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re: "...It was indeed the timing belt, and only the timing belt.... Obviously, he didn't enjoy looking foolish. But he's a family friend, and has done a great deal of work over the years on our five Volvos, so I was confident he wasn't trying to rip me off as others suggested...."
Hmmm, so if he's not a thief (albeit only an attempted thief), how does he explain first telling you, "...They put on a new belt, lined it up correctly, but he said that there is no compression, either wet or dry...."
How did it miraculously fix itself?
Yes, you've caught him in a lie and he's hoping that you forgot it -- and apparently you have. Explaining that he was misinformed by some book, he's just hoping that you don't remember that he had already told you the engine had no compression!
Either he had not really put on a new belt and tested the compression; or else he put it on and it had compression but he went and told you it didn't anyway, just to pad the bill. Chances are, even if you gave him the go-head for an engine rebuild, he'd just put on a new belt, wash the engine's outsides, and tell you he did all the work.
You really don't need enemies with a "family friend" like that.
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