Warranty labor rates in the past five to ten years have become a more difficult and complex issue to deal with. DaimlerChrysler, General Motors and Ford Motor Company have all come out with plans that allow dealerships to get automatic labor rate increases on a yearly basis. The imports have yet to implement such plans.
Automatic increases seem like a great idea but they’re tied to the Consumer Price Index (CPI). The CPI does not tend to reflect true price inflation and within a few years, you will have a growing gap between the warranty labor rate you’re paid and what you should be paid. Not that there’s much of a chance of you getting an increase to catch you up, the Big 3 have seen to that. Automatic labor rate increases for the most part is another tactic for the automakers to keep warranty expenses down and your profits.
State laws also make warranty labor rates interesting too. Laws are being updated to change with the times. Automakers have started throwing roadblocks in the way of dealerships getting warranty labor rate increases and it’s taking legislation to level the playing field. Many state laws in one form or another require automakers to pay dealerships a labor rate comparable to the retail rate but that rarely happens.
No matter how you slice it, warranty labor rates should keep pace with retail labor rates. That’s why it’s important to do what you can to keep your warranty labor rate as high as you can get it. Even a few dollars an hour in labor stretched over a year’s time can be a significant amount of money.
Each automaker has their own process to request a labor rate increase and when conditions merit an increase, you should make the request. You should be able to find out the process in the automaker’s warranty administration manual.
You will have to fill out forms outlining your request. A warranty labor rate survey will have to be performed. You will have to check the warranty and retail labor rates of competitors as well as perform a survey of your own retail repair orders to show what your effective labor rate is. It’s likely your effective labor rate will be used as your warranty labor rate if you are given an increase.
A labor rate survey will give you a much better understanding of how well you are competing in your market area and also show you just what you really are charging for retail work. It may be a shock if it’s significantly different than your posted labor rate.
A labor rate survey should be done at least once, if not twice a year. Conditions change quickly and you don’t want to be caught behind the labor rates of your competitors and leaving money on the table.
There are many service contract and conversion van companies that dealers work with on a daily basis. Most, if not all, of the companies are paying for repairs at your dealership, whether it’s for repairs to a TV in a conversion van or a cylinder head on a truck and they’re paying you at an agreed upon labor rate.
How is that labor rate determined? Usually it’s determined using your warranty labor rate. The only way they’ll know to increase your labor rate with them is to make a formal request and submit the appropriate documents to them.
If you haven’t made the request to increase your labor rates to service contract, conversion van companies and the like, now is the time to do it.
First, give them a call and talk to the appropriate person who will handle the request. You should ask what the procedure is, how long it will take and what documents they will need.
If the past is any indicator, most will want a letter from the dealer principal, general manager, or service manager making a formal request for a labor rate increase and a copy of any labor rate increase letters from the automakers (and include copies of increases from other service contract and conversion van companies).
You may find a few companies that will balk at a labor rate increase. This will be time to talk to the field representative your dealership deals with and stress to him or her how important it is that you get a labor rate increase. It wouldn’t hurt to give them the impression that you may not sell their vehicles or contracts if you don’t get the increase. The most effective person to do this is the dealer principal but other dealership management will work as well.
Here is an example of a warranty labor rate increase letter.
Dear :
Based on receiving labor rate increases from (insert name of companies here), we are requesting a labor rate increase from your company. I am requesting a labor rate increase from (insert current rate here) to (insert requested labor rate here). Based on the copies of labor rate increases from other companies which we have
included, we feel our rate request is fair and justified.
We’ve included the documents you requested.
Your prompt attention to this matter would be greatly appreciated.
Regards,
(Dealer Principal)
Your warranty labor rate can have a profound impact on your profits if you neglect it. By keeping your eye your retail effective labor rate and from that, your warranty labor rate, you can keep your profits up.
