specific areas which the chairman indicated in his letter of invitation were of particular interest to the subcommittee.

NADA would also like to take this opportunity to discuss briefly a study entitled, "Auto Repair and Maintenance-Program To Reduce Consumer Loss" recently published by NHTSA. This study and the results thereof were referred to by NHTSA Administrator Claybrook in her recent testimony before this subcommittee on September 14.

I. THE AUTO REPAIR INDUSTRY-THE PART PLAYED BY FRANCHISED

DEALERS

The 29,100 franchised new car and truck dealers throughout the Nation play a significant role in the motor vehicle repair industry. For example, in 1976 franchised dealers accounted for $16.2 billion in service and parts sales, out of a total $48.4 billion for the entire industry.

In the interests of time, I would refer the subcommitte to an extensive discussion of the role of franchised dealers in the service and repair industry contained in NADA's testimony before the Consumer Subcommittee of the Senate Committee on Commerce, Science, and Transportation this past March 23.

NADA would briefly like to summarize what dealers view as the three major problem areas with respect to vehicle service and repair, and discuss briefly dealer-supported programs to alleviate these problem areas.

(1) Efficient operation of service facility

NADA has developed a program to help dealers more efficiently utilize service personnel and equipment to maximize the service potential of each dealer's service operation, and to provide prompt and quality service to customers.

(2) Mechanics' training and certification

NADA has developed several programs to test mechanics for competency and to train the mechanics of the future. The mechanics certification program is conducted by the National Institute of Automotive Service Excellence (NIASE). Representatives of NIASE testified before the subommittee on September 14 to explain this program.

NADA has also established an apprenticeship program to train new mechanics both in the classroom and on the job. This program not only trains new mechanics, it creates new jobs. NADA would note that the Department of Labor has recently granted additional financial support to continue this program's development and growth.

These programs are designed to insure that franchised dealers have qualified mechanics available in our service shops. (3) Swift resolution of customer inquiries

In conjunction with State and local dealer associations, NADA has established the AUTOCAP program. The purpose of this program is to provide customers with a swift, easily accessible, and inexpensive forum for solving any problems the customer may have concerning the service work performed by a franchised dealer participating in AUTOCAP. AUTOCAP provides a remedy forum for dealer/consumer communication to and with each other; this

program has been tremendously successful in resolving inquiries to the satisfaction of customer and dealer alike.

II. DISCUSSION OF SPECIFIC AREAS OF SUBCOMMITTEE CONCERN

NADA would now like to turn to a brief discussion of the four specific areas of subcommittee concern as set forth in the chairman's letter of August 25.

First. One of the major complaints heard by the subcommittee is unsatisfactory warranty service. What is the cause of this problem? What is being done to remedy this problem?

Historically, NADA has done and continues to do extensive research and analysis of the warranty function performed by franchised dealers on behalf of the manufacturer. Like most problems involving repair and servicing of motor vehicles, the causes (and arguably the solutions) are many and complex. NADA would briefly like to discuss what dealers see as several areas which contribute to customer dissatisfaction with warranty repairs.

(a) Sheer number and complexity of vehicles involved. With over 10 million new vehicles sold per year and some 135 million vehicles overall on the road, the service facilities of franchised dealers are under a tremendous strain. Because of the sheer volume and complexity of vehicles dealers service-both warranty and nonwarranty-delays are experienced by some customers in receiving warranty service. It should be noted, however, that most delays are caused by the need for prior authorization or nonavailability of parts.

(b) Parts availability. A contributing cause to delays in performing warranty work is the recurring problem dealers have in securing the necessary supply of replacement parts from the manufacturer to perform designated warranty work. In some cases, the manufacturer does not allocate enough parts for replacement needs; in other instances, inefficiencies in the distribution system cause delays in getting the parts to the dealer.

