$650 is a BARGAIN to replace a head gasket. The minimum that I'd expect to pay for that work is $1000. These folks need to just pay up and get their car back. Did the mechanic mis-diagnose it? Maybe so, but they did authorize the head gasket replacement afterwards. The mechanic and shop did them a favor by giving them a huge discount. It's also obvious that they have not maintained their car as they should have, and now they're trying to blame other pre-existing problems on the work that had just been done. If I were the shop owner, I'd see about having them charged with extortion. Quit whining.
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