Warranty Repair Values vs. Servicing at Dealers
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Mudding
Joined: Jan 2024
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Warranty Repair Values vs. Servicing at Dealers
Folks,
How is a dealership compensated for any warranty-related work and is it welcomed by the dealership? Put another way, is there an incentive or disincentive to perform work under warranty, notwithstanding that they likely have a legal obligation to do so. I'm guessing that someone coming in for a $400 oil change is more valuable from an ROI standpoint, but curious how the process works. and what the dollar value isi in the scheme of things.
Not trying to start a "stealership" debate, just a better understanding of how things are prioritized, valued, etc. Any insights would be great.
Thanks
How is a dealership compensated for any warranty-related work and is it welcomed by the dealership? Put another way, is there an incentive or disincentive to perform work under warranty, notwithstanding that they likely have a legal obligation to do so. I'm guessing that someone coming in for a $400 oil change is more valuable from an ROI standpoint, but curious how the process works. and what the dollar value isi in the scheme of things.
Not trying to start a "stealership" debate, just a better understanding of how things are prioritized, valued, etc. Any insights would be great.
Thanks
Popular Reply
May 1, 2024, 07:08 PM
TReK
Joined: Oct 2007
Posts: 2,768
Likes: 1,982
From: Whidbey Island, PNW
I've worked with a large technology consulting company who pursues the automotive space (they are a client of my business), they do large scale SAP/Oracle/etc integrations for OEM's etc etc blahblahblah. Most of them are cost cutting exercises masquerading as technology integration upgrades. We help them design sales collateral in pursuit of these whale deals. (think 100M + and over time billions of dollars of software)
Over the past 10-15 years, manufacturers and more importantly their in market subsidiaries (like JLR North America) have gone through a rather significant technology upgrade which ultimately is a cost optimization exercise with respect to post sale expenses per vehicle -- namely warranty work. Now JLR demands a lot from service departments to get things approved. It used to be a bit more of an honor system. Or loose, as it were.
So back in the old days, for example, a service manager at Land Rover Nashville could call LR corporate and get literally anything approved, at any time, if he deemed it worthy. In fact, sometimes he didn't even call, they just got the monthly warranty bill. But with real time technology connecting dealer to manufacturers finance and procurement departments, the mother ships realized how much money they would save by simply being tougher on warranty work and real time optimization, eliminating what was basically a dealership version of "rogue buying" by dealers "buying" and charging (for example LRNA/JLR) for warranty parts and labor, and ultimately requiring more approval steps to get warranty work done. Now there's a (ridiculous) amount of computer work for techs and advisors to do to get simple warranty repairs authorized. It's all very impressive and connected, but it's rather annoying to those doing the work. Computer forms, steps to navigate which if not done in order kicks back the submission, documentation and photo evidence that someone at JLR actually manually reviews and approves/denies, then other forms to fill out and wait for approval - just to get components replaced under the 4 year factory warranty. It's not unlike medical offices dealing with health insurance companies. This time is money, takes a good bit of admin time for service departments, and it's a drag on the business. The net affect is that it's more difficult for routine owners to get routine warranty work done without a lot of grousing.
I think this has significantly affected the customer base. Ie us.
If dealers authorize repairs before getting the official approval, they are likely on the hook for it if JLR denies.
The customer pay repairs are thus more straight forward and 'easy work' than warranty work. I think this was perhaps the opposite 20 years ago. I wish I had service department financials to prove this hunch but I do not. It would be interesting to see the data of the split.
Anyway, rambling a bit but...
Over the past 10-15 years, manufacturers and more importantly their in market subsidiaries (like JLR North America) have gone through a rather significant technology upgrade which ultimately is a cost optimization exercise with respect to post sale expenses per vehicle -- namely warranty work. Now JLR demands a lot from service departments to get things approved. It used to be a bit more of an honor system. Or loose, as it were.