(c) Service facilities. A continuing problem for dealerships is insuring a sufficient number of service bays and personnel to expeditiously complete both warranty and nonwarranty service work business. As the vehicle in use fleet expands, dealer service facilities must expand at the same rate (or hopefully greater rate) to insure expeditious completion of warranty work.

(d) Mechanics. Franchised new car and truck dealers currently employ an estimated 200,000 mechanics. This represents 1 mechanic for every 675 vehicles in operation. As previously noted, NADA is currently sponsoring several programs to increase the number and quality of mechanics in franchised dealerships.

NADA would emphasize the point that it is not just a question of numbers of mechanics, but rather a question of numbers of trained and qualified mechanics.

The shortage of trained and qualified mechanics to do warranty work is exacerbated by the negative attitude in general of mechanics toward warranty work-where the labor rate is established by the manufacturer-than for nonwarranty work-where the dealer sets the labor rate. Naturally, mechanics under this system preferred to nonwarranty work.

NADA would particularly note the recent action of the two largest domestic auto manufacturers in introducing new and much fairer methods of determining the labor rate they will pay for warranty work. The result of these new methods of determining warranty labor rate is to make the warranty labor rate much closer to the nonwarranty rate. This will obviously provide mechanics with a much greater incentive to perform warranty work. (e) Warranty labor rate. The lower warranty labor rate discussed above also has a negative impact on the dealership operation by failing to cover the additional administrative expense to dealers of the necessary paperwork required for reimbursement of warranty claims.

The recent manufacturer action discussed above should help to alleviate this problem.

Service representative and prior OK. In an NADA survey of all 21,000 members in 1976, over 60 percent of our members indicated that they believed that the manufacturers' service representatives did not spend an adequate amount of time in their dealerships.

Further, in many instances the dealer cannot proceed without prior authorization on specific warranty jobs. This ties up both the consumers' time and car.

A major area where manufacturers could assist dealers in providing improved warranty work would be to give dealers greater latitude in dealing with customers. This would substantially assist in reducing delays experienced by customers with warranty work. (g) Warranty advance. In theory, the manufacturer's warranty administration program should not leave the dealer with any outof-pocket expense, because dealers receive a warranty advance which is supposed to cover an average month's warranty sales. According to an NADA study conducted in May 1977, however, the average domestic dealer receives an advance which is about 85 percent of his average month's warranty sales.

(h) Warranty claim denials and paperwork. Claims corrections and denials both result in a lot of paperwork that dealers consider unnecessary. Reducing the present paperwork burden on dealers would substantially aid in reducing current warranty problems for dealers and customers alike.

NADA would note that its Industry Relations Committee is continuing efforts to achieve improvements in the present warranty system to insure swift and fair resolution of warranty problems for dealer customers. The recent action in the warranty rate reimbursement area is a significant step, in ADA's view, and will hopefully be followed by other adjustments to the present warranty system to insure customer satisfaction.

It is a complex problem, and will require the continuing attention of both dealers and manufacturers if customers are to receive the quality warranty service they have a right to expect.

Second. How does NADA's AUTOCAP program operate?

In nature, the AUTOCAP consumer panel is strictly a pre-legal remedy, the central purpose of which is to conciliate disputes between dealer-members and their customers. Any decision or recommendation made by the panel, therefore, cannot be conclusively

binding on either party. Nevertheless, dealer cooperation and support has been excellent.

Since July 1973, the AUTOCAP's have received approximately 13,000 consumer inquiries and complaints. The resolution rate, both parties satisfied, is 65-70 percent.

Our written statement contains a full discussion of the history and operation of the 44 current AUTOCAP's.

Third. Some have suggested that the increasing complexity and electronic sophistication of cars will necessitate the utilization of specialized diagnostic equipment to repair automobiles. What role does NADA see for diagnostics? If diagnostics is to be a factor in auto repair, will the diagnostic equipment be on board (i.e., within the car) or in a centrally located center?

Mr. ECKHARDT. If I may interrupt you just a moment, we have a vote on the floor. Mr. Broyhill will be back in just a few moments and he will resume the hearing and then I will be back.

