I first heard the term diminished value in the 1980s, during the heyday of companies like wreck checks. I wasn't sure what the term meant, but I knew it wasn't good. I knew wreck checks shops were looking over repaired vehicles and informing consumers about poor or unsafe repairs after a collision, so I was pretty sure the term diminished value pertained only to poorly repaired vehicles. As I began to investigate the idea of diminished value, I discovered my original thought was wrong.
Let's look at a scenario that outlines the definition of diminished value well. Let's say Jim's new $80,000 SUV is rear-ended at a red light. Jim comes to you for the repair. As a claimant, the other driver's insurance company pays for all the repairs at your shop, probably the highest quality shop in the area using only original OEM parts. While the vehicle was in the shop, it provided Jim with a rental. He gets the vehicle back, and it looks great. He drives off happily, and you move on to the next job. The experience was pretty good.
Is he really happy? Probably. Until he takes the car into his dealer to trade it in, and it pulls up the vehicle's history and offers him $3,000 less on trade because the vehicle was in an accident, even though you couldn't tell by just looking at the car. The vehicle has a record of being wrecked that will follow it wherever it goes. And if any potential buyer checks with several firmly entrenched car-history services, they're not going to be willing to pay as much for it as they would have before it was hit – regardless of how well it's been repaired.
The resulting difference in value is the diminished value. The problem is the perception, in the eyes of the general public, that any vehicle that has been repaired, no matter how well, is somehow worth less. As my wife always reminds me, perception is reality. Because there are shops that still hack 'em up, quality repair shops always will be lumped into this big mush of poor repair perception.
Once Jim hears his car is worth less because, in the words of the buyer, it will never be the same, he calls your shop and reads you the riot act, asking if you're going to cover the diminished value. It's a scary scenario, but one some have experienced.
The problem with diminished value is the perception of less value. When an antique vehicle is restored, let's say a frame off job, it's worth more when it's been redone. So why would a repair done well make any other car worth less money? It shouldn't, but because the collision industry has earned a reputation for less-than-stellar work in the public view, it does.
Insurance companies also argue the value of a vehicle can increase after a quality repair in many cases. Let's say a new engine or transmission has been installed. Would the vehicle owner have to compensate the insurance company for making their car better than pre-accident condition? Some insurance companies say yes. If they're going to get dinged for diminished value, they want compensation for an increase in value. Quite a dilemma, isn't it?
Further evaluation
Since the 1980s, the industry hears less about diminished value claims because many of the ones that have gone through the court system have been refuted. In fact, most states don't recognize an owner of a vehicle as having suffered a diminished value loss if the vehicle is still in his possession. A loss, or the potential for a loss, isn't realized until an attempt is made to sell the vehicle. It has been the court's opinion that a loss needs to be suffered before a claim can be made. No loss, no case. Common sense.
There are exceptions, and some state courts recognize the potential for a loss, even if the vehicle hasn't been sold. In most of these cases, an expert is called to testify about the value of the vehicle after a repair. I don't know anyone qualified to do that, but there are so-called experts that have begun to resurface in the past few years that, for a fee, will happily attest to the diminished value of a vehicle.
Additionally, the advent of companies such as Carfax, which does well disclosing repair information, have muddied the waters. Carfax is a useful tool that can help weed out previously totaled and rebuilt cars. However, they're too general or not used properly by the dealers when it comes to a collision repair scenario. True value should be determined by inspecting the repair and quantifying the quality with which it was performed. Unfortunately, what should be done and what is done are two different things. From what I have seen, diminished value claims may be making a comeback based on recent court rulings that favored the idea.
Now what? Put the for sale sign away, and unbolt the door. You don't have to close your shop to be protected against a diminished value claim, most of which are aimed at the deeper pockets of the insurance company, not at the shops. Additionally, most attorneys will advise against filing one if the economic rewards aren't high enough. The problem is the connection of your shop's name to a publicized diminished value claim could wreak havoc on your business. What can you do to protect yourself? Following are a few pointers:
Quality is key. Make certain all repairs – even the smallest jobs – you perform are of only the absolute highest quality you can provide. Don't base the quality of your repairs on the condition of the car you're repairing. Always follow the manufacturer's recommended procedures regarding welding, sectioning and painting. Even if the company you're working for doesn't always cover the little things, do them. If you become involved in a claim later, that car will be evaluated with a fine-tooth comb, so your repairs must be stellar.
Use all available sources to keep your techs and staff up to date on the latest in repair methodology. Vehicles and the repair methods pertaining to those vehicles are changing constantly. Encourage your people to earn ASE certification and maintain I-CAR and factory training.
Make certain your equipment is up to snuff. You can't perform high-quality repairs with outdated or improperly maintained equipment. If a frame pull requires a measurement, make sure one is done and all the verification you can provide is in the repair folder. If a vehicle has an alignment done, make sure the before-and-after specs are in the folder. If you charge for caulk, corrosion protection or seam sealer, make sure it's on the car and applied properly.
Use technology to your benefit by documenting the repair stages with pictures. Take good digital photos of the vehicle at drop off. Focus on the overall condition of the car, prior damage, interior condition, tires and the accident damage. As the repairs are being done, photograph the repair stages, especially the welded in panels, if there are any. Document the panel replacement, paint prep, reassembly and detailing. You'll be in a good defense position if you can show that everything your shop did (even though it can't be seen once the car is reassembled) is of the highest quality and conforms to the repair guidelines for the operation.
Focus on the details. When an expert looks at a repaired vehicle for a diminished value appraisal, he looks for what's termed the telltale signs of repair. Make sure to not leave any. If you do a quality repair, parts will be painted off the car, eliminating tape lines in door jambs. Your paint must match properly, and you shouldn't have overspray everywhere. Buffing compound in the jambs and on textured plastic parts is a dead giveaway. Take off door handles and exterior trim when painting. Masking these items leaves tape lines that are seen easily by nonexperts. It's much easier to perform a higher quality repair than what was once possible. Materials and methods have improved and continue to do so dramatically. I know many shops that say when the repairs are completed you can't tell. That's the level of quality you need to achieve.
Educate your customer up front. You won't be able to tell which customer might be the one to pursue a diminished value claim, so you have to get into the habit of educating every customer thoroughly about their repairs. They need to know exactly what you're doing, what parts you're using and why. This needs to be explained before the repairs are undertaken, preferably at the time of the estimate.
Get certified. Several manufacturers have certification programs that allow collision repairers to become certified collision repair shops for their product. This certification ensures the facility is following the repair procedures outlined by the manufacturer of the vehicle, offering a higher quality of repair. This also gives the consumer peace of mind and makes him less likely to pursue a claim. A certified repair may alleviate a decline of value as well at trade-in time. This isn't guaranteed, but it's a possibility.
If someone is going to file a diminished value claim, there's little you can do to stop it. However, if you provide a high level of service and a great repair, it may never get to that point. If it does, your repair quality will be showcased, and a bad thing may become a good thing in the end.
