The financial data tends to break down into departments and then compares the bottom lines of the departments to each other. The way I see it, it gives you a much better understanding of how important the service department is to the financial health of a dealership.

Of course the part of the service department we want to look at is warranty and how it has changed from the previous year. So let’s get to it.

Labor Sales

2000 Warranty – 5.76 billion dollars
2001 Warranty – 6.62 billion dollars
2002 Warranty – 6.77 billion dollars
2003 Warranty – 6.83 billion dollars
2004 Warranty – 6.70 billion dollars
2005 Warranty – 6.67 billion dollars
2006 Warranty – 5.99 billion dollars
2007 Warranty – 5.89 billion dollars
2008 Warranty – 5.42 billion dollars
2009 Warranty – 5.44 billion dollars
2010 Warranty – 6.29 billion dollars

2000 Total Labor Sales: 32.73 billion dollars
2001 Total Labor Sales: 35.66 billion dollars
2002 Total Labor Sales: 35.82 billion dollars
2003 Total Labor Sales: 37.25 billion dollars
2004 Total Labor Sales: 37.31 billion dollars
2005 Total Labor Sales: 38.23 billion dollars
2006 Total Labor Sales: 36.42 billion dollars
2007 Total Labor Sales: 37.60 billion dollars
2008 Total Labor Sales: 36.31 billion dollars
2009 Total Labor Sales: 33.58 billion dollars
2010 Total Labor Sales: 34.55 billion dollars

Parts Sales

2000 Warranty – 7.70 billion dollars
2001 Warranty – 9.48 billion dollars
2002 Warranty – 9.20 billion dollars
2003 Warranty – 8.87 billion dollars
2004 Warranty – 9.05 billion dollars
2005 Warranty – 8.77 billion dollars
2006 Warranty – 7.84 billion dollars
2007 Warranty – 7.69 billion dollars
2008 Warranty – 7.03 billion dollars
2009 Warranty – 7.27 billion dollars
2010 Warranty – 7.45 billion dollars

2000 Total Parts Sales: 41.10 billion dollars
2001 Total Parts Sales: 44.44 billion dollars
2002 Total Parts Sales: 47.28 billion dollars
2003 Total Parts Sales: 48.10 billion dollars
2004 Total Parts Sales: 48.18 billion dollars
2005 Total Parts Sales: 46.93 billion dollars
2006 Total Parts Sales: 44.03 billion dollars
2007 Total Parts Sales: 45.75 billion dollars
2008 Total Parts Sales: 45.53 billion dollars
2009 Total Parts Sales: 42.63 billion dollars
2010 Total Parts Sales: 43.08 billion dollars

Total Service and Parts Sales Per Warranty Repair Order:

2000 – $207
2001 – $222
2002 – $222
2003 – $213
2004 – $198
2005 – $214
2006 – $232
2007 – $235
2008 – $242
2009 – $273
2010 – $258

From the numbers, we can make estimates on additional warranty information.

Total Warranty Expenditures

2000 – 13.46 billion dollars
2001 – 16.10 billion dollars
2002 – 15.97 billion dollars
2003 – 15.70 billion dollars
2004 – 15.75 billion dollars
2005 – 15.44 billion dollars
2006 – 13.83 billion dollars
2007 – 13.58 billion dollars
2008 – 12.61 billion dollars
2009 – 12.71 billion dollars
2010 – 13.74 billion dollars

- Warranty repair order sales for 2010 were 17.70% (up from 16.68% from last year) of total service/parts sales.

-Total warranty repair orders for 2010 were 53.25 million (up from 46.55 million from last year)

- Average number of warranty repair orders per dealership for 2009 – 2,945 (up from 2,524 last year)

- Average warranty repair order sales per dealership for 2009 – $759,955 (up from $689,337 from last year)

The NADA Data numbers for 2010 are telling quite a tale about what an impact warranty sales has on the service and parts department as a whole.

85% of the increase in labor from 2009 to 2010 came from warranty claims while 40% of the increase in parts sales came from warranty. Warranty helped lift up the back end of the dealership.

