Article from USA TODAY, August 29, 2001.
“Copyright 2001, USA Today. Reprinted with permission.”

Cover Story

When autos need repair, where?
Increased complexity fuels dealer, independent competition

By Earle Eldridge
USA TODAY
    A simple car wash turned into a nightmare for Matt Olson of Port Hadlock, Wash.
     High-pressure water got under the hood of his 1993 BMW 318is, ruining the computer that controls the engine.
     The car was towed to Circle & Square Global Car Service, where owner Reto Filli installed another computer. But Filli couldn’t program the new computer to run the engine. He had to send it to a BMW dealer for that.
     Problem is, the nearest BMW dealer to Port Hadlock, on a remote peninsula, is in Seattle, a ferry boat ride and another 60 miles away. Getting the car to Seattle and back added $200 to the $100 the dealer charged to program the computer. The total bill was $2,900.
    “Customers choose us to do the work because it’s way too much hassle to go to Seattle,” Filli says. But “BMW and Mercedes have gotten to the point where their cars are so technical, I have to turn customers away.”
     Programming engine-control computers is a complicated task that BMW prefers to have its dealers handle, says spokeswoman Martha McKinley, who also says BMW will pick up the $200 transportation charge for Olson’s car.
     The question of who ought to be able to repair today’s high-tech cars – the average vehicle has 15 computers managing everything from engine, brakes and shocks to the radio – has exacerbated the already-tense relationship between automakers and their dealers on one side and independent repair shops on the other.
     Caught in the middle are U.S. car owners who spend close to $38 billion annually on automotive repairs, according to the Commerce Department. Being driven to a dealership for service over an independent can be costly. Dealer labor rates tend to run from $10 to $20 per hour higher than independent shops, according to AAA. The standard dealer markup on parts from the manufacturer is 30%, according to J.D. Power and Associates, a research and marketing firm.
     That means a major repair can wind up costing hundreds of dollars more at a dealership than the garage down the street. For example, asked to estimate the cost of replacing the transmission in a 1997 Ford Taurus, a Chicago-area Ford dealer gave an estimate of $2,200-$2,500. A Chicago-area independent repair shop gave an estimate of $1,600-$1,800.
     Manufacturers say their dealers are best equipped to handle today’s technology-driven repairs. Independent repair shops argue that they can do the work just fine if they can get the latest diagnostic tools and computer information at a reasonable cost.
     Now Congress has gotten involved. In early August, five members introduced The Motor Vehicle Owner’s Right to Repair Act, which would require automakers to provide all vehicle repair information to independent shops. Automakers oppose the bill.
     Manufacturers admit that purchasing the diagnostic tools and getting all the repair updates is expensive. McKinley says that independent shops can get the information. Filli would have needed to program the BMW. But it costs $12,000, and that’s too much for a lot of small shops.
     “We do make it available, but they would likely have to have enough BMW business to warrant that kind of expense,” McKinley says.
     Automakers also admit that they prefer to have their dealers do the work. “We want to maintain our customers in our dealerships as much as possible,” says Tony Fujita, vice president of customer service of Lexus. “We firmly believe that we can do the very best job.”
     “If a part fails, it is likely to require someone with more training. An independent shop or technician may not be able to handle it because of the electronics involved,” says Fred Heiler, a Mercedes-Benz spokesman.
     Dealers argue that they handle warranty repair work for the manufacturers and safety recalls from the government. They say they can link directly to the factory for advice and that they are required by the automakers to provide ongoing training for their service technicians.
     Ken Roberts, a spokesman for the Automotive Service Association, which represents independent repair shops, says the independents have to do good work because they relay on “repeat business and word of mouth that you are repairing cars correctly, and you are diagnosing correctly.”
     Roberts also says manufacturers should encourage independents to fix cars. “There are more cars on the road than dealerships can service,” he says.
     The number of registered vehicles in the USA climbed to 205 million in 2000 from 130 million in 1980, according to R.L. Polk. Over the same time period, the number of dealerships fell to 22,150 from 27,900, according to the National Automobile Dealers Association. 

Follow the money

     For dealers, selling service and parts is often more profitable than selling new cars. In 2000, about 53% of dealership profits came from service and parts sales, according to the National Automobile Dealers Association. Last year, dealers sold a record $73 billion in service and parts, a 9% increase from 1999.
     Two issues fueling the feud:

• Some parts and technology are only available at a dealership.

