Warranty Junk Food
As I reflect back on the years I’ve spent in the automotive business and simultaneously our current environment, one thing stuck out to me. We have all experienced major economic downturns. Events such as depressions, wars, recessions, stock market crashes, pandemics, terrorism, natural disasters and more. These have significant impacts on our business for long periods of time and change how our customers view us and buy our goods and services. How do you react when you find yourself in the middle of a downturn? It is so easy to fall into the victim mentality, blame outside forces for our current circumstances, and hope the sun comes out tomorrow. There is a great quote from automotive legend Jim Moran. “The future belongs to those who prepare for it.”
A common occurrence during these economic and social swings is the over-reliance upon warranty work. I remember hearing someone refer to it as “eating at the warranty buffet”. So, you’re hungry and there aren’t as many healthy choices as you are accustomed to. Long term you know it isn’t good for you to live on junk food but in the moment, you are hungry. It’s the same thing on the service drive. Customer pay work is like healthy food, the more of it you have the healthier you and your business will be long term. Excessive warranty work can damage the health of your business just like poor eating habits can compromise your physical health.
I’ve found three reasons warranty work isn’t something you want to live on long term. First thing is the quality of the vehicles sold today. Over the last 3 years, new car reliability has improved according to the JD Power Reliability Rankings. The manufacturer you work for may be going the other way. It happens all the time.
The second reason is the constant change and evolution with maintenance requirements. As improvements are made with fluids, technology, and vehicle components, the life expectancy as well as maintenance intervals have increased as well.
The third challenge with warranty work is that without proper processes in place the long-term consequences can be severe and greatly diminish your future. I recommend focusing your attention on growing and improving your customer pay business, you should have solid warranty processes in place and hold people accountable to them.
Let’s sharpen our pencils and update or create new warranty processes that will keep you on the right path towards growing your business sustainably. I am not here to tell you what to do. My goal is to create an outline of important features you should consider within your process. I’ll include some best practices to help you. This will only be beneficial if you take ownership. If you’re interested in developing something more robust, or need assistance with current warranty performance, please contact me at email@example.com to discuss further.
Initial Warranty Verification
Who is responsible for determining basic warranty eligibility/recalls/warranty extensions? Often this is done at the advisor level during initial write up with relative success. If you still do pre-writes, that’s a great time to run it again. Keep in mind any missed campaigns/recalls can open you up to legal and financial obligations so you might want to consider having someone else run them as well. Often technicians run a VIN to check for TSB’s and repair history. If you have a person(s) responsible for setting appointments, you could provide them access to check for recalls and in-service dates.
Warranty Coverage Eligibility
Who determines if a repair is covered under warranty? Do your technicians work with your service consultants to determine? Is the warranty admin or service manager involved? Does anyone at the dealer level have to sign off on the repair order before you proceed? Do certain types of repairs require prior approval from the manufacturer? Two heads are often better than one. One thought for your consideration is when and how the customer is notified BEFORE a repair is performed. From a legal standpoint, any repairs performed to a customer’s vehicle must be authorized before the repair is started. This applies to all repairs regardless of who is paying the bill. Gaining authorization prior to any repair is crucial as the customer may not have the time needed to perform the repair correctly. You would like to avoid the customer showing up at 2pm demanding their car back when there is no way your technician can have it completed before 5pm. That is not a good scenario for anyone. And who likes exposing yourself, the dealer or the manufacturer to legal issues?
Labor Operations and Warranty Time Flagging
This is commonly overlooked and by doing so can create many issues down the line. There are many variables in place so you can see how problems can arise even unintentionally.
Flat rate technicians only make money when they are working on vehicles. Could they be selfish and not consider what the right thing to do is when it comes time to selecting labor operations and more specifically with flagging time? Is it possible they could abuse the straight time labor operations available from your manufacturer?
Service consultants may lack the technical knowledge, experience and/or time to select the correct labor operations. If they are paid commission on warranty repairs, you can run into the same ethical dilemmas as technicians.
Service managers in smaller stores may find themselves responsible for warranty claims and submission in addition to the dozens of other roles and tasks that fall under their care.
Warranty Administrators come in many different forms. Gone are the days where you have one present in your store, doing only your warranty claims. Understandably so as it’s easy to look at them on the surface as an expense you can reduce. Several dealerships outsource their claims while others have warranty administrators at corporate offices handling multiple stores. Depending on your role within the dealership these may be situations in which you have zero influence. If you do, think about your warranty administrator through two lenses. One, they make you money. This is easy as if they are good, you aren’t leaving any money on the table when it comes to claiming labor time. Two, they save you money. If you have ever been through a warranty audit, you know tens if not hundreds of thousands of dollars are at risk as well as the employment of several employees. Have you ever known a store that went through an audit and blamed the service manager and subsequently fired him or her? A good one balances both worlds, making you money the right way by following manufacturer guidelines and communicating well with technicians and consultants. It can be difficult to communicate when you aren’t there in person.
Claim Submission and Correction
This isn’t so much a function of who does it, but how quick and how well they do it. Cash flow is critical for day to day operations. There are zero benefits to let claims get old or delay submission. The technician flagged his hours and expects to be paid and dealer paid the tech and expects to recoup that money in a timely manner. A benchmark to strive for here should be 95% or greater first-time submission rate, as well as less than 2-3 days for claims to be submitted for payment. The time frame may not be possible if you have an outside company or corporate off-site location, but that doesn’t diminish the importance.
There is no right position to take on the responsibility of warranty claims handling as every dealership is different. As with any plan or process, you need to have a backup for something goes wrong as it is certain something will. This may be the most important part of your process. On that note, ask yourself who is going to be your backstop, your second or third set of eyes? Everyone makes mistakes, who is going to handle this responsibility for each step of the way? While you may not have many choices for your backup(s), when considering them think about their career aspirations. If they want to move up in the organization, that’s great. Increased responsibilities are an excellent way for them to prove themselves worthy.
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