So back in the old days, for example, a service manager at Land Rover Nashville could call LR corporate and get literally anything approved, at any time, if he deemed it worthy. In fact, sometimes he didn't even call, they just got the monthly warranty bill. But with real time technology connecting dealer to manufacturers finance and procurement departments, the mother ships realized how much money they would save by simply being tougher on warranty work and real time optimization, eliminating what was basically a dealership version of "rogue buying" by dealers "buying" and charging (for example LRNA/JLR) for warranty parts and labor, and ultimately requiring more approval steps to get warranty work done. Now there's a (ridiculous) amount of computer work for techs and advisors to do to get simple warranty repairs authorized. It's all very impressive and connected, but it's rather annoying to those doing the work. Computer forms, steps to navigate which if not done in order kicks back the submission, documentation and photo evidence that someone at JLR actually manually reviews and approves/denies, then other forms to fill out and wait for approval - just to get components replaced under the 4 year factory warranty. It's not unlike medical offices dealing with health insurance companies. This time is money, takes a good bit of admin time for service departments, and it's a drag on the business. The net affect is that it's more difficult for routine owners to get routine warranty work done without a lot of grousing.
I think this has significantly affected the customer base. Ie us.
If dealers authorize repairs before getting the official approval, they are likely on the hook for it if JLR denies.
The customer pay repairs are thus more straight forward and 'easy work' than warranty work. I think this was perhaps the opposite 20 years ago. I wish I had service department financials to prove this hunch but I do not. It would be interesting to see the data of the split.
Anyway, rambling a bit but...
Last edited by nashvegas; May 1, 2024 at 07:40 PM.
Recovery Vehicle
Joined: Dec 2011
Posts: 1,151
Likes: 459
From: USA
All OEM's have a flat rate for warranty work and it pays the dealership according to the published flat rate for the job and the dealership's hourly rate. For a dealership, it is the same hourly rate, so I would say no disincentive to perform warranty work. It becomes a pain for a dealership when the OEM published flat rate of -say an engine tear down- is 4 hours and it takes a qualified tech 6 hours to do the job. When there are such instances, the dealership can call and request additional time for a warranty job from the OEM who may or may not grant such request. Warranty work for dealerships is a major source of revenue nowadays.
Mudding
Joined: Dec 2021
Posts: 200
Likes: 104
Dealers have no disincentive to do actual warranty work, but the guidelines the manufacturers give them have gotten inherently tighter and stricter as time has gone on. This ultimately limits dealers more to make repairs because they have more rules to follow of a “wait and see if something is clearly broken” before they are guaranteed reimbursement for the repair.
I’ve seen this across multiple dealers over the last several years with vehicles in our immediate and extended family (BMW, LR, GM, & Hyundai).
I’ve seen this across multiple dealers over the last several years with vehicles in our immediate and extended family (BMW, LR, GM, & Hyundai).
TReK
Joined: Oct 2007
Posts: 2,768
Likes: 1,982
From: Whidbey Island, PNW
I've worked with a large technology consulting company who pursues the automotive space (they are a client of my business), they do large scale SAP/Oracle/etc integrations for OEM's etc etc blahblahblah. Most of them are cost cutting exercises masquerading as technology integration upgrades. We help them design sales collateral in pursuit of these whale deals. (think 100M + and over time billions of dollars of software)
Over the past 10-15 years, manufacturers and more importantly their in market subsidiaries (like JLR North America) have gone through a rather significant technology upgrade which ultimately is a cost optimization exercise with respect to post sale expenses per vehicle -- namely warranty work. Now JLR demands a lot from service departments to get things approved. It used to be a bit more of an honor system. Or loose, as it were.
So back in the old days, for example, a service manager at Land Rover Nashville could call LR corporate and get literally anything approved, at any time, if he deemed it worthy. In fact, sometimes he didn't even call, they just got the monthly warranty bill. But with real time technology connecting dealer to manufacturers finance and procurement departments, the mother ships realized how much money they would save by simply being tougher on warranty work and real time optimization, eliminating what was basically a dealership version of "rogue buying" by dealers "buying" and charging (for example LRNA/JLR) for warranty parts and labor, and ultimately requiring more approval steps to get warranty work done. Now there's a (ridiculous) amount of computer work for techs and advisors to do to get simple warranty repairs authorized. It's all very impressive and connected, but it's rather annoying to those doing the work. Computer forms, steps to navigate which if not done in order kicks back the submission, documentation and photo evidence that someone at JLR actually manually reviews and approves/denies, then other forms to fill out and wait for approval - just to get components replaced under the 4 year factory warranty. It's not unlike medical offices dealing with health insurance companies. This time is money, takes a good bit of admin time for service departments, and it's a drag on the business. The net affect is that it's more difficult for routine owners to get routine warranty work done without a lot of grousing.
