Earn an extra $12,000+ in monthly gross revenue with this strategy.
According to an eye-opening story in Auto Dealer Today, dealers can earn up to $12,000 more in gross profit each month from retail reimbursement for warranty parts.
Given that the majority of manufacturers spend, on average, 40% more than cost, this makes sense. A dealer will effectively quadruple warranty gross profit without raising volume if approved at an 80 percent markup above cost.
Consider this for a moment: By utilizing your right to retail reimbursements for warranty parts, you can generate twice the gross profit.
You have the support of your state’s car organization. Due to their lobbying efforts, nearly every state now has legislation requiring manufacturers to pay dealers for warranty parts at retail, or your customer parts rate. The most recent state to join the group is California, with a law that became effective on January 1, 2020.
There has never been a better opportunity to optimize revenue prospects than now, according to COVID-19. Every dealer is concerned about surviving the current economic crisis unscathed. The time is now to work hard to obtain the higher rates you are entitled to in order to weather this crisis better than you did before.
In Huntsville, Alabama, Chantel Procell is the Fixed Ops Director for the Hiley Auto Group. For a couple of her establishments, she recently through this kind of audit process. “The procedure was rather simple. I provided the OEM with the information. On the initial request, the majority of our stores got rises of 20% to 30%,” she stated. You may apply every year, so depending on the store, I’ve done so for a few retailers to receive an additional 2–5%.
There is no way to sugarcoat the fact that a normal approach to raise your rate is labor-intensive and time-consuming. To support your claim, you must assemble a large number of documents, but there are ways to streamline and reduce the expense of the procedure.
Examining your parts-pricing matrix comes first. This matrix shows pricing schemes for particular parts based on unit costs, sales volume, and discounts offered. The lost profit from these factors can be in the thousands of dollars.
Why does this matter? The OEM is simply seeking uniformity. The manufacturer does not want to see significant variations in what the customer really pays for a given part when assessing reimbursable rates. The manufacturer will look at the average charge, for instance, if the retail price for a part is $200 and your team is charging between $135 and $200 (based on your volume/discount matrix). As a result, you will only be allowed at the 70% rate ($140) if you are only pricing 70% on average because of an aggressive discounting structure. Now, every time you sell for full retail, you lose the extra $60.
Before applying, it’s important to review your matrix and discount policy. Most manufacturers only let you submit an application for a rate increase once each year. You must be aware of the potential drawbacks that this approach may generate, even though it may be advantageous at that particular time to provide favorable discounts for certain clients. You’ll have the best chance of maximizing your reimbursement rate and, consequently, your profit if you keep a steady and compact parts structure.
Adopting document scanning and online archiving is the second stage. Your manufacturer won’t just increase your rates. Making your case requires evidence, which is what documentation is.
The majority of state statutes demand that a dealer substantiate its retail rate with at least 100 consecutive eligible ROs. These records must be detail copies with cost per unit information. The manufacturer might reject your submission if there are any missing documentation or the versions are incorrect.
It is simple to enter a RO number into a search bar on a third-party document management platform rather than spending numerous hours searching through filing cabinets and boxes. Online storage also allows you to retrieve the whole list of documents at once, access documents at any time, from any location, and remove the possibility of misfiling documents you have already accessed.
The final piece of advice is to think about collaborating with a car consultant who specializes in warranty parts reimbursement analysis. These businesses may assist you in analyzing your price matrixes, provide you with information on local legislation, and essentially put together the “case” for the manufacturer. They will typically have a focus on a certain manufacturer and be aware of what the OEMs need to maximize the cost reimbursement rate.
Time is crucial since you can profit from higher rates more quickly if you submit your papers quickly. A scanning and archiving solution combined with a skilled automotive consultant are probably your best chance for optimizing your warranty parts and labor markups to get results more quickly given the large volume of data and limited staff time.
Due to the current economic climate, many dealers are constantly looking for ways to reduce expenses while increasing gross earnings. Be sure to consider the potential profit from retail reimbursement for warranty parts. Utilize a document management system and the knowledge of an automobile consultant to successfully and affordably prepare a rate increase request that, if accepted, will pay you in the long run.
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