Total warranty expenditures increased 8.1% from the previous year. Most of that increase came in the form of labor. There are potentially a few reasons for that but it certainly can’t be traced to an increasing number of states giving dealerships the option to seek out higher parts markups. Considering the number of states that has become an option in, I would have thought warranty parts expense would have been higher but perhaps manufacturers are driving down the price of parts that most often would be used in warranty repairs to compensate for it.

The dwindling dealership population is having a big impact on some of the numbers. The average dollar amount of warranty repair order sales per dealership and average number of warranty repair orders is up 10.2% and 17% respectively.

The warranty dollars coming into the dealership is having more and more of an impact on profitability and will for a long time to come. If a dealership ignores good claims processing procedures, claim documentation, training and proper warranty expense controls, they do so at the peril of a healthy financial future.

It’s an issue we all have but how we resolve it is where we run into problems. The phrase “Just get it done.” has been heard through every single dealership but sometimes that’s been interpreted as “Get it done as fast as you can so it’s not my problem.”

In the race to “Just Get It Done”, it often leads to shortcuts that in the end could be more damaging than taking more time to resolve a problem.

Here’s an example.

A customer comes into the service drive and they’re about 1,100 miles out of warranty and they have a problem with their vehicle that’s fairly common. There’s no warranty extension to cover the problem and the customer doesn’t have a service contract. They’re also a good customer.

The service advisor wants to take care of the customer since they’ve been a good customer for a long time and have purchased other vehicles from the dealership. It’s possible the service advisor may even talk to the service manager about it. The decision is made to rollback the mileage on the repair order because the
vehicle is still in warranty by time. It seems innocent enough. You feel pretty confident the manufacturer would approve of giving the customer a goodwill adjustment for the repair so changing the mileage isn’t so bad, is it?

Yes it is! It’s great to help out a customer and the service staff was probably right thinking that the manufacturer would have provided goodwill assistance on the repair considering they are a good customer and the problem is a pretty common one. But the problem arises when you shortcut the policy on goodwill and took the easy way out. When you start altering documents to get a claim paid you end up potentially causing more problems not only for that claim but the dealership may suffer the wrath of something they may
not fully understand or consider.

Let’s say your warranty expense is high and it’s under the scrutiny of the manufacturer. Eventually a warranty auditor may come in to do a review. If you’re lucky they don’t see the claim we talked
about. If they do see that claim during the review, you could be in a world of hurt.

The auditor may see you altered the mileage on the claim even though you made an effort to cover it up but not necessarily a good one. Most people aren’t particularly great at covering all their tracks. So the auditor finds the altered mileage and charges the claim back. You argue that you’re owed the money, you did the right thing for the customer and they would have approved the claim anyway.

It’s doubtful you’ll win the argument so you’ll not only lose that claim but you’ll likely lose many more. Altering the mileage is often considered misrepresentation and is a nice way of saying you committed fraud. To take it one step further, most manufacturers when they find misrepresentation will automatically schedule a
follow up review no matter how well the audit goes otherwise even if you bring your warranty expense inline. You may also find the level of the audit you’re going through is increased.

So now that one claim (perhaps others were found too) has guaranteed you a return visit no matter what the condition of the other claims reviewed were and regardless of whether you got your warranty expense under control.

That $200 claim has now turned into an accusation of fraud and another visit from the auditor that you may well have avoided otherwise. The next visit will bring about even more chargebacks. So could that $200 claim turn into an additional cost of $2,000? $20,000?

How much time will your dealership spend prepping for the next audit and dealing with the auditors during their visit? It’s starting to sound really expensive, doesn’t it?

Don’t assume this applies just to mileage rollbacks. Any number of shortcuts can lead to a situation the manufacturer will consider a serious problem. It could be anything from clocking on two separate ROs at the same time to changing part numbers on a claim to get it paid or opening up a separate RO on the same vehicle to spread certain expenses over separate ROs to bypass the need for an authorization from the manufacturer.

In extreme cases where fraud/misrepresentation is widespread, there is the chance that the manufacturer may start proceedings to terminate the franchise.

If you think there’s no trouble going on, think again. It happens in many dealerships. In some dealerships it’s a rare event and in others it’s a condoned practice. It not only has to do with avoiding an audit but if the practices of deception are condoned in the dealership, how far will a rogue employee take it? Will they steal from the customer? Will they steal from the dealership?

