3 Questions Dealers Need to Ask About Warranty Labor Rate Increases

3 Questions Dealers Need to Ask About Warranty Labor Rate Increases

If you cannot answer yes to all three of these questions, it’s costing you money.

As a dealer, you should ask yourself three basic questions in regards to your annual warranty labor rate increase:

  1. Do I have my annual warranty labor rate anniversary date recorded, and do I have a process in place to make adjustments prior to it, in case I don’t have adequate data to support an increase?
  2. Am I certain that the person responsible for the increase performed the work timely, so that we did not forfeit any profits?
  3. Is the warranty rate I submitted my best possible rate, and do I have evidence to give me the confidence that I didn’t leave anything on the table?

If you cannot answer yes to all three of these questions, it’s costing you money. 

Our team has been in the retail automotive world for over 25 years, so we realize the annual warranty labor rate increase typically looks something like this: Someone in the dealership may or may not be tracking the annual due date — or, more properly stated, opportunity date — that the rate increase is due.  Once someone decides it’s time to submit, a decision then has to be made as to who is going to do the work. After that, someone has to interrupt his or her duties, taking time away from customers, inventory, employees, etc. to perform the grunt work of putting the request together. And in the event that there are issues with the manufacturer, which there sometimes are, they have to be dealt with. All in all, it makes for a less than desirable set of circumstances.

Case in point: We spoke with a dealer who had been trying to get his labor increase for over six months and still didn’t have an approval. His service manager put together the request, and his field rep said, “Why don’t you just let me come in and pull the ROs for you?” Needless to say, the rate dropped from the service manager’s calculations. Further confusion was caused by the request referencing the state law. The dealer was flat-out denied by the zone and told to call the national warranty hotline to discuss a statutory submission. At this point, and after over 30 pages of correspondence, the dealer threw his hands up and proceeded to secure professional help to rectify the situation. Now, this is an extreme case, but we hear these stories in various forms all the time.

Having worked with over 5,000 dealers in 50 states, we can assure you that your annual warranty labor rate increase is much less controlled than it could be. We recognize that you have confidence in your managers, but let’s be realistic: This is a “side-bar” focus at best, and a better process would definitely give you the assurance that this area is completely buttoned-up. Even those utilizing the various service data analysis tools are working with less than perfect science; these folks are reliant on the precise set up and usage of op codes by the advisors to determine the best retail warranty reimbursement rate. We can assure you that nothing but detailed analytics on the underlying data — combined with a full audit — can yield the best possible result. And when it comes to a statutory submission, well, let’s just say it’s a complicated process requiring knowledge of the law and the manufacturer’s protocols. 

Just like your lawyer or CPA in their respective, highly specialized areas, a professional services firm can give you peace of mind in the automotive warranty arena. We think in most cases, it would make sense to at least explore what true professionals can do to ensure you are getting the best, most timely result possible.

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