For decades, the relationship between car dealers and manufacturers has had its challenges. From the perception of the dealer, the manufacturer continually attempts to “cost-shift,” lowering their expenses and increasing the dealers’ expenses.
Over the years, many states have passed franchise protection laws in order to balance the unequal bargaining power that exists between individual dealers and their much more powerful franchisors. So far, 40 states have passed legislation that has corrected a specific type of cost transference that affects both dealers and consumers alike: market-rate reimbursement for warranty claims.
In the past, dealers had been forced to accept below market fixed reimbursement, which they, as well as the paying consumer, had to subsidize. Today, however, the good news for dealers is that, based on these state-specific laws, they are entitled to collect retail from their manufacturers for parts used in, and labor performed on, a warranty claim. In the case of parts, retail is not the list price or MSRP; instead, retail is what your customers pay you for a warranty-like repair.
In a store with typical pricing and discounting practices, dealer markup normally falls in the 75% to 85% range. For dealers utilizing a list pricing model, markup is in the 60% range. The process of submitting for a retail-level warranty compensation parts markup only happens once, so it’s critical to get the optimal results on the first go-around; the only time it will need to be redone is if you materially change your parts pricing strategy.
But what does it mean to earn “optimal” results? On the subject of retail reimbursement, optimal results refer to strict adherence to the state law filtered through the manufacturer’s rules (which do not necessarily conform to the statute) as well as an appropriate selection of a sample that represents the dealer’s true retail rate.
Given the current state of the relationship between the dealer and the manufacturer, as well as the complexity of the laws designed to protect the dealer, you may be asking yourself this question: How do I fully take advantage of this lucrative retail warranty reimbursement opportunity without incurring the wrath of the factory?
Generally speaking, many dealers currently don’t submit for retail-level reimbursements for warranty work. This is because the law regarding reimbursements is complex. Instead of spending their time on a consuming process that might not even get approved, many dealers opt to not engage in the process and simply continue to focus on what they do best: sell and service vehicles to and for their customers. However, the major issue with this is that dealers then don’t collect money they are legally entitled to simply because of a lack of awareness or fear of their manufacturer—both concerns that can be remedied.
Dealers who submit reimbursements on their own or consult certain third-party vendors for assistance note that the process takes them at least 60 days (as well as a lot of effort on their part). And because these dealers, in the case of an in-house submission, aren’t experts on the law, they might be missing important information that could increase their returns. Furthermore, the time they’ve taken away from focusing on their core business could be substantial.
Working with certain third-party vendors poses its own obstacles—without the proper technology, it’s a highly manual process, including issues with the rate of reimbursement, audit responses, and so on. In addition, many of these vendors only do retail rate submissions as part of their bigger business model, which means they might not be as intimately familiar with the law and the manufacturers’ protocols as they should be. All of these issues could lead to time and money lost for your dealership.
The ideal outsourced solution will allow you to take advantage of a plethora of professionals, including accounting, legal, technical, and automotive operational personnel dedicated to a single mission: retail reimbursement. Their single focus means you can earn what you are owed without much effort on your part.
With a dedicated team, there is virtually zero administrative burden placed on your personnel—in other words, you don’t need to worry about securing data, pulling 1,000 or more ROs, drafting a submission cover letter, or deciding how to respond to your manufacturer, should it reduce or deny your submitted rate.
Top-tier vendors do all of the work for you; other vendors need to engage you in some of the more tedious aspects of performing a submission, drawing you away from your mission-critical responsibilities.
Furthermore, a single-purpose firm uses software with sophisticated database-driven tools to extract the required data to calculate a dealer’s market rate markup, thus ensuring you earn a fair and reasonable profit gain. This, along with fully committed and specialized internal resources, guarantees that you will be paid what you are entitled to under the law.
Another benefit is that if the vendor you contract with has with an excellent relationship with the factory auditors, they may allow for completion of the process with simple adjustments and minimal, if any, delay. By contrast, the factory’s strategy with a dealer’s in-house submissions can be lengthy and frustrating, to say the least. Your ability to refile any additional information timely is critical—or else you risk squandering additional profits.
Performing a retail warranty reimbursement submission can be a confusing and costly process if you don’t fully understand the nuances of the law protecting the dealer. By asking the following questions when searching for a vendor, you can be sure you’ll find the right partner:
As you can tell, submitting for retail warranty reimbursement can seem like a daunting task, but with the right partner, it can be an efficient and rewarding endeavor. As with so many things in life, knowledge is power, and tapping into a resource with a wealth of knowledge in this arena may be one of the smartest business decisions you make for your dealership.
See this article featured in the May/June 2018 edition of the FixedOps Magazine.