Don’t let some extra paperwork or a little time getting an authorization bring much bigger problems into your dealership. The time saved could be the costliest mistake ever made.

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To say the least I was a little surprised at the condition of the area but being new at the game I just thought that’s the way it was done. Parts were piled all over the place. Two sets of bins facing each other were being used for two different manufacturers – Toyota on the left, Nissan on the right. It seemed the floor was a catch all for anything that didn’t or couldn’t make it into the bins.

After adjusting to the new job a few months and reading everything that I could about warranty administration I realized the warranty parts return area we had wasn’t up to standards. Although the parts department was supposed to take care of it, it was obvious it was something they didn’t want to deal with.

The area was buried in the most inaccessible place in the parts department, a place where management rarely went by and that’s how it was allowed to become the disaster that it was. The parts counterpeople would stand at the far end of the parts bins that were in front of the parts return area and just throw the parts from about twenty feet into a pile that over time built up.

I took some time to try and help unbury the mess. Any free time I had was spent back in “the hole.” It only took a few months before it was back in the same mess that it originally was.

Fast forward a few years. A few parts debits started coming across the claim payment reports. I went back to “the hole” to see what was going on and it looked as bad as when I last left saw it a few years ago. I wasn’t going to visit because I knew I would get frustrated at the sight but the parts debits sent me back there.

Now I took even more time to unbury the mess that the parts department built up. It wasn’t uncommon to find parts that had been there more than a year. The new parts just piled up on the old ones and no one ever bothered to dig too deep to clean it out.

After spending the time to clean out the old stuff, I looked into what should have been there and to my surprise, only about twenty percent of the parts that should have been there, were there. After a while if an old warranty part wasn’t returned to the counter, no one seemed to care and the problem was ignored.

Now to the second dealership I worked at where the warranty parts return process was the polar opposite of the first.

We did it right from start to finish.

First step in the parts return process was making sure parts did get returned by use of a parts return stamp. When a technician brought the parts to the counter after a warranty repair, the counterperson stamped the back of the hard copy.

When the claim came in to be processed, I would make sure the stamp was there and send it back out to the service advisor if it didn’t.

It didn’t stop there. Once each new claim payment report came in, I’d highlight the RO numbers of the claims for the parts that could be trashed. If only some repair lines of RO were paid, it was noted which parts could be disposed of. So the list didn’t get lost, I held onto it until the date we could scrap the parts (GM is 15 days past the date of payment) and then gave it to the parts department.

If a parts return request came in, either it was handed off directly to the parts department or came through me and I went to the parts department with it. We kept the documentation when the parts were returned so we always had a record of it being sent.

It wasn’t luck that a process was in place at the second dealership, it was good planning and it takes good planning to do it right and avoid the chargebacks that can happen with a poorly handled warranty parts return process.

What practices should you put into place for your warranty parts return program?

1. Knowledge – Everyone needs to know the ins and outs of what the manufacturer requires. That includes the retention period, what needs to be held and what happens if the part isn’t sent in on time.

2. Shared Control – Both the parts department and service department should work together to put a good process in place. One person from the service department (usually the warranty administrator) and one from the parts department (preferably the person who will scrap parts and send out the returns) should work together to keep things in order and share information so it runs smoothly.

3. Tracking at the counter – Once parts return debits start happening or parts that need to be returned turn up lost, the finger pointing between service and parts usually starts. That’s why a good procedure to make sure parts are returned can help determine weak links in the system. The parts counterperson should sign off on the repair order saying that they received all the old parts related to the warranty repair. If a claim comes across the warranty administrator’s desk that isn’t signed off, it should be returned to the technician to return the parts. That will at least give you some ability to track part returns and make sure they’re available if needed.

4. Timely parts scrapping – A messy return area can easily slow down the return of parts to the factory when they’re requested so it’s important to keep it clean. The only way to keep it clean is to do scrapping as often as possible. That requires an exchange of information between the parts department and the warranty administrator so the parts department knows which parts can be scrapped and which can’t.

