Consumers don’t need to know how a car works to drive one, but a lack of knowledge often becomes a liability when it comes to repairs. According to Consumer Affairs polling, about 69 percent of respondents said they’ve encountered a mix of trustworthy and untrustworthy mechanics, and about 80 percent said they feel like they have been overcharged by mechanics. Such responses are not due to unfounded paranoia, as overestimating labor hours appears to be a widespread practice. Thankfully there is a solution that could help empower consumers to make informed decisions and that is increased transparency in repair pricing. According to Ratchet+Wrench, the standard benchmark for shop efficiency is between 130 and 150 percent. This means that repair shops aim to bill up to 50 percent more labor hours than are completed. It should be noted that only about 5 percent of shops reported efficiency of 120 percent or higher.
The reason such efficiency is possible is that initial quotes typically include the cost of parts and the estimated cost of labor. The labor estimates for many shops are done by using external guides that provide labor times for various repairs. These estimates are rough and not shop or mechanic-specific. Shops can achieve over 100 percent efficiency through a combination of intentionally inflating labor or employing technicians who can perform jobs faster than the estimates. When jobs are performed ahead of schedule, the shop keeps the excess billing.
While estimates can’t be expected to be perfect and shops should have incentives to work efficiently, it’s reasonable for consumers to feel deceived. This is especially true when consumers are charged extra when jobs take longer than expected but don’t receive a discount when the work is completed ahead of schedule.
Consumer apprehension around vehicle repairs is largely due to asymmetry of information, which refers to situations when one party has more information than the other, thus putting the party with less information at a disadvantage. For relationships with high levels of trust, this asymmetry may not be a problem; however, as shown by polling responses, that is not the case with car repairs.
Unfortunately for consumers, information asymmetry means that mechanics are at an advantage when setting prices. The best path to address this problem would be to increase transparency.
Some state laws have tried to address this problem through truth in repair laws. A prime example comes from New York. The motor vehicle repair shop requirements under the Vehicle and Traffic Law, list out requirements “for the purposes of insuring that the repairs described on the work invoice have been performed…” What this phrase implies is that mechanics should only charge for actual work completed, not the work that was estimated. However, New York has recently proposed Senate Bill S5085B, which has passed the House and Senate, and would exacerbate the problem by establishing reimbursement rates for warranty repairs based on averages of repair prices from non-warranty work. If these rates for repairs are based on over-estimations for labor, the increased costs will be magnified on a larger scale and then passed on to manufacturers, and potentially to consumers as well.
Rather than passing more mandates detailing how billing and reimbursements should be handled, laws should focus on increasing consumer information and let the market and price signals take over from there. To address consumer frustrations with vehicle repairs, transparency in pricing is the best path forward.
Tirzah Duren is the Vice President of Policy for the American Consumer Institute, a nonprofit educational organization. For more information about the Institute, visit TheAmericanConsumer.org or follow us on X @ConsumerPal.