If you are a dealer, you have probably experienced some confusion regarding the warranty reimbursement rate. The problem is that manufacturers can adjust the rate according to the market rate, and sometimes do so without following state statutes. Manufacturers often do this by comparing the retail warranty rate to the retail warranty reimbursement of other dealers and claim that the dealership rate is “unreasonably high.”
Labor rate
To establish a labor rate for warranty reimbursement, dealers must submit 100 customer pay repair orders within 90 days of the repair order. Routine maintenance repairs are excluded from the calculation. Once approved, the labor rate takes effect 30 days after submission, unless the manufacturer objects. Dealers may request increases in the labor rate only once per year. The labor rate must be based on prevailing wage rates in the dealer’s local market area.
Retail warranty parts reimbursement rates are equal to customer pay rates, so the profit generated by the dealership is equivalent to the amount the consumer pays. In many cases, parts warranty reimbursement rates are at least 75 percent higher than the effective labor rate. By adjusting the labor rate, an average dealership can earn a profit of $10,000 or more per month. The profit realized for labor is even more substantial: if the dealership has a labor rate of $2 per hour, it can generate as much as $20,000 per month.
Parts reimbursement rate
Manufacturers pay dealers for warranty repairs. To maximize reimbursement rates, dealers should review their repair orders to ensure that they are capturing the most amount of rebates possible. Using private legal counsel or a third party company may be useful in this regard. Keep in mind that IADA makes no representations on these companies or their services. For more information, contact a consulting firm. These firms can analyze your repair orders and advise you on the best way to maximize your reimbursement rate.
Dealers must be aware that the manufacturer may adjust the rate of their retail warranty reimbursement claims based on market rates. To calculate their warranty rates, they must submit 100 customer-pay repair orders within 90 days of each other. Routine maintenance repairs are excluded from the calculation. The effective labor rate becomes effective 30 days after submission. If the manufacturer objects, it can reduce the reimbursement rate. However, dealers can submit for higher rates only once a year.
Average percentage markup for retail repairs
When it comes to profiting from repairs, 50% markup isn’t always healthy. It doesn’t factor in hidden costs. A vendor that charges you $100 for a part could end up costing you $120 once you order it. A 50 percent markup may not be enough to cover your costs and keep you in the black, so make sure you use fresh parts as often as possible. Otherwise, you’re leaving profit on the table.