5. Tracking parts returns – When a part return request is received, it’s an absolute must to make sure the parts get sent out as well as a way to track them. GM uses UPS for parts returns and so do some other manufacturers but even if your manufacturer uses another company for parts returns, a package tracking number is available so you can check the disposition of the package at any time as well as know who signs for it. For the most part, you won’t need it but when you get debited for a part that was returned, it can be a lifesaver.

Take a look at the last six months of claim payment reports. Have you had any debits? How many and how much has it cost you? If you’ve had even one debit and wasn’t able to get the debit reversed, you do need to look at your processes and make some changes. Use the list and examples above to fill in the gaps where your money can slowly be leaking away.

It’s always turns into an interesting discussion and one I have some strong opinions about. The knee jerk reaction is that the technician should be charged back the hours that they were overpaid. I’ve seen it time and time again but once some thought is put to it, the answer isn’t as clear as it once seemed.

Let’s face it, in the case of a warranty schedule that’s gone out of control, it’s unlikely any detailed review of many smaller claims that have been underpaid or any claims that have been overpaid happens. That means in the case of overpaid claims, parts or labor sales may not have been credited with the appropriate
amount of additional money paid on the claim.

Now let’s extend that to the technicians. When a claim is finally paid and the labor is paid more than originally claimed, do you credit the technician the additional time you were paid? It’s doubtful. Very few places do.

In all fairness, if you’re going to take time away when you’re not paid as much as you originally paid the technician, you should in turn pay them when you get paid additional labor time they weren’t flagged for. Why would you take back the time from the technician when you don’t give them the additional time they should have been paid?

Let’s take it a little further. If your service advisors, parts counterpeople or management are paid a percentage of sales or gross, do you in turn take away the money they made on the unpaid difference? I’ve never seen that happen.

If we were talking about audit charge backs and the claims were charged back for obvious problems with documentation, then I think a case could be made for charging someone back, as long as they were told ahead of time that they would be charged back and it had been determined they are indeed the cause of the charge back. There shouldn’t be any question about who is at fault and only the person that made the error should take the hit.

When it comes to schedule clean ups, it may be a good idea to temporarily suspend some of the rules and suspending it for charge backs could be a wise move. When you’re dealing with a schedule clean up, time is of the essence and dealing with detailed notes about one-tenth of an hour labor short pays is just taking time away from getting the schedule cleaned up as quickly as possible.

If you’re going to put in place procedures in place to charge back any labor time not paid on a warranty claim, you’ll also need to credit any additional labor time payments. That way it can’t be said the dealership is only making adjustments that are in its favor.

To make it a truly fair system, anyone else that is paid based on sales, gross or hours flagged should get the same treatment. If a service advisor is being paid off sales or a shop foreman is getting a commission based on shop hours turned they should take a hit or get credited too.

One thing you need to think about after having read this article. I’m talking about warranty claims that have been labor flagged, closed, submitted and paid. If we were talking about claims that hadn’t been closed yet and you’re correcting the labor time before it gets submitted, you should make the time adjustments in the computer and if you’re still using them, time flag sheets.

A good system that is fair to everyone will keep problems to a minimum. Setting up a system that seems to favor the dealership will be looked upon with disdain. In the end, being fair will keep you from losing more money from discontent in the shop than you will gain by keeping the gains and charging back only for losses.

Take a look back and think of the last time you sent a used car to another dealership (e.g.: A Chevrolet dealership sending a Ford vehicle to a Ford dealership) for warranty repairs. With some dealers it’s not an uncommon practice, while in the vast majority of dealerships, it’s rarely done. Usually the vehicle is run through the service department and the designated used car technician performs repairs. While we are not advocating going to competing dealerships for all work on used cars, warranty repairs create a special circumstance.

To cut overall dealership expenses, the used car department and service department should work together to occasionally find ways to have repairs made at the least cost. This may mean getting warranty and recall work performed at other local dealerships.

The Service Manager and Used Car Manager should pull the history files of recently sold low mileage, late model used cars and review the files for repairs that may have been covered under warranty. I’m sure if you review enough files, you will eventually find repairs that you could have had covered under warranty by another dealership.

