Labor rates seem to be top of mind for most dealers as they embark down the warranty reimbursement path due in large part to the fact that labor rates typically increase annually and therefore yield the most room for improvement year over year. But most state statutes also include provisions for parts rates to be submitted annually, or semiannually in some cases. While some dealers assume that a parts submission won’t be worth the effort, that simply isn’t the case. Relying on that assumption could lead to dealers leaving a lot of money on the table.
OK, So How Do We Maximize Our Parts Rate Submissions?
While it is true that it’s not as easy to increase parts rates annually, a parts rates increase can yield some substantial results with targeted effort and strategy. Using a qualified vendor to perform annual checkups is the most efficient way to maximize your rates submissions each year. Your vendor will review parts matrix pricing as well as review best practices to ensure your rates are maximized and discounts are in check. Depending on volume, even increasing the parts rate a few percentage points can equate to substantial revenue. And if you’re legally entitled to it for work that you’ve already done, why not?
It really boils down to the parts matrix and discounts. Many dealers are still selling parts at MSRP and not using a custom parts matrix. The use of a custom-tailored matrix is essential in increasing parts markup. Along with a new parts matrix, discount amounts and discount procedures within the dealership should be reviewed each year. It is also advisable to limit the amount of discounts and place a cap, whether it’s a dollar amount or percentage. A worthwhile vendor will report spot checking and maintaining margins as well. The vendor will then make recommendations for internal changes as a means to help increase your rate. Failure to implement these changes can lead to stagnation or even a reduction to your parts rate in the future.
What’s at Stake?
There are hundreds of thousands of dollars at stake — even millions for large dealer groups — between parts and labor reimbursement. Warranty work comprises a significant portion of most franchised dealership service departments’ repair orders.
When dealerships receive equitable compensation at retail rates for warranty work, it serves as a vital revenue stream that can elevate their essential service centers and help alleviate talent shortages within the technician workforce. The demand for skilled technicians remains high, making it imperative for dealerships to offer competitive wages to both attract new hires and retain existing employees. This rationale underscores the importance of automakers adhering to existing laws governing warranty reimbursement at retail rates.
We recently finished a project for a mid-sized group of mostly domestic brands that transitioned to us after trying to handle submissions in house for years. Our various analyses exposed a number of instances where the opportunities for both parts and labor increases were not leveraged each year (according to eligibility timelines provided by state statutes), equating to many hundreds of thousands of dollars of missed gross profits for this group. It sounds cliché to say it, but the group was literally leaving northwards of half a million dollars on the table each year. That’s why it’s so important to work with a qualified vendor, do these annual reviews and then actually implement recommended changes.
Ultimately, there’s too much money on the line for dealerships to passively accept inadequate compensation. The trend today is for dealerships to turn to warranty reimbursement vendors for the heavy lifting. Vendors shoulder the work of pulling potentially thousands of repair orders and preparing the submissions. The time savings and expertise a third party brings to the table are worth it to secure all the money a dealership is entitled to. This is especially true for dealerships with stores spread across multiple states because statutes and automaker specifications vary state by state.
Knowing that parts reimbursement rates can be submitted annually*, the next step is an annual review performed by a qualified vendor to ensure best practices. Parts rates are not a “set it and forget it” endeavor. Just like labor, they should be monitored and adjusted accordingly.
*Some states allow for bi-annual parts rate submission.