     In some cases, an automaker will ask a supplier to build a certain number of a part for production and just enough extras for dealers but not the aftermarket.
     Automakers say they do that when the dealer is best trained to properly install the part. But that means dealers, faced with less competition, can price the part almost anywhere they want.
     Ed Cushman of C&H Foreign Auto Repair in Spokane, Wash., specializes in Volvo repairs and has to get parts from dealers.
     Cushman says that when it comes to Volvo parts, the local dealer, Camp Imports, doesn’t follow the usual practice of selling parts to repair shops at wholesale prices, about 20% below retail. Camp does sell parts for Chevrolets, BMWs and Subarus at wholesale.
     “It’s frustrating,” Cushman says. “If they have a part that we need, we’ll buy it, even though we have to pay a high price.” But he gets most of his Volvo parts from a dealership in Seattle, 350 miles away.
     Ralph Plaster, parts manager at Camp Imports, says the dealership averages only two Volvo repairs a month, so it doesn’t stock a lot of parts. He says with such little work, it’s not worth the hassle of selling wholesale. “I don’t stock the inventory,” Plaster says. “I don’t have the return capability. It is not profitable.”
     Some technology is only available from the dealer, too. And it may not be for major items, such as Olson’s engine computer.
     Need a new car key? A visit to your local hardware store probably isn’t going to get it done. Daniel Scott of Huntsville, Ala., was given just one key when he bought a used 2001 Mitsubishi Galant. He could get a duplicate only from the dealer. And although the dealer didn’t charge Scott for a second key, he was told the cost would have been $20 for the key and $60 to program the anti-theft chip to work with his car. Anti-theft keys for luxury cars can cost more than $200 to replace.
     Automakers argue that some technology, mainly the computer systems that keep engines running smoothly, is proprietary and shouldn’t be released for competitive reasons. “Automakers spend millions of dollars developing this technology,” says Gloria Bergquist, a spokeswoman for the Alliance of Automobile Manufacturers, a Washington-based lobbying group.

• Highly skilled labor is in short supply.

     About 60,000 additional automotive technicians are needed in the next 5 years, according to industry experts. And working on complex vehicles requires more skills, which limits the pool of qualified candidates, forcing dealers and independent shops to compete for good technicians.
     The best prospects should be comfortable with computers, understand electronics and know the basics of how a car works. But the best-suited candidate is likely to seek something more glamorous and less grimy in the computer technology field. And older mechanics may not warm up to computer technology. The ASA says one technician enters the job market for every 10 who leave.
     “Our biggest problem is finding trained technicians,” says dealer Robert Maguire, chairman of the National Automobile Dealers Association. “Young people who can work with both their mind and hands are in high demand in the computer industry and other jobs.”

Training ground

     To counter the problem, General Motors, DaimlerChrysler, Toyota, Honda, BMW, Subaru, Volkswagen and Audi have joined with dealers to fund Automotive Youth Educational Systems (AYES). The partnership works with state education departments to attract and train high school students for jobs as service technicians.
     More than 3,000 technicians have gone through the program, which is now in 40 states and expects to be in all 50 by the end of 2002, says Don Gray, president of AYES. In a few states, independent repair shops sponsor the students, but most go to dealerships.
     The independents are pinning their hopes for help in competing with dealers in Congress.
     Currently, automakers are required to share only information about emissions systems with independent repair shops. That’s the result of a law that required automakers, beginning in 1994, to install computer systems in vehicles to monitor emissions.
     One of the bill’s sponsors says that law gave automakers an opening to not share other information.
     “This law had the unintended consequence of making the vehicle manufacturer the gatekeeper on who can repair, or produce, replacement parts for the vehicle,” says Rep. Joe Barton, R-Texas, one of the sponsors of the Right to Repair bill.
     “This bill will preserve a vehicle owner’s freedom to choose where, how and by whom to repair their vehicles, as well as their choice in car parts,” he says.
     Bergquist says the bill would force automakers to turn over proprietary information. “We oppose any legislation that would force automakers to do that. We have to find some way for providing some of the information short of giving it away,” she says.
     Barton is chairman of a subcommittee that will consider the bill, giving it a chance of at least getting out of committee. But the auto industry, with a well-honed lobbying apparatus, is a formidable force in Washington.

                                                     By Tim Dillon, USA TODAY 

Taking a look: Jeff McArthur, an automotive technician with Fitzgerald Dodge in Rockville, Md., checks an Intrepid’s engine.