We know some of you are thinking that it’s taking the work away from your own shop and giving it to others for them to make money. In a sense, it is, but let’s be honest, just how much work would it be? In a worst case scenario with a large volume of used vehicles of other makes, it may send no more than two or three repairs a month to the competition. In a situation where no repair is needed to recondition the vehicle and the vehicle is involved in a recall, it’s work you wouldn’t have performed in the first place. No loss
there.

Let’s take the flip side of it. Under this same scenario, your service department could be receiving warranty/recall work from other dealerships that you may have never seen before. Not a bad deal at all especially if it’s the slow time of the year (and that’s the time of year we’re in right now). It’s the kind of work you’re already doing. You know the vehicles; you have the special tools and the service manuals for the repairs unlike the warranty work you just shipped to another dealer.

In an effort to foster a good working relationship between the dealerships, information such as in-service dates, recalls and warranty extensions should be easily exchanged. Perhaps dealerships can fax each other a list of vehicles in their inventory for the manufacturers they don’t service and each dealership can run a recall search to see if any of the vehicles need a recall repair taken care of. It’s something you would have to work the bugs out of but it’s some food for thought.

This kind of alliance between local dealerships is a win-win situation. Service departments would have a few less repairs to vehicles they are unfamiliar with and more work on ones they are familiar with. Used car departments would spend less on reconditioning costs.

The Used Car Manager and Service Manager should pull the vehicle history folders of a few low mileage (under 36K) 2005 and 2006 model year vehicles of competing makes. Review any repairs made to vehicles and see if it’s something that should have been handled under warranty. Did you find a number of them? None at all? Just a few? Even if you found just one, you should take a hard look at how much money was needlessly spent repairing the car when another dealership could have done it for free.

If you’re franchised for Chevrolet, do you really want to work on a Mazda if you don’t have to?

His question was, of course, about warranty. The dealership he’s working at is extremely tight with authorizing straight time, to a fault in my opinion. It seems their warranty numbers aren’t in good
shape and like others in their position, they’re trying to stave off a potential audit in the future.

How are they trying to do it? I’m glad you asked – restricting straight time.

Wow! What a formula for warranty bliss! With that kind of advanced thinking, you would think they probably shouldn’t have fallen into the warranty expense trap in the first place.

So now this dealership is cutting back on some technician’s pay all in the interest of saving them from an audit.

I bring this subject up because I get a little frustrated with the simplistic techniques many dealerships employ to get their warranty numbers in line. Cutting out straight time is one, not claiming diagnostic time is another and my all time favorite is – more small claims!

The problem with all of these notions is that they’re quick fixes that may mask the real cause of their problems.

Then come the excuses, I can hear the excuses now. The problem cars from all the other dealerships in the area come to us. We’re selling more of one particular problem car than anyone else. The dealership is in a unique area. Every dealership is high. Brakes (or name another repair category) are a problem for everyone.

The reality is often vastly different.

A real objective review of the problem will often reveal an extensive list of problems that are contributing to the problem. But since it’s frequently easier to give excuses than do your own
root-cause analysis, excuses tend to be the way many explain their predicament.

I don’t want to sound like a pain in the butt but rarely is the dealership a victim of circumstance when it comes to warranty expense. High numbers often do mean there is a problem. Yes it does take digging. Yes it is important to take it seriously and look into a problem or you will be looking at an audit.

I’ve heard some say to bring it on. There’s nothing that an auditor will be able to find wrong in their place. That’s just the wrong approach to take. This is analogous to standing on a sidewalk and seeing a car coming directly at you. You don’t move, don’t flinch and wait for the driver to change their course. The driver doesn’t change course and you get run down. Why not jump out of the way? The thinking is that it was the responsibility of the driver of the car not to hit you.

Just as in the analogy, you’ll get run over when an audit comes and you’ll wish you had avoided the situation all together.

If you think an auditor is going to walk away with just a few pennies and you’re going to be laughing in the end, you’re dead wrong. No service department is perfect. There are problems to be found, many of them, if you haven’t taken the time to fix most or all of your problems ahead of time. Problems left unsolved are just what an auditor is looking for during an audit.

