"How is diminished value figured?"
– Christopher Hoff, manager, Phil’s Auto Body, Tunkhannock, Pa.
Is diminished value your best friend or your worst enemy? Does the term conjure up images of sugar plums in your head, or does it just drive you plumb crazy as you wonder if your shop will be faced with a customer demanding compensation for loss of value caused by your repairs?
As far as I’m concerned, only good things can come from embracing the diminished value (DV) concept. It’s good for insurers, good for shops and good for customers. I could elaborate on each, but since this is a magazine devoted to collision repairers, I’ll concentrate on the effects of DV from a shop owner/repairer point of view.
Certainly, the notion of collecting a loss that’s been routinely denied for years would be to your customers’ liking. And if you suggest they seek compensation for it instead of waiting for them to hear about the concept someplace else, it may strengthen their confidence in your facility and help you sell the job. But would it be prudent on your part to open yourself up to that kind of scrutiny? After all, won’t it let us pick one another’s work apart if given the opportunity?
As a WreckCheck operator for nearly four years, I’ve been asked on numerous occasions to explain how DV is determined and what it takes to eliminate the possibility of paying for repair-related DV. That’s the only column on the post-repair DV assessment form a shop owner can be responsible for. Both inherent DV and insurer-related DV – the other two columns on the form – are the resposibility of the insurance company that accepted premiums for indemnifying the losses suffered by the customer. Since you made no such guarantee of indemnification, the only thing that can haunt you is the quality of your work. While it’s good you can only be responsible for one out of three columns on the form, the horizon isn’t all good. That is, you can’t simply attempt to write out loss of value from your repairs, as many insurers have attempted with some of the latest versions of their policies. In addition, should litigation become necessary, rest assured that all eyes will be on you, the repair expert, to justify that your actions were in the best interest of the vehicle owner.
Just what exactly is your obligation as a repair expert? The answer to that question is the same whether you run a small, medium or large facility, whether it’s an independent or a dealership, and whether you participate in direct-repair programs (DRPs) or not. Your obligation is to secure approval to reconstruct the vehicle as near as is humanly possible to its pre-loss condition, using the parts and procedures endorsed by the vehicle manufacturer. The standard to strive for is pre-loss condition. Such a condition is quite measurable. That’s the standard post-repair facilities compare against when assessing a repaired vehicle for loss of value. Does the repaired side look just like the undamaged side? Is there a difference in the gloss level of the paint or the texture and color of the undercoating?
To determine the amount of DV, we simply identify the differences between the appearance of the repaired panels on the vehicle to the ones that have never suffered damaged. These are the things that would send up red flags to a prospective car buyer. DV is calculated based on the difference between retail value and the amount a buyer would pay for a repaired vehicle with full disclosure of all past and present damage.
Although there’s been much discussion recently about the formula programmed into a WreckCheck system, these two things have consistently emerged. First, Jim Lynas, the creator of WreckCheck, has made it clear he isn’t going to divulge any information regarding the "brains" of the formula in the WreckCheck program. Further, he’ll vigorously challenge any attempts to pirate or steal the content. Second, no one has stepped forward to say the bottom line is incorrect, even though the methods of a handful of operators have drawn scrutiny.
10 Tips to be DV Free
While there’s much we don’t know about how the system determines DV, there’s enough information circulating to keep an honest, ethical shop owner, manager or technician out of trouble. And the word on DV and the benefits of post-repair inspections has been spreading as shop owners with post-repair facilities have been preaching their benefits to the rest of the industry. But nobody is forcing you to comply. You’re free to continue as you wish. If you look to the future with some uncertainty and are seeking direction for your business, however, consider these top 10 ways to stay out of DV trouble.
1. Learn to say, "no" – Don’t accept a repair job if you don’t think you can repair it to your strict guidelines. As with many other values that we find to be subjective today, the best example for preventing a major DV headache is by practicing repair restraint. The only thing worse than doing a repair at break-even prices is having to stand behind it forever.
