There's an old story about a merchant who lost money on every transaction; when asked how he could possibly survive under those circumstances, he replied: "I make it up on volume."

Now a business that touches virtually every American household says it's in the same ultimate plight as that unlucky merchant: for every $10 it takes in from its customers, it's losing $1.That's the claim of the nation's auto insurers, who are expected to collect more than $80 billion in premiums in 1991 but are bracing for underwriting losses that could run as high as $8 billion. If this is true, why would anyone stay in such a business?

Keith Robbins, an actuary for Mil-liman & Robertson, a major consulting firm for the insurance industry, tells me there's only one reason to stick it out despite heavy losses and the threat of further damage from state insurance commissions eager to roll back consumer rates: Companies that stopped offering auto insurance might be barred from more profitable forms of business.

"I would expect some companies would gladly withdraw from the auto insurance market if it were not for the fear that state insurance commissioners would bar them from selling other types of insurance in those states," Robbins says.

The woes of such casualty and property companies as State Farm, Allstate and Farmers are as numerous as the options available on a luxury car. Claims for auto repairs, auto thefts, injuries, medical and legal fees, and administrative costs to process the claims, are increasing by 5 percent to 10 percent annually. (Underwriting losses reached $6.7 billion in 1989.) The companies spend an estimated $11 billion in medical fees annually and billions more in legal charges, even before they contend with the notoriously high cost of repairs for cars involved in accidents.

As a result, insurers are taking a number of steps to staunch the hemorrhaging of money in their auto-related business. Mindful that replacement auto parts alone cost them more than $9 billion in 1989 (13 percent of which went for sheet-metal elements such as fenders, hoods, trunks and bumpers), many companies are urging their policy holders to accept the insurer's approved repairs from body shops - and to use "competitive crash" parts not manufactured by the Big Three automakers.

General Motors, Ford and Chrysler maintain that while their own crash parts generally cost more, the competitive parts do not have enough quality control to assure durability. To counter this argument, such companies as State Farm and Allstate guarantee the quality of their approved parts, including protection against rust and corrosion, for the life of the car.

Another area in which insurers hope to cut costs this year is in automobile glass repair and replacement. (Fully 52 percent of all comprehensive auto insurance claims involve glass.) Sears, the parent company of Allstate, recently formed an alliance with the Globe Group, the largest family-owned and operated auto glass repair firm in the U.S.

Under the agreement, the Globe Group will operate a service called Autoglass at more than 250 Sears automotive and light truck service centers - a program targeted to save millions of dollars annually. In addition to Allstate, the service has signed up Aetna, Hartford and USAA.

While the Globe Group's executive vice president, Eddie Cheskis, acknowledged to me that there was "no one magic solution to the rising insurance costs," he said progress was being made "through a commitment to cost containment with suppliers, including windshield repair, electronic transfer of data and strategic alliances."

None of the above, however, is expected to put much of a dent in the area of auto theft. Despite discounts offered by some insurers for cars equipped with hood locks, alarms or disabling devices (which prevent a thief from starting the ignition), 1.5 million cars were stolen in 1989 - and another 2.9 million were looted of valuables or accessories.

No wonder auto insurance companies - scarcely the most beloved of businesses at the best of times - are beginning to think there has to be a better way to make a living.