A fairly consistent excuse for being high in some repair categories is that “everyone is high.” Well, that’s not the case at all. When you’re talking about averages, someone is high, others are average and some are below average. If you were to take three dealerships and use their numbers as a basis to use as an average, there’s going to be one high dealership, one dealership close to average and another below average. Yes, the below average dealership may do a lot of work in the one category but the high dealership is doing far more. There is never a case when every dealership is high in a repair category.

Yes, it is frustrating. It’s often not easy for someone in the dealership to look at past repairs and look at them with an objective eye. Often times it does take an outsider to come in with an unbiased point of view and review the areas that you’re high in.

First, warranty problems don’t magically go away on their own. There’s a reason it happened and a reason the problem has subsided. It could be the loss of a problematic technician. Maybe a new service advisor has been hired and is doing a better job documenting customer complaints. It could be you’ve finally added a dispatcher to distribute the work and he/she has been doing it so the wrong people aren’t matched up with jobs they shouldn’t be touching.

Second, assuming it will go away on its own isn’t an option. If your warranty numbers are headed in the wrong direction, do something but make sure you address the real problems and not just do something because it’s a quick fix. Rarely is it something as simple as giving out too much straight time or working on problem vehicles from other dealerships. Often the problems are complex and usually more than one problem is involved.

I don’t want to sound too doom and gloom about warranty expense issues and how they’re handled. Some dealerships can solve the problem on their own with some serious examination and others need help from the outside. No matter what route works for you, it’s important that you get the problem fixed and you don’t make assumptions about the problem and implement “solutions” that cover up the real problem and penalize people that aren’t the problem.

There are ways to experience warranty bliss but the solutions don’t come with just five seconds of thought.

You know when you see it when you find yourself winding your way to the back of the parts department (or some out of the way place in the service department) and find yourself staring at some area and wonder, “What the heck is that mess?”

I’ve been in them, I’ve experienced them and I’ve had the unfortunate pleasure of cleaning one (over months mind you).

Everyone knows it’s there. No one wants to take the responsibility or initiative to clean it, so the mess continues to pile up. You often dream of the area being cleaned up quickly with a few properly placed sticks of dynamite. The ‘place’ isn’t spoken of because of the fear you’ll be involuntarily volunteered to clean it up.

Back in the day when I cleaned up a messy (and that’s being kind in the description of it) warranty parts return area, I was still pretty green in the business and I know I didn’t have the tools or knowledge to do it as quickly and efficiently as possible.

Now I know better.

There are ways to make the process of cleaning up a warranty parts return area easier, not painless but easier. You have to mold the way you do the clean up based on the part retention requirements of your manufacturer and how or if you get notified about scrapping parts.

First you have to pull out the warranty policy manual out for the manufacturers you’re going to deal with. From it, you want to know what you can scrap and when you can scrap it. Some manufacturers let you toss parts as soon as you get paid for them and send you a report of those parts you can scrap to make the job easier. Others make you hold onto the parts until the end of the month in which they’ve been paid or let you scrap them 15 days after the claim has been paid. There are other variations of the scrapping rules, so
read up!

Far too many people have taken a ‘brute force’ approach to cleaning up a mess by throwing everything out without regard to the need to keep the parts that should still be occupying space in your warranty parts return area. This approach will lead to claim debits for failing to return parts requested by the manufacturer.

Now onto sorting out the mess.

To start off, you have to have access to the right information. It can be tricky to get it but it’s an absolute must to do the job right. Without exception, you’ll have to hold onto a majority of warranty parts until the claim paid and for a certain amount of time from that day. You’ve got a few places to go to get the claim paid date.

Usually the easiest place is claim payment reports from the manufacturer. These reports vary from daily to monthly and are often the foundation for determining when you should scrap parts. By knowing how long after a claim is paid or the time frame relationship from claim payment to part scrapping, you’ll know
which parts to save and which to throw away.

The problem with using the claim payment reports is that if you have a mess on your hand, it’s likely you’ll have to sort through anywhere from one to easily a dozen or more reports before finding
the disposition of a particular claim. It’s time consuming but so is cleaning up a mess.

The other issue you’ll find with this tactic when cleaning up a mess is that several claims can be on any one repair order and unless someone can differentiate between the claim for the oxygen sensor paid one month and a coolant temp sensor the next month on the same RO, you could scrap a part that shouldn’t have been scrapped.

