In the first article on shop secu-rity (February 2004), I saidthat protecting the physicalplant of the business was justthe tip of the iceberg. This in-stallment will examine some

less easily seen aspects of the subject ofsecuring your shop.

Inventory control, liability issues,business and employee insurance cover-age and safety concerns are the less tan-gible, but by no means less important,aspects of shop security that warrantyour attention.

Inventory ControlNationwide, retailers lost nearly $1.7 bil-lion last year due to “inventory shrink-age,” a category comprised of honestmistakes, employee theft, vendor fraudand shoplifting. Nearly half of such losseswere directly attributable to employeetheft. Model inventory control programsvary according to shop size and needs.At the very least, all incoming invoicesand deliveries should be checked for ac-curacy at once. Innocent mistakes aremost easily corrected when they occur.

Experts in the loss-prevention fieldsuggest that all large parts shipments belogged in by at least two people. Theyalso point out that removing the incen-tive to steal (for example, by offeringemployees the ability to purchase partsat cost) is much cheaper in the long run.

In many smaller shops without a sepa-rate parts department, the largest catego-ry of inventory shrinkage results from thesimple failure to log all parts used ontocustomer invoices. Some shops combatthis easily by requiring that no packagingbe discarded without first removing thepart number portion of the box. Thesepackage flaps are then logged onto theappropriate customer invoices. Reorder-ing for stock can also be streamlined byusing the same labels. Small, easily over-looked items like fasteners and chemi-cals are often accounted for by a singleline-item charge for shop supplies.

Liability Issues & LossAvoidance ProgramsFor most people, a vehicle is their mostexpensive personal possession. And aswe all know, a high level of complexityhas made the repair environment morechallenging over the years. Additionally,

the consequences of a failed repair canrange from the merely inconvenient tothe multicasualty catastrophic. Thus, it’sno surprise that our industry generatesmore consumer complaints than almostany other.

Let’s look at three examples of possi-ble nightmare scenarios:

•When replacing a caliper, one ofyour technicians leaves the bleederscrew a little loose. If your customerthen rear-ends the vehicle in front ofhim because his front brakes failed toapply, can your shop be held liable?

•A customer comes in with an inter-mittent stalling complaint, and you can’t

duplicate the condition.You do notice, however, that the

oil pressure switch is leaking heavily andthe oil level in the crankcase doesn’ttouch the dipstick. You tell him you can’tduplicate the stalling and that his engineis low on oil and has a bad leak. He tellsyou to just top up the oil. Three days lat-er, his engine seizes up. Are you liable?

•A customer complains of an inter-mittently low brake pedal. After inspect-ing and bleeding the system, you’re un-able to duplicate the condition. You callthe customer and explain the situation,remarking that the only other thing youcan think of is an intermittent fault inthe master cylinder. The customer asksthat you replace it, and, although youagree to do so, you stress that you’re notsure that will cure the problem. Youcomplete the replacement and road-testthe vehicle without incident. The nextmorning, while backing out of his long,curving driveway, your customer’s Ill

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20 July 2004

SHOP SECURITY:

BUSINESSPROTECTION

BY SAM BELL

Consumer expectations, the litigious nature of our societyand the potentially devastating cost of ‘simple’ mistakes

are three very good reasons why your business needsprotection. As this second of a two-part report explains,

planning today prevents problems tomorrow.

brakes go to the floor and he backs intoa parked car. A detailed examination re-veals that a loose wheel bearing retract-ed the caliper pads when the driverbacked up. Are you liable?

What Is Liability?During my years in law school, Ilearned that liability is financial respon-sibility for the foreseeable consequencesof a negligent action or inaction. Negli-gence, in turn, is the failure to exercisedue care in the normal course of events.Motive or intention is not a factor in de-termining negligence.

When a repair facilityis open to the generalpublic, it is presumed bylaw to have sufficientexpertise to performsuch repairs

of serious damage if the leak is not re-paired, you have a duty to inform yourcustomer. Your liability arises not fromthe leak, but from your failure to ex-plain its consequences.

•Are you liable in the case of theloose wheel bearing? Probably not, ifyou documented your previous findingsand conversation, including your uncer-tainty of the viability of the fix. Lawyersadvise that you always make such nota-tions in writing on the repair bill; verbalwarnings arehard toprove.

from a lawsuit brought by a third partywho is injured by your customer’s car onits way home. If your customer’s insur-ance and assets aren’t sufficient to coverthe damages, the innocent victim maysee you as the deep pocket to pay for hisinjuries. That’s when your liability insur-ance should kick in.

Liability InsuranceLiability insurance is a big topic in andof itself. Garage Keeper’s Legal Liabilitypolicies provide protection, but may re-quire you to go through the expenseand hassle of a lawsuit before makingany payouts on your behalf, even if youare clearly at fault and want to settle thematter with your customer. Generalbusiness liability policies may offermore flexibility in some areas, but oftendo not include Completed OperationsCoverage and such repair shop-only oc-currences as Lift Collision Coverage.Completed Operations Coverage is in-surance that protects you if you fail toproperly torque a wheel’s lugnuts or tocheck all the fluids, for example. Oneinsurance industry source stressed thatlow dollar limits on Completed Opera-tions Coverage cause more shop ownersto go under than any other failing.

