Pub. 2 2020-2021 Issue 2

16 Leveling the Playing Field Retail Warranty Reimbursement Joe Jankowski Managing Partner Armatus Dealer Uplift T he factory-dealer relationship is anything but a level playing field, and unfortunately, the behav- iors of some manufacturers have necessitated state laws to protect dealers. These laws cover myriad issues, but one that is critical to your bottom line, AB 179, which allows for retail warranty reimbursement, became effective in California Jan. 1, 2020. For years, most dealers have submitted annual increases to their warranty labor rate but have been stuck with an ar- tificially low parts mark-up stipulated in their dealer agree- ments. This mark-up is typically 40% over cost, although some manufacturers will pay you list or MSRP. By the way, don’t be fooled by the “list” claim you may hear; you are not collecting 67%, which is anecdotally thrown around by your factory rep or by some managers. In many cases, you are being paid a blended mark-up in the low to mid-50s. Based on the new California law, dealers are now entitled to collect “retail” from their manufacturer for their warranty claims. No, retail is NOT list price or MSRP, nor is it neces- sarily what you receive from a factory labor rate increase submission; it is clearly defined in the law. Basically, retail is what your customers pay you for a warranty-like repair. In a store with typical pricing and discounting practices, the mark-up falls typically in the 75% to 85% range. For deal- ers utilizing a list pricing model, you should expect some- thing in the 60% range. So even in a conservative pricing environment, a dealer should expect to improve his gross warranty profit by 50%; however, something on the order of doubling the gross is very realistic. The parts submission should be a one-time process and does not need to be repeated unless you materially change your parts pricing strategy. Labor rate increases, of course, are still applied for annually, but the difference is that the dealer will now follow the law versus the factory P&P Manual. This is not to say that the manufacturer will simply lie down and grant you a 100% improvement in your gross profit. The law is not self-effectuating; it mandates a submission and details what is required of the dealer, but that’s just the beginning. Several things need to be considered to ensure the best possible result: Understanding the Law — Rest assured, certain manufacturers will read the statute differently from you. Sometimes the positions they take are rather shocking, including those that will refuse to follow the law or others that will attempt to include non-warranty-like repairs in a deliberate attempt to lower your mark-up. Manufacturer’s protocol — It’s critical to understand the factory’s guidelines for the inclusion or exclusion of various repairs; each of them has different rules, and some factories won’t disclose them to you. If you can determine what they are, you should follow them within reason; do not be combat- ive. It’s better to follow the factory’s guidelines, even if they deviate from the dealer’s interpretation of the law, as long as there is not a significant impact on the submitted rate. Optimization — Absolutely key to this process is achieving the best possible result, and that can only be done through the proper selection of your submission sample — this is something that should not be left to chance or inferior tech- nologies. Missing your mark-up by even a few points can cost a dealer tens of thousands every year, perpetually. Do yourself a favor, and explore this aspect with some atten- tion to detail — it will be worth it to you in the long run. Warranty Auditors — Beyond technology, however, is the need for a thorough audit process. Your declaration will be scrutinized by factory auditors who know every nook and cranny of countering retail warranty submis- sions, and you should have someone familiar with their techniques to refute their sometimes questionable positions. Here again, it is better to get along with these folks, and in many cases, this is not a problem; however,