Factory Warranty Payment Policies
Publisher and Editor Mike Roscoe conducted this interview with a dealer who is deeply involved in this battle on condition of complete and total anonymity. To respond or to recommend a future "Dealer Undercover" segment: Fax to (931) 388-4881 or e-mail to mroscoe@dealeronline.com
What is your opinion of manufacturer warranty payment plans?
The first thing that needs to be understood is that there are two classes of repair work in a typical U.S. auto dealership. The first one is the customer repair that the customer pays for. The second is what the factory will pay for under factory warranty. In the factory warranty repairs, the factory controls the time standards manual, the time standard manual study, the distribution of that manual, the parts, the cost and the parts mark-up. The dealer controls nothing. The warranty time standard is substantially less than that listed in the independent time standard manuals. Those two manuals are not the same in listing the two different amounts of time to do the exact same repair. You cannot have a double standard and that is exactly what we have.
How does this affect the customer?
By using the double standard, twobook system, the customer pays more money for his repair work to cover the loss of revenue that was generated by the factory's time standard manual.
So they are going to pay more at that dealership for their customer pay repair than they would if the dealer did not have to subsidize the factory warranty repairs?
That is correct. It's called cost shifting.
How does this affect a dealer who competes in their service department with independent shops that don't have the burden of the factory warranty plan?
He is not competitive. As a result of this, we have had the birth of a lot of auto repair facilities such as Sears, Wal-Mart, Kmart, Pep Boys, Firestone, etc. They have been able to get into the auto repair industry and strip this work away from the business that started it. They have been permitted to take this away by the use of the two-book system that forces the dealer to collect more money from the pay customer because of the warranty payment shortfall. The customer is subsidizing the manufacturer's warranty.
In the process, the dealer is becoming less competitive with independent shops?
That is correct.
How much of the perception that consumers have that service at the dealership is more expensive than other options is due to this factory warranty?
100%. The manufacturer's warranty is a single labor rate and that pushes the dealer into using another time standard at a single labor rate and then he becomes non-competitive in the lesser skilled operations, which these independents have taken away from us.
How often do the manufactures change their time standard manuals?
They have changed it quarterly for the last two years.
Is there that much change in the service department?
They have eliminated about 1,600 labor operations completely. These are no longer listed in the book. That forces the dealer to use what they call
"clocking." You must clock in coming on or going off the job. However, if your "clocking" is not proper, you get a charge-back. Many times you don't know that the labor operation number is no longer in the book until you have finished the job and now it is too late to clock it and therefor the manufacturer got their repair work done free of charge. That loss will be passed on to the consumer at some point. If you don't, you will go broke.
Should there be a certified time standard manual for all repair outlets to use?
Definitely. I think we should have a nationally certified labor time standard manual for all repair agencies to use, whether it is a franchise car dealer or an independent auto repair station. Then each repair station can develop their own competitive labor rate to fit their market. As it is now, the factories' position is to pay the same labor rate you charge the customer but not use the same book. That gives the manufacturer a 35% discount on their warranty repairs and causes the dealer to lose money.
Who could ever put together a national standards manual?
ASE could put together a time standards manual and the manufacturer should pay for the expense of doing this nationally certified time standards manual whether they are domestic or foreign.
What would ASE have to gain?
The ASE would be in the lucrative time standards publishing business and should be glad to do it.
Considering the fact that Jack Pohanka, ex-chairman of NADA, was instrumental in the foundation of ASE, why doesn't NADA work to get ASE to pick this up?
NADA does a very good job in representing the dealer to government. In my opinion, they do a very poor job representing the dealer when the manufacturer is concerned. You cannot serve two masters.
Have you approached NADA about doing something about this situation?
Yes I have. I've approached them a number of times. They do nothing. It is not on their agenda.
What percentage of dealers are aware of this problem and would like to do something about it?
For the most part, dealers are aware that there is a problem. They don't know exactly what has caused the problem other than they get a lot less money processing warranties and the manufacturer continues to threaten them with warranty audits by the use of their computer measuring system. This has also caused the customer to get a lesser vehicle repair under warranty. For example, if we have an oil leak on a valve cover and while we are doing this valve cover repair we see that the water pump is leaking - if we repair the water pump, it is now a two-line repair order and it runs our numbers high and we then run the risk of being audited. Since the customer did not request the replacement of the water pump, we turn him loose without doing the water pump repair. I put that in the classification of a "don't ask, don't tell" warranty.
Are there not laws to protect against this?
Yes, about half of the states in the United States have quality laws on the books, however, the factories are paying no attention to any of the laws. For example, a New Jersey dealer has been in a legal fight for over five years. The dealer has spent over half a million dollars in legal expenses and is not out of it yet. There is another other dealer in Maine who has been doing the same thing for a lesser amount of time but has spent the same amount of money. The manufacturer has so much money that they do not care what we put on the state law books, they will just outspend us in court.
What can be done to correct this problem?
The legal representation has got to come from a national level and not a state level. The manufacturers have clearly demonstrated that they pay no attention to any state laws.
So you think there should be federal laws passed on this?
Yes I do. I think there should be a federal law requiring a nationally certified labor time standards manual and the use thereof. It should be subject to the deceptive Trade Practice Act. Anybody who fails to use it is subject to treble damages. Which includes the manufacturer, the dealer and the independent repair station.
So if it is a national thing, there is only one way the dealers can do something about this and that is through NADA?
They have refused to do anything about it. It appears to me that they are in bed with the factory. When the customers find out that they are subsidizing the factory warranty they are going to be real angry.
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