So that brings us to using the warranty schedule.

The warranty schedule can be a great way to quickly find out the status of a claim in seconds. All the information will be there as long as you know how to read a warranty schedule and the credits have been posted properly.

But running the typical schedule won’t provide you the right information. It has to be run so you see all the claims, especially the ones that have been fully paid. To do that, the schedule has to be run to show any zero balances for a control number. When running the schedule, you’ll get an option similar to “Include zero balance controls?”. You’ll want to answer YES.

If you know how, you could also do an on-screen schedule inquiry for each claim but unless you’re from the accounting department or a department manager, you likely won’t have access to the information this way.

When you’ve got access to the schedule report or on-screen inquiry, it’s a simple matter of seeing if a claim has been fully paid, when it was paid and if it’s met the criteria to scrap the part. If it has, you’re done and one less part on the shelf or floor.

As far as the physical part of the cleaning of the warranty parts return area, you have to determine just how much of a mess it is. If there’s no organization and no way to put the parts on the shelves before organizing it, leave it in piles and just start picking through it.

If you want to be a bit more organized than that, find a table to start spreading some of the old parts out so you’re not stuck standing in the warranty parts area the whole time. That’ll give you a chance to look at a number of parts in a more comfortable, less stressful environment with as little time in the disaster as possible.

One at a time, deal with each part. If you can throw it away, do it, if you can’t, set it aside for when the shelves are clean and you can put it all back together – neat and organized. To make it quicker and easier, find someone like one of the lot guys to take the scraped parts out to the trash. You’re going to find most parts can be scapped and they’ll pile up quickly.

Once the cleanup is done, everything needs to go back on the shelves neatly and organized. If you’ve got the shelving for it, the ten bin system works best. If you’re unaware of the ten-bin system, you have ten separate bins marked from 0 to 9. When you put parts on the shelves you put the part on the numbered shelf that corresponds to the last number of the repair order. Parts from RO 87486 would go on shelf 6.

When you’re working with an organized system after the clean up, it’s much easier finding parts to scrap. Using the ten bin system makes it simple to find parts when you go into the warranty parts area to do scrapping. If the warranty parts area gets purged regularly, finding parts is easy.

A big benefit of a clean warranty parts return area is the ability to pull parts quickly when they’re requested by the manufacturer. I’ve seen way too many parts debits at dealerships and most of it can be tied to a messy parts return area – and to poor procedures.

So before you clean your messy warranty parts return area with a stick of dynamite, take a crack at doing it the right way first. A good cleaning and working to maintain it can save you thousands of dollars a year in warranty part return debits.

Obviously the first thing I look at when it comes time to do a clean up is the warranty schedule. The warranty schedule can be a mixed bag of information.

It’s a great piece of the puzzle to know what’s going on. Some rely too heavily on just the last page that summarizes the schedule and that’s what can get you into trouble – the schedule can lie.

What do I mean the schedule can lie?

The schedule is a detailed list of all the repair orders outstanding. In that sense, it is telling you exactly what’s going on as long as all the accounting has been done right. But when I mean the schedule can lie to you, I mean, the summary page can give you a false sense of the health of the schedule.

The summary page of a schedule is kind of a quick totaling of the detailed accounting entries found on all the other pages of the schedule. It’ll give you information such as the totaling of the dollar amounts on the schedule and the aging information for all the entries on the schedule, but not much more.

Unless you have good processes in place to keep an eye on the schedule and purge entries when it’s needed, the schedule summary page is going to give you a false sense of security or insecurity as the case may be.

What would cause the summary page to give you bad numbers?

Well, to generalize quickly, credit entries – those showing a negative balance. There are several different scenarios that would cause a negative balance to show up on a schedule.

First one is overpayments. I know it sounds odd but claims can overpay. It’s somewhat common for a repair order not to price out properly because the labor rate, labor hours or parts pricing rules aren’t setup correctly in your system. That’s not unusual to find on a schedule. Some dealerships have more than others. Some manufacturers are more prone to it.

General Motors is the most likely manufacturer to have the least amount of differing claim totals from the dealership calculated total than any other manufacturer. That’s strictly based on how the claim is submitted and paid.

