I work in 3D business, but not as a programmer, so my knowledge here is only remote. Anyway, since nobody replied yet, and since I am 99% sure you are missing some fundament info here, I will try:
I think that it is never done like you described it, all 3D engines, even some really creative ones (in optimising or faking real effects), render reflection in last pass. The way you can affect it is either bump or normal mapping, when you distort the reflection (waving water), or reflection/specular masking, which I think is directX feature. Mask is additional, grayscale texture, which defines the intensity of reflections (white = full reflection, black = no ref). The very same map then can be used to add any dirt texture over the car paint.
Visual damage, such as scratches and dent, which is what you have probably meant (no new models/faces/moving of vertices), use to have very questionable impact IMHO, exactly because the game mostly ignores the kind of crash or damage or kind of object you just hit, and so after sliding along the concrete wall you see the same damage as after side hit from another car. See latest NFS series...
But I like the idea in general, I think that we all would love to see a damage in this way. I just never got NFS when they said that when you got your car scratched, damaged and stickytaped all around it, you are the man. LOL? I believe that you are a loser in that case.