Rafi Mohammed

Does Paying Experts on Commission Lead to Flawed Diagnoses?

Posted on December 16th, 2007 (1 Comments)

In a recent New York Times column, David Leonhardt discussed an interesting research project conducted by Henry Schneider, an assistant professor at Cornell’s business school. For his Ph.D. dissertation, Henry loosened his Suburu’s battery cable (which makes it hard to start the car) and sucked out coolant (which can result in the engine overheating). Next, he took his car to 40 garages and asked them to undertake a thorough inspection. His results are interesting: 27 garages informed him about the loose cable, 11 told him about the low coolant, and 10 tried to sell unnecessary repairs (ranging from a new battery to a new starter motor). Overall, Professor Schneider found that only 20% of garages in his sample did a good job of evaluating his car.

I’m curious if you are surprised with these results. 80% were either dishonest or incompetent. I would have thought there were more honest and competent service providers.

Mr. Schneider’s field research empirically proves a theorem that we all know: buyer beware. Most have focused on the fact that 10 garages, 25% of the sample, tried to overcharge him (either due to incompetence or to blatantly rip him off). Seems plausible.

Sears discovered in the early 1990s that while profitable in the short term, paying mechanics on commission can lead to disaster. In 1992, both the states of California and New Jersey charged that Sears’ mechanics were recommending unnecessary repairs to boost their pay. Union officials claim that Sears had an hourly sales quota of $147 (1992 dollars) for their mechanics. Given this commission system, it’s understandable how a simple vacation check could lead to a mountain of unnecessary repairs. An hour long $60 check with no additional sales puts a mechanic $87 in the red for those 60 minutes.

What I found just as interesting is that 29 garages, 72.5% of the sample, missed the low coolant. My hypothesis is that a mechanic assigned to a potentially unprofitable job opted to push the car out of his bay as quickly as possible. This under recognized result of Mr. Schneider’s paper deserves attention: low profit potential jobs receive shoddy service.

So where should you take your car to be serviced? First, I’d enquire if mechanics are compensated on commission - a 1992 Arizona Republic article claims that 95% of all mechanics work on some type of commission system (which is surprising). And of course, take your car to a shop that has been recognized as “the best of” in your city. For his next study, it’d be fascinating for Mr. Schneider to replicate his experiment at repair shops that have won a city’s “best of” awards.

I take my car to the Good News Garage, which is owned and operated by Tom & Ray Magliozzi, the “Car Talk” guys from National Public Radio. In addition to being great guys and expert mechanics, the jokes are non-stop at their shop. Without fail, when my car needs major repairs, the opening line on their dreaded diagnosis call is, “Hi Rafi, this is Ray from the BAD News Garage…” Their jokes make the pain of car repair manageable.

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Readers' Comments on This Blog Entry

From Mike S on December 17th, 2007
I have worked at a delership garage and yes we are paid on commission. The higher the ticket the higher the pay. I reccomand refferals from friends and BBB.