A competent commercial insuranceagent who specializes in the repair in-dustry is usually your best bet for infor-mation on integrated coverage to keepyour business going after a mishap ofany type. Check with other shop ownersand industry associations for referralsand evaluations. If you’re an owner, offi-cer, partner or manager, you should alsoconsider carrying a personal liabilityumbrella policy. This type of policy isspecifically designed to fill gaps left byother insurance policies. The umbrellaprovides a source of funds to compen-sate rightful claimants against you whomight otherwise be able to seize yourhome or other personal assets.

Key Employee Coverage &Business Succession PlansKey employee coverage is a suite of in-surance policies (life and disability atthe minimum) naming the business asthe beneficiary in the event of the deathor disability of a key worker. The policyproceeds are then used to hire and trainnew personnel or to defray going out of

21July 2004

competently and in accor-dance with the generallyaccepted standards andpractices of the industry.Does this mean you cannever make a mistake?No, thankfully thingshaven’t reached that stage yet, but theexpected standard of care is rising.

In general, a breach of duty underliesmost lawsuits for negligence. Now let’sreturn to our examples:

•Leaving the bleeder screw loose is aclear breach of the duty you owe yourcustomer. Because an accident is a fore-seeable consequence of the breach,your shop could be held liable for thedamage to both vehicles and any in-juries to their occupants.

•Unless you specifically warned theowner of the car with the leaking oilswitch about the probable conse-quences of continuing to drive withouthaving the leak repaired, your shop maybe found responsible! Because you, as aprofessional, have a greater and moredetailed understanding of the likelihood

What’s Allthe Fuss?Can someone real-ly sue you for giv-ing him back hisown car when you

haven’t even workedon it? The answer isa resounding “Yes!”Suppose you’ve ex-ercised due careand diagnosed a

vehicle’s needs correctly, but the cus-tomer chooses not to fix the car. Avoid-ing liability when releasing a vehiclewith known safety defects requiresstrong and consistent policies. You mustdecide whether you’ll insist that suchvehicles be towed off your premises orwhether you’ll settle for a signed releasesimilar to the one shown on page 24.

In this example, if there were an acci-dent on the way home, you might loseyour business unless you have a similarsigned release in your possession. Butdon’t just use this form to make yourown version. Laws vary from state tostate. Consult a competent lawyer inyour area to make sure that any releaseyou require will stand up in court if theneed arises. For example, the release onpage 24 may not effectively shield you

business expenses. A business succes-sion plan may encompass both key em-ployee coverage and a buyout plan. Youshould, once again, consult your tax, le-gal and insurance and financial advisors,rather than attempt to structure anysuch plan on your own.

Business InterruptionInsuranceThis is an important adjunct to yourgeneral business insurance program. Asits name implies, it provides a continu-ing revenue stream when coveredevents such as fire, burglary, flood, etc.,make normal operations impossible. It’susually available as a cheap adjunct toyour main insurance policies and mayoffer coverage for relocation, equip-ment replacement and loss of profits fora period of several weeks or evenmonths. Most such policies also coverthe expenses of researching and repro-ducing lost or damaged businessrecords. A word of caution, however:Insurance industry experts point outthat few, if any, single-location business-es are able to successfully reopen after amajor catastrophe. The inevitable de-lays in rebuilding or repairing the dam-aged structure force even the most loyalcustomers to seek service alternativesbefore the shop can reopen.

Business StructureSole proprietorships, corporations, part-nerships and other forms of businessstructure all have important tax and le-

gal liability consequences. In general,incorporation helps to shield the share-holders from direct legal liability fornegligent business actions. But beware,the shield is not impenetrable. If youfail to maintain required corporaterecords, to hold stockholder meetings(even if you own all the stock) or tomake other required filings, the courtsmay strip you of your corporate status inorder to compensate an injured party.

The question of whether or not youcommingle personal and business fundsand expenses is often the greatest factorconsidered by the courts when decidingif the “corporate veil” should bepierced. Because the details of corpo-rate law vary from state to state andover time, you should periodically re-view your situation with your lawyer.

Loss AvoidanceA comprehensive loss avoidance pro-gram requires that you carefully evalu-ate your shop’s strengths and weakness-es. Here are a few examples:

•Review all your comebacks to seewhat they may have in common. Is oneemployee responsible for the majorityof the comebacks? Perhaps more train-ing is required.

•Would more thorough test driveshave uncovered most of the mistakesbefore the vehicles were returned totheir owners? Prevention is usuallymuch cheaper and builds a better repu-tation for your shop.

•Are most of your comebacks for

electrical problems? Driveabilitycomplaints? Perhaps better diagnos-tic equipment or training is called for.Or perhaps you should consider sub-contracting certain kinds of repairs toa specialist.

