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2019-05-24 Warranty OR Service Contract? The answer is YES!

Warranty OR Service Contract? The answer is YES!

You know the old saying “if they cannot drive it, they aren’t paying for it”. I have met and heard of dealers that knew that was the case yet when one of their cars failed the dealer told the customer “you can go get it fixed or leave it here”.  At some point and in a few situations that must have worked for a few dealers. At least the customer had something to drive. Maybe the dealer would help them a little after the customer scraped up the money for parts. I knew a “Service Manager” at a dealership that told customers “don’t worry about that “smell, sound or noise it isn’t a big problem. “Just like your grandpa, your car is getting a little older, it’s normal”. I watched this manager say it over and over…the look on the customer’s faces was sadly priceless. The Service Manager would say “we can take a look at it for a $100 if you like but it’s not really a big deal”. Some customers would argue, some cry and others just leave (with or without the car). I’m not sure who he had pictures of in that operation, but he was there for a while telling customers this every day.

I do not think customer expectations will let you get by doing that these days, I know I couldn’t and wouldn’t. Our cars need to function. “Who has the best way to achieve that?” has almost as many answers as there are dealers out there but we can boil it down a little. You need to do some reconditioning up front so the cars can be sold and hopefully not come back the next day with an immediate problem. I personally do not want my customer telling me “I had to get brakes, alternator or a tire fixed and cannot make my payment”. I did not want my customer out at midnight in a car that dies as they drive down the highway and the customer is left to decide what to do. We provided free towing through our Service Contract (third-party or reinsurance) and make sure everyone knew they could call without expense to get the car towed to our dealership. Even the towing service knew, don’t try to figure out if the customer is covered or not, pick up the car and we will figure it out tomorrow.

Back to the boiling down, in BHPH unless you’re selling cars under factory warranty you have to make repairs, or you get your rigs back. The ones you don’t get back either broke down in another state and were left there or left at a local shop and now have a mechanics lien. Could be they will sit, dead at the customers cousins house until you find it. A few customers will try to fix the car someway but that is an outlier and not the norm. In almost every case when you get the car back it is much less car than you could have.

Generally, you are fixing cars that your customers are driving. Who is paying for those repairs? We all know the answer is basically you. That is unless you have something to cover the expense that the customer is paying for. If you’re offering a warranty for some period, the repairs are being paid by you, out of your gross. Maybe you raised your prices and you are disciplined and have a reserve to use, still it’s money from your gross.

I have talked with many dealers that have tried a third-party service contract only to stop because “they wouldn’t cover anything” or “they keep raising their rates because we have too many repairs”. Most of the time when that happens it is caused by the dealer’s shop personnel not understanding how a service contract works. I used third party coverage for 12 years and did not have that issue. What is important, I believe, is that you create a method where your customer is paying for the cost of repairs. The only way that happens is by charging the customer for that expense in your contract. Adding markup for a warranty and having a reserve or selling a separate service contract whether it is a third party or your own via reinsurance, something is added to the contract and those funds kept separate.

Because, you as a dealer, decided to sell the service contract your customers now have higher expectations. In your sales and closing processes explanation of the coverage the customer has must be clear. Almost “get out the Crayola’s and draw a picture” clear. Your shop personnel need to be even more clear what is covered, either by the third party agreement or your own reinsurance program (no you don’t just cover everything), its important your people know what can be repaired and paid for with the funds from the chosen program. Your service manager has to understand how your program works and at the point of contact with a customer having an issue, clearly explain what is about to happen. Just having a warranty or VSC and telling customers to go down the street will cause you heart burn and cost you money. Your manager not understanding what is covered and for how long will do the same. Just as important your sales staff need to understand so they are not “selling” something you aren’t actually offering. Controlling expectations is a big key to customer satisfaction.

Having the capability to understand what you can charge the third party or your own reinsurance company for any given repair is also important. You need a labor hours reference guide (Alldata, Mitchell or other) and know how to use it, the claims people certainly do. If you use a third-party service contract or warranty you can charge retail labor rates for your market, often high as $90 to $100 per hour.  If you have a reinsurance company you’re using your reserve and may not want to charge retail but certainly you can charge a rate that covers your shop costs and all your parts expenses.

You (or your shop people) need to understand the levels of parts prices and suppliers and work to get quality, warrantied parts at the best prices so you can do the repair one time (you need good techs) or make sure your parts suppliers provide repair expenses if they sold you a faulty part.

To keep track and file proper claims you should be able to create Repair Orders for every repair you do or even discuss with a customer. No matter what you do, track everything done in the shop. You can do this in many of the DMS options available or you can use a different “Service Advisor” program like Alldata, Sutton Technologies or other programs. There are options out there that work well. Don’t half way have a shop, it costs you much more than doing it right.

There are a gazillion more details that I could cover here. My main point is have your customer pay in the installment contract for the repairs they will need later by building something to cover the expense for you. Either reserve those funds in a reinsurance program or pay for a third-party agreement. In either case charge your customer for it and make sure your people learn CLEARLY how to use the product you offer.  If you are in our business, you are fixing cars so make the most of the opportunity by generating some revenues for the effort. I can help if you would like. Call me at 479-970-4049.

Gene Daughtry has almost 30 years of BHPH experience. He setup and operated 4 different dealerships, all with full service operations. Currently Gene represents Jilcat Proline and their super lubricant line of products, does training with Auto Master Systems, provides Service Consulting and capital help for dealers through

If you have several hundred to thousands of accounts and are running some type of service operation you have the tasks. I have always found isolating each task is best. Once you know what each specific task is they can be assigned and managed better. Let me know if I can help you 479-970-4049