The Best Way to Take Advantage of State Warranty Compensation Laws - Greater Cincinnati Automobile Dealers Association

The Best Way to Take Advantage of State Warranty Compensation Laws

By Joe Jankowski, Armatus Dealer Uplift

For too many years, dealerships have been at the mercy of their manufacturers, especially in regard to warranty compensation. However, the enactment of laws in this area has helped level the playing field for dealers to earn a fair market rate for their warranty claims. Notably, all fifty states have automotive franchise laws, but they vary in terms of content and strength.

Specifically, forty-five states have laws that require retail compensation for both parts and labor. In thirty-six states, the laws are fairly strong; in nine, they are somewhat favorable; and in five, there is no retail requirement, although two of these remaining states have submitted bills in the most current legislative session. To further complicate matters, no two state laws are exactly alike—some statutes dedicate an entire section to retail compensation, while others might only briefly mention it. Because those factories dedicated to resistance will exploit every nook and cranny in a statute, the “less-is-more” paradox holds no sway here. The superior law will be the product of a thorough knowledge of each factory’s present, and a keen anticipation of its future behaviors, and thus will spare no text in plugging the gaps through which such behaviors would otherwise gain traction so as to frustrate the statute’s fundamental purpose.

Regardless of whether a state has statutory retail labor requirements, a dealer can perform a factory submission for an increased labor rate in all fifty states. This does not, however, mean that the latter, hamstrung by definition with self-serving limitations and conditions, will produce a result on a par with that achievable pursuant to a well-crafted statute. Parts, however, are another matter. In the absence of a statutory retail mark-up directive, or the absence of a dealer’s availing itself of such a directive, it is relegated to a paltry forty percent on warranty parts (or, in the case of a few factories, MSRP, which is in reality an effective combined mark-up far short of what such factories contend that it is). By contrast, on a national basis, the average retail mark-up is at least double this percentage.

Why the Laws Are Necessary

The relationship between dealership and manufacturer can be uncertain at best and often downright contentious. While dealers envision an equal partnership with their respective manufacturers, many quickly discover that it is a one-way street with lop-sided bargaining power. This is, to be perfectly candid, because the franchise agreement and its off-shoots are basically a contract of adhesion. Distrust justifiably permeates both sides of the relationship—but these state laws seek to balance this power, so dealerships get a fairer shot at receiving market rate compensation on warranty claims, rather than being forced to run this segment of their fixed operations at a loss that must be absorbed internally or subsidized by their retail customers.

Taking Advantage of State Compensation Laws

When you stop to consider the tense relationship between dealer and manufacturer, you may be wondering if it makes sense to jump through the hoops of statutory submissions to experience a more equitable process, or possibly for the chance to earn more money. However, that reasoning is precisely why dealers should seek to take advantage of favorable state laws—there is a great probability that you will achieve a true market rate for your warranty claims.

Consider this: dealerships that perform statutory parts mark-up submissions increase their annual warranty parts gross profits by an average of $100,000. That significant uplift goes directly back to a dealership’s bottom line, all with no alteration to the existing process of presenting, and being paid for, individual claims.

However, the complex and frequently evolving state laws pose a significant challenge for dealerships that are not familiar with legal jargon or structure. While a dealer is certainly welcome to attempt to perform a statutory submission without expert assistance, it runs the risk of missing critical aspects of the submission package, which in turn directly affects its compensation rate. And if its submission is approved at a lower rate or rejected altogether by the manufacturer, it almost assuredly will not know how to rebut the decision, or the alleged statutory rationale (genuine or fabricated) behind it.

Regardless of the scenario, a dealer never wants to be in the position where it is guessing at an answer to a question the manufacturer is asking or at a response to a position the manufacturer is taking. A dealer needs the context and framework in which to submit or rebut, which is not always possible unless there is full comprehension of the relevant statute mandating retail warranty compensation, as well as the manufacturer’s stated and unstated protocols and their historical behavior.

Outsource Advantages

Thankfully, there is a solution to this challenge: outsourcing the entire submission process to a trusted group of technical and automotive experts who guarantee optimized results, and an approval, in most cases in less than sixty days from start to finish.   These teams fundamentally understand what level of retail warranty compensation the dealer is entitled to. In order to optimize this number, they will put together a quality and timely submission on the dealer’s behalf that is submitted at the rate that should be earned, based on the universe of factors to be considered. And if, for whatever reason, the manufacturer rejects the initial submission, they will work closely with the dealer to ensure that a rebuttal is appropriately responsive and statutorily and factually sound.

The key part of this submission process is that the outsourced team does all of this work, so the dealer does not have to prepare it. After all, dealership employees are busy getting business in the door and taking care of customers’ needs; every moment they spend away from these critical missions means less revenue. If a dealership allows a trusted third party to complete this complex project on its behalf, the dealer is set up for optimal results and can focus on its own core competencies.

Final Thoughts

In addition to the multiplicity of provisions, and the relative strengths and weaknesses, among the various state statutes, as alluded to above, to make matters even more confusing, a manufacturer may approve submissions in certain states requiring retail but not in others. The manufacturers’ behavior and protocols are constantly in flux, so it is advisable to consult a professional rather than just look to largely unqualified in-house personnel. Since third parties are constantly engaged in the process of submitting to all manufacturers across all jurisdictions, they can give dealers expert answers on the spot.

In fact, clients are constantly amazed at how easily and efficiently they can begin to enjoy their newfound profits. And, unlike other revenue-generating initiatives, retail warranty compensation means you do the same work you do today; it does not require an investment in bricks and mortar, inventory, technology, processes, advertising, or personnel.

Joe Jankowski is Managing Partner of Armatus Dealer Uplift, a Hunt Valley, Maryland-based firm specializing in retail warranty compensation submissions. Joe has been personally involved in consulting on 10 retail warranty statutes and is widely recognized as an expert in this highly-technical subject matter. Previously, Joe spent more than 20 years as CFO, COO, and CEO of a large automotive group in Maryland.