Another reason negative balances are found on the schedule is erroneous accounting entries (at least they’ve appeared erroneous to me when I’m doing a cleanup because I can’t figure out why they’re there). Erroneous accounting entries are likely caused by someone making errors in posting. They could be posting warranty credits to the wrong control (usually the RO number) number or they’re way off the mark and making entries to the wrong account. You can also have cases of transposed numbers in the control number
or the dollar amount.

Sometimes you’ll also find one control number on the schedule (usually control number 1) being used as an over/under bucket for stray dollar amounts on the schedule.

Now all these stray entries and overpayments and over/under control numbers will taint the summary page information. Credit balances will bring down the true dollar amount that is outstanding. So when you see a lot of credit balances on a schedule, you should know the dollar amount showing on the summary page of the schedule is artificially low and you should do your own math to get to the real number.

The best defense against a lying schedule is proper accounting procedures, cleaning the schedule often and making the necessary adjustments to the computer system to keep it pricing out claims properly.

Knowing what your financial situation is an important step to running a smooth operation and good information is the key. Truthful schedules are one of those pieces of information that is crucial to and complete understanding of your financials.

But let’s talk reality. That’s just lip service. If you consider training as a cost and not an investment, you only look at outgoing dollars as lost money and that’s not true at all.

Training is an investment; an investment that usually pays off but is often one you can’t put a precise dollar return on.

That’s why we need to take a look at all the benefits training provides.

First and foremost, training is going to provide your staff with a higher level of understanding of their job. It’s amazing what some training can do when a person is struggling. Learning from those that are more knowledgeable, whether at a hands-on training class, viewing a class via satellite or over the Internet can arm people with information that may get them through those tough situations. If you want them to become more effective and quicker at what they do, training is one of only a few ways that will ever happen.

Too many people focus on lost productivity; a technician not in the shop to produce eight hours or a service advisor not on the desk to sell. That’s shortsighted thinking.

Nothing sucks time away from a person than working on a problem and they’ve got little to no idea how to deal with it. In the case of a technician, yes, they can often ask around the shop to see if someone else has an idea of what the problem may be. Soon one particular car becomes the center of a huddle of technicians.

There are some problems that’ll kick the butt of even the most knowledgeable and experienced technician. But how often that happens can be minimized when someone gets on-going training, they stand a better chance of solving problems on their own.

What happens when a technician may not know how to do a particular job properly? They stumble their way through it, they make mistakes and then correct them. Time is spent looking through the shop manual and scratching their head. That four-hour job that was sold took seven hours to complete. In that situation does it seem possible training may have avoided that? It’s likely.

Why is it that the service advisor at the desk is having issues getting good, descriptive complaints from customers to pass onto the technician? Why are they having a difficult time selling as many hours as others? The answer is training. You can’t say someone isn’t right for a job like that until you’ve given them all the tools you can put in their arsenal and the most important tool is training.

Most of the examples would lead you to believe I’m talking about technician training and yes, to some degree I’m focusing on that. The same applies to service advisors, managers, warranty administrators and all the other job titles that have specialized training just for them.

Training can help all your staff become more proficient at their jobs and show them you want them to succeed. It can also help you avoid a warranty audit. When technicians are performing repairs more effectively and inexpensively without shotgunning repairs it can lead to lower warranty expenses. When the rest of the staff doing a better job at getting the most information from the customer at write up you avoid repeat visits that can lead to high warranty expense. When the warranty claims are getting processed
quicker by a knowledgeable person, you are getting paid more quickly with fewer claims being written off and you’re getting the most money you can get out of the claim.

For GM dealerships (and other manufacturers may be the same), training is a monthly fee. Whether you send no one to training or dozens to training, you’ll still be spending the same amount every single month. Why flush that money down the drain when you have many opportunities to use it to your benefit? Check your training records and see who needs training.

Even a two hour training session over satellite will be beneficial. For those dealerships that are slow during the winter, if you’re not filling out the schedule of your employees with training I have
to ask, what are you thinking?

Training is often a one or two day event. It may cost you in some short-term productivity but training also pays dividends for years to come. Make those time investments now to see the profit dividend in the future.