2. Document, document, document – Have written proof that you requested everything it took to put the vehicle as nearly as possible back to its pre-loss condition. Don’t rely on telephone conversations to address repair conflicts.
3. Charge by the procedure, not by the hour – Charging by the procedure eliminates one of the points of confusion that seems to always occur. No longer will you have to fight about how many hours were performed and then how much was charged per hour. The bottom line is how much the job or line item costs. Customers understand dollars better than they do fractions of an hour. Once again, you’ll avoid another headache and keep your aspirin bottle filled.
4. Work from the insurer’s estimate whenever possible – Since insurers are getting compensated to handle and pay the claim and to do so they must justify the amount paid with an itemized description of the loss, be cooperative and allow them to be the expert, if that’s their wish. It’s senseless to go through all the effort of providing your own sheet, only to have it ignored. Provide written deficiency notices for items left unaddressed or underpaid. The estimates look much different when insurers realize you’re willing to follow their instructions.
5. Don’t cost-shift – Other than sheer incompetence, this is the No. 1 problem shops bring upon themselves. Do exactly what you’re paid to do – nothing more, nothing less. Perform to the best of your ability only those repairs authorized by the customer. And don’t deviate without the customer’s written consent.
6. Perform the repairs to the manufacturer’s specifications – There’s a boatload of information readily available on newer cars to specifically address each repair situation you encounter. It’s no longer appropriate to cling to the "one size fits all" approach. You can’t go wrong following the instructions and products endorsed by the maker of the vehicle. However, it’s easy to go wrong if you look elsewhere or don’t look for information at all, especially since pre-loss condition is the only way to measure an "industry standard repair."
7. Get written authorization prior to undertaking repairs – Most state laws demand a customer’s authorization before repairs are performed. But I’ve met very few customers who actually remember signing anything or knew what they paid for. Give customers the facts, and give it to them straight so they can make an intelligent decision. Then get their John Hancock on the dotted line along with any pertinent instructions.
8. Keep the liability where it belongs on additionals – Unless you’re working on your own car, decisions on items requiring judgment and discretion aren’t yours to make. Nor did you accept money to offset hidden damage during the repairs. Ask for any new directions – in writing – from the responsible party when additionals are incurred. Then do as you’re told or terminate the repair if your conscience won’t allow you to perform at that level.
9. Don’t feel guilty when you provide an invoice – You provide a service that 99.9 percent of the people in the world can’t perform. Since high quality work should cost more up front than poor quality repairs, be proud of your accomplishments and charge a fee commensurate with your ability, your investment and the profit outline you’ve structured for the company. While the customer expects you to hold costs in line, your employees and your family also depend on you to do what’s right for them. Since you can better negotiate from a position of financial strength as opposed to one of financial weakness, get what you’re due. But make sure your bill accurately reflects the work performed.
10. Make sure everything is completed as agreed – There’s no substitute for checking a vehicle upon completion to ensure you’re giving customers exactly what they paid for. Don’t let them down.
By following these guidelines, you won’t have to worry about a customer coming back to collect repair-related DV. Any DV they want to collect will have to come from the insurer.
Determining DV isn’t rocket science. Most of the flaws and defects we see under repair-related DV are quite obvious – and most could be corrected during the repair with very little additional time invested.
The day of accountability is here. "Good enough" is no longer good enough. Instead of concentrating on how to determine DV, shop efforts may be better spent learning how to avoid repair-related DV and checking jobs in all departments to ensure customers are getting everything they’re entitled to under their policies. It’s the job of insurers – not you – to "indemnify," so avoid hindering that process. Ask for everything, demand nothing and then fix the vehicle as per your customer’s direction or terminate the repair.
Basically, my 10 repair commandments can be summed up in the Golden Rule: "Do unto others as you would have others do unto you." Hopefully, you’ve noticed that both the biblical commandments and those I’ve suggested in this editorial are based on honesty and integrity. Our customer – the one who signs our paycheck – deserves that. But commit to take the higher road for the benefits you can experience yourself – one of which is never having to fear post-repair inspectors.
Writer David Williams is owner of Precision Collision in Dayton, Ohio.