Dealerships often rely on healthy margins from service departments to provide a consistent, reliable source of revenue. With a significant percentage of total service hours dedicated to warranty and related work, optimizing the pricing and processing of your warranty reimbursements can outsize your profits and dealership growth. WORK THAT ONLY DEALERS CAN DO Today’s vehicles are more dependable, often experiencing fewer issues or failures requiring warranty repairs. Yet they present more opportunities for OEM-reimbursed service work beyond warranty fixes, including: • Model Recalls: Recalls apply to specific models of all ages, including vehicles beyond the warranty period. The National Highway Traffic Safety Administration (NHTSA) mandates recalls at the federal level and tracks repairs via a nationwide system. Each new recall triggers a wave of reimbursable service work on affected models. • Manufacturer Maintenance for New or Certified Pre-Owned Vehicles: Some manufacturers include prescribed maintenance as part of new or certified pre-owned (CPO) vehicle sales. This reimbursable maintenance work generates reliable revenue while fostering an ongoing relationship with customers. • Extended Warranties: Buyers can purchase extended warranty plans for new and qualified used vehicles, creating additional reimbursable warranty work. Non-OEM warranties issued by third parties offer further service opportunities, with reimbursement dictated by the contract terms. This body of service work opens the door to more revenue through reimbursements and customer engagement. As the exclusive source of manufacturer-certified technicians to fulfill warranty and recall work, dealers can strengthen relationships with current customers and attract new ones. Warranty work secures ongoing service and parts revenue and keeps your dealership top of mind when it’s time to trade and buy again. THE MECHANICS OF WARRANTY REIMBURSEMENT Reimbursed service work provides a reliable source of steady revenue. With the right measures, it can become even more lucrative. Dealers who study warranty reimbursement details, refine workflow tracking and documentation to optimize warranty payments, and follow OEM program requirements can maximize rates and reimbursements, leading to increased service revenue. Maximizing warranty reimbursements depends on state laws, which dictate how retail rates for labor and parts are determined. Most states require manufacturers to reimburse dealers for warranty work at the same rates charged to retail customers. These laws are subject to change from time to time, necessitating that dealers keep up with the latest legislation and adjust their strategies accordingly. There are subtle but meaningful details that determine the labor time standards used, the method for calculating retail rates and how retail parts costs are set. While state laws require OEMs to pay retail rates, it’s up to dealers to document and justify the rates they charge customers. For instance, dealers may be required to submit a sample of 100 recent service orders to establish an average hourly rate for retail customers. The manufacturer then uses this average retail rate to calculate reimbursement amounts. In the ongoing negotiation between dealers seeking fair reimbursement and OEMs aiming to control costs, be cautious of OEM offers that circumvent state-mandated legal protections. For example, offers to provide necessary warranty parts at no or reduced cost may allow manufacturers to skirt legal protections to reimburse parts at retail rates. 6 BEST PRACTICES TO MAXIMIZE WARRANTY REIMBURSEMENTS Follow these practical steps to help you get the most in warranty reimbursements: 1. Ensure that your reimbursement rate matches what you are currently charging the retail customer. Costs for labor, parts and equipment have risen sharply in recent years. Modern vehicles require specialized equipment and highly skilled technicians who command higher wages. If your OEM reimbursement rates rely on outdated data, you may be losing out on revenue. 2. Price service work consistently and with discipline. Applying discounts may seem like an effective way to build relationships and loyalty, but the goodwill you create for one customer may negatively affect your warranty reimbursement rates overall. Providing “friends and family” rates or discounting repair invoices can decrease the average hourly charge in your service sample, reducing the reimbursement rate for all warranty work. Updating your published rate consistently is one of the most effective ways to maximize reimbursement. 3. Maintain excellent service records. Pricing data drives reimbursement rates so that meticulous record-keeping can have an outsized impact on potential revenue. Ensure records accurately reflect customer concerns and include Maximize Your Dealership’s Warranty Service Reimbursements By TRUIST DEALER SERVICES, with special contribution from Jason Allen, Shareholder, Bass Sox Mercer, Attorneys at Law 18 Virginia Auto Dealer
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