair by repairing the vehicle themselves. This will never happen, as insurance companies are in the business of insuring, not repairing. (While they do have some control over costs with the DRP system, they are not repairing the vehicle.)
• Pay for the value of the vehicle. This is commonly referred to as "totaling out" the vehicle. This can happen at any price on third-party claims, and at any price over the insured's deductible, depending on state laws.
• Pay the insured or claimant for the cost of repairs to restore the vehicle to its pre-loss condition. In some states, there are OEM or non-OEM parts policies. We know of one or two situations where there is an HMO-type DRP system for discounted rates. However, in most states, the insurer is paying the vehicle owner the amount they owe to the repair facility for the repairs to restore their vehicle to its pre-loss condition.

So where does it all go wrong? Why are there so many improper repairs? Please read on…

Collision Repair Professionals

Collision repairers will say that their Labor Rates are suppressed, and that they are "forced" to use inferior or used parts. And when repairs are found to be incorrect, the facilities use the "that was all they paid" excuse. Well, we are here to tell you that those excuses are complete lies. Insurance companies cannot force a repair facility to do anything, ever. The repair facility chose to cut corners on procedures, use inferior parts, use antiquated equipment, fix components that should have been replaced or neglected to restore corrosion protection. The time has come where repairers need to be held accountable for their business decisions. We see poor quality repairs from both DRP and non-DRP facilities. As we stated before, insurers have no say on the shop's decisions, even for a DRP. Remember: The facility owner(s) agreed to the terms, but it was their decision.

The Rules

• The insurance company owes the insured or claimant the proper amount to repair their vehicle to its pre-loss condition or for the value of the vehicle.
• The repair facility is obligated and contractually bound to honor their agreement with the vehicle owner. Any and all decisions will be their liability, regardless of whether the insurer approved those procedures, parts or services. The repair facility is the expert and will be held accountable.
• The insurance company has as much right to tell a shop how to repair a vehicle, what procedures and parts to use and what Labor Rate to charge as repair facility owners have in telling insurers what premiums to bill, what coverage to honor and what deductibles to charge.

In next month's article, we will look at a case study of a poor-quality repair and explain who is at fault for where things went wrong.

Larry Montanez, CDA is co-owner of P&L Consultants with Peter Pratti Jr. P&L Consultants works with collision repair shops on estimating, production and proper repair procedures. P&L conducts repair workshops on MIG & resistance welding, measuring for estimating and advanced estimating skills. P&L also conducts investigations for insurers and repair shops for improper repairs, collision repairability and estimating issues. P&L can be reached by contacting Larry at (718) 891-4018 (office), (917) 860–3588 (cell), (718) 646–2733 (fax) or via email at larrygoju@aol.com. The P&L website is www.PnLEstimology.com.

Jeff Lange, PE is president of Lange Technical Services, Ltd. of Deer Park, NY (www.LangeTech.net). Jeff is a Licensed New York State Professional Engineer who specializes in investigating vehicle and component failures. Lange Technical Services, Ltd. is an investigative engineering firm performing forensic vehicle examinations and analysis for accident reconstruction, products liability and insurance issues. Jeff can be reached at (631) 667-6128 or by email at Jeff.Lange@LangeTech.net.