Mr. MALLON. Thank you, Mr. Chairman.

[Brief recess.]

Mr. BROYHILL. In the interest of time, we apologize for having to take a short break but we do have to respond to those bells when they ring. So if you could go ahead and continue, the chairman said he would be back in just a few moments but we can continue with your testimony.

Mr. MALLON. Thank you very much, Congressman Broyhill. I am answering question 3 which was contained in the chairman's letter to NADA.

The fundamental tools of diagnosis today are a scope, tachometer and voltmeter. Virtually all franchised dealers have this equipment. Most diagnostic requirements for present generation vehicles can be handled with this equipment and a well-trained mechanic. NADA estimates that some 60 percent of our members also have an infrared machine for tune-ups.

We estimate that only 5 to 10 percent of the franchised dealer body have purchased the computer printout type of diagnostic machine. These are generally dealerships located in large metropolitan areas able to justify the large capital investment.

We would like to add several additional thoughts on the future of off-board and on-board diagnostics. As previously noted, the development and utilization of off-board diagnostic equipment is to a great extent dependent upon development of on-board diagnostic equipment. Second, some engine performance diagnostics, such as those found in secondary circuits, will not be cost effective to build into the on-board system. Third, some off-board diagnosis or monitoring of the on-board systems will still be needed.

Most importantly, effective diagnostic equipment utilization will depend on skilled and trained mechanics to understand the results of the diagnosis and make the necessary repairs. This point cannot be emphasized enough. The need for skilled and trained service personnel will continue to increase even as sophisticated diagnostic equipment-both on-board and off-board-becomes more common in the average dealer's service operation.

With respect to centrally located diagnostic centers, NADA believes firmly that the diagnosis function will continue to be performed by the service facilities that also possess the capability to

fix the vehicle. Customers may wish to know what is wrong with their vehicle; however, their first priority is have the vehicle fixed. Separate diagnostic centers would be extremely expensive and would, in addition, drain off from the service industry badly needed trained service personnel. It would simply make no sense to tie up a significant number of trained service personnel in diagnostic duties alone.

Fourth. NADA is in a unique position to assess the impact of auto designs upon maintenance and repair costs. How have recent auto design innovations reduced maintenance and repair costs? What auto designs, if any, have increased maintenance and repair costs?

NADA believes in general that maintenance requirements have decreased in recent years as the result of a number of technological improvements made by the manufacturer. In terms of specific changes, NADA believes that this information can more readily be supplied to the subcommittee by the manufacturers.

In terms of the types of design changes which have resulted in a reduction in required maintenance, NADA would briefly suggest the following:

(a) Smaller engines have resulted in the need for fewer plugs, rings, bearings, pistons;

(b) The introduction of radial tires;

(c) Longer oil changes and lube intervals;

(d) Increased use of electronic ignition and fuel injection;

(e) Development of catalytic converter emission control technology.

It should be noted, however, that a number of developments in recent years have tended to put upward pressure on repair costs. Most of these developments can be traced directly to efforts by the manufacturers to comply with Federal regulatory requirements in the area of damageability, safety, emissions, and fuel economy. Examples of such changes include:

(a) Complex design changes in powerplant related to emission, fuel economy, and safety requirements have tended to make it more difficult to maintain and repair this system; it has also required increased knowledge and skill on the part of the service personnel to repair these new systems;

(b) Access for repair purposes is presenting increasing problems as vehicles are downsized to meet the fuel economy mandate of EPCA;

(c) Use of lighter steel is causing increasing problems with corrosion damage;

(d) The new bumper systems tend to be more expensive to repair and the incidence of bent frames is increasing.

NADA would summarize the present situation as one where maintenance costs are going down because of technological improvements, but repair costs are increasing because of governmentmandated design changes, principally the downsizing of vehicles to meet the EPCA law's fuel economy requirements.