Building Service

Untitled Document


by: Tyler Nathan, WPI.		Date: Feb. 1st 2004

Title: Building Service Business

Since the late 1990s, many of the nation's more sucessful companies improved processes and profitability by determining their key elements of business and focusing on them. They found that by eliminating and outsourcing nonessential processes, they became more focused on key profit-related tasks and they were better able to react to market changes. The service department in any dealership is an incredibly complicated business that combines technical procedures and processes, customer handling, and relations with the manufacturer. This situation creates the necessity for great care and attention from management and , has four key elements.

Everyone knows a good shop needs qualified professional technicians to quickly diagnose, isolate and make repairs. To keep up with the endlessly changing automobiles of today, service must hire and train competent personnel, schedule ongoing technical training, and make available technical bulletins and information. In order to remain competitive, a dealer must keep those high-cost, hard-to-find employees producing consistent billable hours. Each repair is different, and profit will vary considerably depending on which tech does the job. Techniques for keeping the shop loaded range from performance-related pay plans to complex scheduling systems. The sales process is just as complicated. Customers rarely understand the complexities of the procedures, the necessity of maintenance, and the costliness of repairs. The mechanics may service the vehicle perfectly and the dealership may charge the customer fairly, but it does little good unless the communication process leaves the customer feeling satisfied.

		Finally there is the biggest customer of the service department, the manufacturer. The manufacture will not pay for incorrect repairs and unusual warranty trends could lead to costly audits. In the manufacturer’s constant pursuit of monitoring and lowering expense, they have created complicated systems to track and mange expenses. Unfortunately for the dealer, the cost of administrating those systems has been transferred to the service department.

In summary, This adds up to a very complicated high-maintenance business that can quickly end up in the red. Most good managers know that qualified mechanics, loading the shop, handling customers, and relations with the manufacturer are the four key elements of service. That is why WPI’s quality claims service is an excellent tool to reduce distractions and help service focus on those key elements.

To illustrate how distracting warranty administration is to the service business, lets examine the normal in-house warranty process. The warranty function would best be suited for the office, except that it contains just enough technical automobile jargon to confuse most office personnel. So what happens? Key individuals like service advisors, technicians or even service managers end up coding or managing the administration of warranty. The result outcome is far less focus and attention on the key elements of service, poor claims submission, and frequent costly write-offs. Medium to large shops have the resources to hire a warranty administrator, with the intention of reducing this stress from management. However management is still heavily involved, especially during transitional periods when training is essential.

Many times the warranty administrator becomes far more knowledgeable about warranty submission than the service manager, creating the impression that the administrator’s work does not need to be reviewed by the manager. This leads to two major mistakes. The first is the assumption that the warranty schedule is the only indicator that a warranty administrator is doing his or her job well. Watching the schedule will help a dealer avoid painful, out-of-date warranty write-offs, but it does nothing to avoid audit liability or missed opportunities due to carelessness in the closing of the claims. During in-house warranty reviews, it is common for WPI to find more than 2% of a dealers total warranty revenue missed from the lack of submission, and an additional 15% that is likely to be reversed in an audit. To avoid these quality pitfalls, the manager must review a portion of the claims on a frequent basis, or periodically hire a third party to review samples of claims. The second major mistake is to entrust the warranty administrator with the ability to make journal entries to the warranty schedule. This may seem efficient, but it is extremely dangerous. One dealership actually had their warranty administrator journal away out-of-date unpaid claims with credits from current paid claims. Needless to say this eventually caught up with the individual. It cost the dealership thousands of dollars and damaged the trust between the dealer and the manufacturer.

		One might ask: Why all the fuss over warranty? Who cares if I miss a little, or if the manufacturer charges back a few claims. The truth is, depending on the make of vehicles you service, warranty could be as much as 50% of your total sales in service. Considering that a well run shop profits somewhere around 2% annually, these losses could be the difference between black and red on your financial statement. Now it is the time for some real forward thinking into the benefits of outsourcing this tedious process to WPI. Whose primary focus is the proper administration of warranty. Our system delivers some incredibly helpful management tools that will allow dealers to focus on key elements.

WPI reviews parts used in each repair and compares them to the technician comments. If a part is missed, we contact management via phone and/or reports to remedy the situation. This third party oversight helps managers find and repair weaknesses in their systems to avoid continued losses. WPI provides noted tips on claims that need attention. These reports help management stay focused on proper write-up and procedures for all repairs. WPI reviews the manufacturer’s warranty trend reports and helps service understand root issues that can contribute to higher expense in your overall service operation. Our Quick-Claim program reduces labor by coding the claims within one business day. We are able to get necessary information to service in a reasonable time for flat-rate pay purposes. We even close the repairs in the dealer’s in-house computer system. WPI’s system removes the need for service to manage the administration of warranties. We have routine quality checks that directly affect our processors. Our processors look for every dollar available and ensure that policies and procedures are being followed. WPI follows through on every warranty claim. If a claim needs an approval from service, we contact service and list the claim on a weekly report. If a response is not received, calls and letters follow. WPI creates an easy-to-use accounting adjustment form for the dealer's office. When used properly, it is an insightful tool for management. Upon reflection we know that service is a business with incredibly high maintenance and complexities. Other successful companies have been able to improve profitability and react to changing markets quicker by outsourcing nonessential functions. WPI offers an unmatched warranty system that delivers far more than in-house administration, and in most cases, less expensive. Stop putting out fires and start preventing them! Consider how much better your bottom line could be if you spent all of your time and resources on building the four key elements of service.

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