I think this has significantly affected the customer base. Ie us.
If dealers authorize repairs before getting the official approval, they are likely on the hook for it if JLR denies.
The customer pay repairs are thus more straight forward and 'easy work' than warranty work. I think this was perhaps the opposite 20 years ago. I wish I had service department financials to prove this hunch but I do not. It would be interesting to see the data of the split.
Anyway, rambling a bit but...
Over the past 10-15 years, manufacturers and more importantly their in market subsidiaries (like JLR North America) have gone through a rather significant technology upgrade which ultimately is a cost optimization exercise with respect to post sale expenses per vehicle -- namely warranty work. Now JLR demands a lot from service departments to get things approved. It used to be a bit more of an honor system. Or loose, as it were.
So back in the old days, for example, a service manager at Land Rover Nashville could call LR corporate and get literally anything approved, at any time, if he deemed it worthy. In fact, sometimes he didn't even call, they just got the monthly warranty bill. But with real time technology connecting dealer to manufacturers finance and procurement departments, the mother ships realized how much money they would save by simply being tougher on warranty work and real time optimization, eliminating what was basically a dealership version of "rogue buying" by dealers "buying" and charging (for example LRNA/JLR) for warranty parts and labor, and ultimately requiring more approval steps to get warranty work done. Now there's a (ridiculous) amount of computer work for techs and advisors to do to get simple warranty repairs authorized. It's all very impressive and connected, but it's rather annoying to those doing the work. Computer forms, steps to navigate which if not done in order kicks back the submission, documentation and photo evidence that someone at JLR actually manually reviews and approves/denies, then other forms to fill out and wait for approval - just to get components replaced under the 4 year factory warranty. It's not unlike medical offices dealing with health insurance companies. This time is money, takes a good bit of admin time for service departments, and it's a drag on the business. The net affect is that it's more difficult for routine owners to get routine warranty work done without a lot of grousing.
I think this has significantly affected the customer base. Ie us.
If dealers authorize repairs before getting the official approval, they are likely on the hook for it if JLR denies.
The customer pay repairs are thus more straight forward and 'easy work' than warranty work. I think this was perhaps the opposite 20 years ago. I wish I had service department financials to prove this hunch but I do not. It would be interesting to see the data of the split.
Anyway, rambling a bit but...
Last edited by nashvegas; May 1, 2024 at 07:40 PM.
Look at like this. JLR is the dealership's best and biggest client. As stated above, JLR pays the same labor rate per hour as you would pay there as customer pay. The difference is that the labor time is mandated by JLR using their internal labor guide. Customer pay labor time is usually determined from this labor time plus a multiplier. For example, the dealer may use warranty time X 1.25 up to 2.0. depending on the dealership for a vehicle out of warranty. JLR will monitor the dealerships using a metric like a warranty index to determine how much money they are spending on each vehicle repair order, as a whole at the dealer and also compared to customer pay that the dealer is charging. There are amounts per RO and dollar amounts per vin that will trigger a red flag amongst a lot of other metrics. It is a numbers game. They don't want to spend more money than needed. Less is best for them as long as the customer satisfaction index stays high. JLR will perform audits and call back suspect parts and repair if they deem it necessary and will charge back the dealership. It is much more stringent at high volume large dealerships. Technician stories have to be very detailed and can not use words like "broken" . At the end of the day, fear of this backlash from JLR and up selling warranty ( adding warranty repairs to a ticket without a customer complaint ) put the dealer technician in a difficult spot to navigate. Hence the grey area of warranty coverage and lack there of.
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