TODAYS WARRANTY TRENDS CHALLENGE DEALERS

Almost seven years ago, the Big Three announced their Project 2000 part of which was a plan to reduce warranty expense by at least 60%. In the beginning, we heard many people in the industry saying, “there was simply no way, it was going to happen,” and if it did “what will we do to replace the work?” Unfortunately, for those of us directly involved with service, the manufacturers have managed to do just that. Change is difficult, whether the outcome appears to be for good or not, and companies must be able to adapt, or go the way of the dinosaur, until they eventually are forced into it anyway.

The manufacturers have been successful at reducing warranty using several key strategies:

• Tighter Warranty Controls
• Shorter Submission Limits
• Reduction of Labor Times
• Reduction of Parts Prices
• Better Built Vehicles

The measurement systems and trend reports that the manufacturers have put into place are so successful at comparing dealer against dealer, in such away that any dealership, already has or will most likely find themselves in an audit or review within the next five years. The manufacturers are also using better technology to enforce daily on-the-spot compliance to their never-ending procedures. Any claim that stands out has the potential of being charged back or rejected. In order to reverse a chargeback, the dealer will have to provide proof via fax or mail that all procedures were done to the manufacturer's requirements. This type of auditing is becoming more prevalent since the factories are discovering its effectiveness. It has also made it imperative that the personnel, responsible for the submission of your claims, are well-versed in the manufacturers requirements and general repair procedures. One mistake or oversight could result in large losses of revenue.

Reduced submission times are focused on saving the domestics big money. A couple of years ago, Ford reduced their submission time from 180 to 90 days, and now, Chrysler just lowered theirs to only 60 days . Meanwhile, Ford has added a second level of bureaucracy to the process, by reducing the authority of their own company representatives, to override out-of-date submissions to 30 days. Collecting on a claim after that period will require some proof that Ford somehow caused the delayed submission, and then you will need to acquire a district manager's approval. Changes like these have been extremely effective at shifting costs to dealerships, especially when there is turnover in their warranty personnel.

Reduced labor times, part prices, and reductions of available operations have no doubt cost the dealer body millions. For years, we have been instructing dealers to train and motivate their mechanics to clock in and out of each job and punch separately for any additional procedures. Taking the lead from GM and Chrysler, Ford has found a new way to use this mundane, clocking task to save them big money without the need to perform costly audits. It is apparent to us, the strategy is to periodically remove common labor times from the SLT (Standard Labor Times). Watch for the submission of actual time for the repair, realizing of course, that most mechanics don't punch each job separately, and then when the times are divided, they usually favor the manufacturer, due to the lack of clocking information to sustain the procedure. Finally, Ford uses the collection of this information as a basis to reduce the labor operation when it becomes publicized again at a later date.

There is no denying that the quality of the Big Three has improved. We have seen a tremendous drop in overall volume across the board, over the past several years. Naturally, the automakers would state that this is the main reason warranty has dropped. We, however, would list it at number four due to the fact that the dollars have fallen far more than the actual claim submissions.

To protect the remaining amounts of revenue deriving from warranty and to defend against the factories desire to transfer further expense to the dealer, they must focus on these key areas:

• A solid warranty administration system (not dependant on one person)
• Properly trained service advisors
• Managing repeat repairs
• Routing the work to the correct tech
• Following proper recall and TSB procedures
• Weekly review of warranty reports (schedules and work-in-process)
• Review and full understanding of factory trend reports and root causes
• Good accountable parts return process

It has never been more crucial to have a solid warranty processing system. A good system creates accountability, relieves management of clerical duties, and keeps them informed when things go amiss before it is too late. Service management should be well versed in the factory's policy changes, by reading the latest factory information. They should spend a good amount of time ensuring that the writers and the mechanics are well informed. They must have the flexibility in their schedule, and take the necessary time to address errors and council employees. Service management needs to be responsible and accountable for the work-in-process and the warranty schedule. The aged claims on these reports are essential at providing the manager with vital information about his process.

The warranty rules have changed. The Big Three are clamoring to lower expense to remain competitive with the imports. Is your organization up to the task? Contact us today. We will gladly show you how to create the best possible warranty system in the most economical way.