There is a significant, untapped source of fixed operations revenue that is available to dealerships depending on their size. Even for small dealerships, warranty reimbursement for parts and labor at retail markups and rates can help a dealership to realize additional profits of at least $10,000 per month and often hundreds of thousands of dollars annually. With the help of experienced legal counsel, a dealership can enhance its bottom line by submitting to its manufacturer comprehensive applications for a warranty labor rate increase and a warranty parts markup.
As recently as the early 1990’s, dealers were unable to receive more than a 40 percent warranty parts markup – the standard manufacturer rate which still exists today. In the late 1990s, hundreds of New York dealers retained our firm to demand to be paid fair and reasonable rates – rates that dealers would charge a customer for work not covered under warranty. These dealers received up to seven-figure retroactive settlements as a result of the litigation. Manufacturers responded to this by negotiating legislation in many states, allowing for prospective warranty reimbursements at retail levels.
Regrettably, some dealers have not yet exercised their right to retail parts and labor reimbursement because they are unaware of their state laws, which provide this right. There are 40 states with statutes that provide for retail-level reimbursement for dealers who submit to the manufacturer. There are only ten states without statutes allowing for warranty reimbursement, including Alaska, California, Colorado, Iowa, Kansas, Michigan, Mississippi, South Carolina, Tennessee, and Wyoming.
Even for those dealers who are aware of warranty reimbursement rights, some are hesitant to submit to manufacturers because of a fear of retaliation or disfavor. To the contrary, our clients have seen no such behavior and we can help dealers push back against the occasional attempt to impose prohibited surcharges. Throughout the process, we recommend that experienced counsel work behind the scenes, this way the manufacturer does not know that the dealer has retained them, unless a flex of muscle is required.
Among the states that do allow for warranty reimbursement at retail, they permit submission once or twice per year. Additionally, when a new dealer principal comes in after a buy-sell, the reimbursement rates to revert to the standard manufacturer rate of cost plus 40 percent, which means a dealer must re-submit in order to be reimbursed at retail levels for warranty repairs. We often counsel dealers as to the preparation and timing of a submission after a buy-sell.
Typically, the submission process involves sending 100 of the highest-yielding sequential qualifying repairs to the manufacturer. In some cases, a manufacturer honors the rate indicated in a submission. However, manufacturers more often push back in an attempt to negotiate a lower rate than the one submitted. Occasionally, we are told by dealers that they wish to have their parts or service manager take a stab at doing it themselves in order to save the legal fee. Invariably, they regret it as manufacturers are adept at finding flaws. The revenue loss of the resulting delay often exceeds the fee several-fold. This is where legal expertise and familiarity with manufacturer policies will assist dealers in obtaining the best warranty reimbursement for their dealership.
How Can We Help?
We are proud to be regarded as the pioneers of warranty reimbursement at retail. Dealers can rely upon our experienced legal team to maximize their rate increase and expedite the submission process. We charge a low fixed-fee that is typically recouped within a month of receiving the increased parts markup or labor rate. We do not become your “partner” by charging you a contingency or percentage-based fee. Because of the volume of work we perform, our firm can keep the fee at a fair, fixed amount for our dealer clients.
The profit is there for the taking and dealers don’t have to change the way they run their business to help themselves reach maximum earning potential in their service departments.
Note: this article does not constitute legal advice. Please consult an attorney for the matters discussed herein.
Leonard A. Bellavia is the founding partner of Bellavia Blatt, PC. Mr. Bellavia is considered a nationally recognized authority in the field of automotive franchise law and has represented the most well-known and largest franchised dealer groups nationwide for over 30 years. Bellavia Blatt has helped thousands of dealerships across 40 states to receive retail rates for their warranty repairs through the firm’s Warranty Reimbursement Program. For more information, please contact Bellavia Blatt, P.C. at (516) 873-3000, or CForgione@DealerLaw.com.