•How many comebacks resultedfrom not getting an adequate descrip-tion of the customer’s complaint in thefirst place? A more careful interview,even a joint test drive to point out theproblem initially, may save hours later.Be sure to let the customer drive. Askthe customer how long/how far he mustdrive before the problem surfaces. Askabout engine temperature, weather,speed, maneuvers (turning, braking, ac-celerating, etc.) and equipment (lightson, defroster, a/c, radio, etc.). My expe-riences with driveability complaintshave convinced me that a careful cus-tomer interview is one of the most pow-erful tools at your disposal.

Once you’ve analyzed your shop’sgreatest weaknesses, you’ll be betterprepared to overcome them.

Establish a Safety CultureInjuries remain a huge burden on ourindustry. While the nature of our workexposes us to inherent dangers, we canreduce the incidence and severity ofindustrial injuries by carefully analyz-ing our shop environments, proce-dures and equipment.

•Back injuries predominate in thiscategory, but are easily avoidable by uti-lizing proper lifting techniques, such as

22 July 2004

SHOP SECURITY: BUSINESS PROTECTION

Checking invoices against incoming parts is particularlycritical when multiple units of multiple part numbersfrom the same vendor are billed together.

Using part number tabs removed from packaging en-sures that all newly installed parts are added to the cus-tomer’s invoice. At the end of the day, they can also becollected to aid in inventory control and reordering.

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always bending the knees and neverstooping. Ask for help when handlingheavy or unwieldy objects.

•Simple protective gear, rangingfrom safety footwear, ear protection,glasses and gloves, to hard hats, backbelts and leather aprons for cutting andwelding, can make a difference.

•Engine cradles, transmission jacksand the gas caddies mentioned in thefirst report all help when handlingheavy, unwieldy or potentially dan-gerous components.

•A new 12-gauge extension cord isalways cheaper than having a fire and alot safer than adding another layer of

duct tape to your old 16-gauge with thebroken ground pin.

•Don’t try to watch a scanner whiledriving. Set it to take a movie and re-view it when the vehicle is stopped.

Perhaps most important, however,is the creation of a culture of safetythroughout your shop. There simplyis no reason to engage in or toleraterisky behavior.

Who’ll Pay for It?You might think this article reads like acommercial for the legal and insuranceindustries. I’ve also made some prettyexpensive-sounding suggestions. So

you’re probably wondering how you’resupposed to pay for all of it. A betterquestion might be, “Can I afford not tohave these resources?” You may verywell have to raise your rates if these arenew expenses to meet. If not payingfor these legitimate costs of doing busi-ness has been your margin of pricecompetition, you’ll have to weigh therisks to your shop, your customers andyourself against the growing probabili-ties of a successful lawsuit against youin an increasingly litigious culture. Thismay help you to understand why deal-ership and top-notch shop rates areusually higher.

In my experience, customers worthkeeping understand, and are happy topay for, the difference between profes-sional care and the “shade tree” variety.If you encounter resistance, be candid.Tell them about the new expensesyou’ve undertaken to protect them,their families and their vehicles. Ex-plain, too, that the increasing complexi-ty of the automotive repair industry ne-cessitates additional costs for equip-ment, training and liability protection.

ConclusionsShop security is a more complicatedsubject than you might have imagined.Inventory shrinkage and employeesafety factors are two key areas wheresmall changes can net big gains. As ourindustry struggles against old stereo-types, its emerging professionalismcoupled with the rising economic costsof mistakes will give rise to increasinglyhigher consumer expectations of com-petence. Those who fail to deliver maybe driven out of business by malprac-tice claims similar to those faced byother professions. Honest self-ap-praisal, tighter internal quality controlsand carefully structured insurance pro-grams will afford all parties neededprotection in the coming decades.

Sam Bell is a shop owner, technician(ASE L-1) and trainer, and author of“Vehicle Emissions Diagnostic Strate-gies,” available at www.attstraining.com.

SHOP SECURITY: BUSINESS PROTECTION

Visit www.motor.com to downloada free copy of this article.

24 July 2004

UNSAFE VEHICLERELEASE OF LIABILITYABC Auto Repairs Inc. deems the vehicle described below to beunsafe. In particular, the ball joints and brake system are bad-ly worn and have damaged components, which may result in asudden and catastrophic failure of the braking and/or steer-ing systems. This condition is so severe that it presents a realdanger of bodily damage or death both to the occupants of the ve-hicle and to the general public. It likewise presents a grave dan-ger of property damage arising from said condition.

The undersigned hereby acknowledges receipt of this warning ofthe said dangerous conditions. The undersigned, on behalf ofhimself and his heirs and assigns, hereby unconditionally re-leases ABC Auto Repairs Inc., its officers, employees and agentsfrom any liability which may arise or be imputed to them onaccount of their return and release of said vehicle to the under-signed in the stated condition. The undersigned, his heirs andassigns hereby undertake to hold harmless ABC Auto RepairsInc., its officers, employees and agents from any action fordamages brought against them for their return of said vehicle.

Vehicle Make: Model: Year:

VIN:

Signed By Vehicle Owner: Date:

Witnessed By Business Owner: Date: