Retail Reimbursement for Warranty Parts – What Are You Waiting For?

By Joe Jankowski , Armatus Dealer Uplift

When I was running dealerships for over 22 years, I recall looking through every nook and cranny for opportunities to drive additional profits. Of course, there are very few things you can do in our industry to generate revenue, without an investment in facilities, people, marketing, inventory, etc.… Also, most of these opportunities entailed additional time (which I did not have) and risk (which I did not want to assume). Opportunities to generate revenue without investment, risk, or significant time commitment come along very rarely, but there is such an opportunity available to dealers in 49 states. It’s retail warranty reimbursement for parts included on your warranty claims. That’s right, you submit your claims the way you do today and receive a retail mark-up; there’s no additional effort on your part.

Since the passage of the various state laws requiring retail-level reimbursement, thousands of dealers in all 49 states have taken advantage of this legislation by submitting for, and receiving, a market rate for their warranty claims. Essentially the laws provide that a dealer is entitled to “retail” for warranty parts, which in most cases is roughly double the contractual mark-up stipulated in the dealer agreement. Most dealer agreements stipulate a 40% fixed mark-up; retail typically averages about double that, depending on your Customer Pay pricing strategy. On average, dealers are enjoying an uplift of about $101,695 annually per store where Armatus has performed the submission.

So, what’s holding you up?

“I’m not aware of these laws”?– Yes, we hear it all the time: “this sounds too good to be true,” “I’ve never heard of this before,” “if this is true, why hasn’t everyone done it?” There is still a surprising lack of awareness in the market regarding this opportunity, but as more and more states strengthen their laws, dealers are catching on. Ten years ago, this was a somewhat obscure and cryptic subject. There were niche vendors here and there performing submissions in the relatively few states where the law mandated retail-level reimbursement supported by a prescribed RO sample. Today, 49 states in all have the requirement, 45 of those with very detailed processes, and more are coming on board. Additionally, as ever more dealers join the retail-compensation ranks, the word is getting around through Dealer Associations, 20 Groups, simple word-of-mouth, and articles like this. Retail warranty reimbursement now has a huge and growing presence in the marketplace, and a lack of awareness is becoming a thing of the past.

“I’m already getting retail (MSRP)”?– The truth is you are not getting what most consider true MSRP. Don’t be fooled by the claim by some manufacturers that they are paying you retail; you are being paid that particular factory’s version of MSRP. Furthermore, don’t be deluded by certain other manufacturers’ claims that such MSRP mark-up is, say, 67%. While that may be the notional rate touted by the factory, our firm has performed multiple studies on MSRP reimbursement, and when lower mark-ups on major assemblies, no-cost exchanges, recall parts and the like are factored in, the true blended reimbursement rate is in the low to mid-50% range, versus something in the true retail spectrum of 75% to 85%, if you do a proper submission in accordance with the statutory rules. This is an all-too-common misconception, and many dealer's wind-up leaving a significant amount of money on the table by simply failing to consider a “true” retail reimbursement submission.

“I’m worried about factory retribution”?– This is a wide-spread concern; and having walked in your shoes for over 20 years, I can relate. Being on the other end of the manufacturers’ many “programs,” the dealers’ mindset in this regard is completely understandable. Yet there have been no instances of retribution of which our organization is aware. Industry legal professionals have talked about this publicly in various conferences, and they all concur: retribution is largely a myth perpetrated in order to dissuade dealers from requesting a retail mark-up for their warranty claims. If your submission is performed honestly, and with respect for your manufacturer’s warranty audit staff, there should be no issues. This is a process that you want handled with kid gloves; and not by someone with the “factory fighter” mentality. There is no question that the risk of retribution exists, but if history gives you any solace, the risk is not terribly high. In fact, many states specifically prohibit retribution, and in some cases, even spell it out with some detail. Besides, the dealer is largely in control when it comes to retail reimbursement, since if a manufacturer does retaliate, the dealer can simply rescind his submission and revert to the original rate. This is not to say there is zero risk: there’s no such thing in the franchisor/franchisee relationship.

“It’s too complicated, and I don’t have the time or staff to do it”?– This is where the value of a professional firm comes in. With thousands of submissions under their belt, a firm specializing in this highly complex arena can be invaluable. Looking back on my retail days, and knowing what I know now, I wouldn’t even consider doing this myself – and I came up on the financial and accounting side. Think about it: Who on a dealer’s staff has the time or the expertise to pull off a successful submission? Let’s face it, dealership personnel are experts in dealing with customers, inventory, and other key operating issues; they don’t spend time studying the law, nor do they have a knowledge base of manufacturers’ behaviors related to retail mark-up submissions. Speaking of factory behaviors: Yes, a few have established patterns of resistance (not to be confused with retribution or retaliation, addressed above), but an experienced and highly prepared uplift firm is equipped, not only to neutralize many of such franchisors’ oppositional tactics, but to anticipate them before a dealer even submits. This process can be fast, easy and cost- effective when performed by an outsourced professional; especially one that does all work in-house, with nothing subcontracted.

“It costs too much”?– The highest fee you will pay is the cost of procrastination; it’s costing dealers several thousand dollars each month of delay; the fees are the least of your worries. The other key element, besides time, is the?inferior results derived from the “do it yourselfer” or vendors without the technology to get you the best results. ?Each 5 points of mark-up costs a dealer 2% in gross profit; it’s not unusual to see those without the proper expertise lose between 10 and 20 points of mark-up opportunity. Imagine the difference, when looking at your financial statement, of seeing a warranty parts gross profit of 32%, when you could be enjoying 40% or more. The smart money says: Put this in an expert’s hands, let them do all the heavy lifting, and sit back and reap the rewards.

The bottom line!

You have an opportunity to generate significant bottom-line results without any up-front investment, risk or significant time commitment, by simply letting a qualified professional perform a retail submission to your manufacturer. Think about it: What else could you do to generate as much profit as you would by doubling your warranty parts mark-up? Same work, double the gross. Most, if not all, concerns can be overcome by simply making the right choice. No one understands better than us that your concerns are real, and that some vendor telling you that everything will be OK is not very comforting. Our suggestion is that you check with your fellow dealers; a simple phone call could incent you to take the first step. If you take the time to understand this somewhat complicated landscape, it will be well worth your while.

For more information, contact Armatus at 888-477-2228 or email?[email protected] . Armatus Dealer Uplift is the largest provider of Retail Warranty Reimbursement submission services in the country. The company has worked with nearly 7,000 dealers, has over 17,000 successful submissions in all 50 states, assisted with drafting 18 warranty reimbursement statutes, and is endorsed by 24 State Dealer Associations. Visit us online at: https://www.dealeruplift.com/