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How “Bigfoot” Helps Prepare Your Dealership for Your Next Warranty Rate Increase

Dynatron's submission to Orange County Automobile Dealers Association (OCADA) Member Magazine


CONGRATULATIONS! Your dealership just won the California AB-179 lottery! Whether driven by luck, or a scientific plan, your dealership has most likely realized unprecedented gains to the Warranty Labor Rat: and Warranty Paris Mark-up. All that’s left is to sit back in your rocker and count your money, right? Not so fast; it is not one-and-done! The challenge now is that if you do nothing to impact your pricing, you will receive zero to minimal increase next submissions. You have an opportunity to capture a net profit lift perpetually – year, after year, after year, and it’s a double dipper, you also capture a similar lift in your customer pay a gross profit. Time to hunt for the “Bigfoot” in your ROs. 


Keep Momentum in Your Favor


There are several paths you can take from here; three of which stand out from the others. 


The first is to take the profit gains and run – basically “go-it-alone” for the next round and hope that similar results will be gained again. 


The second is to continue on your current path putting out the daily fires and get a filing service at the last minute next year that basically takes your Repair Order data, applies some basic spreadsheet analytics, and selects a range of ROs that generate an often sub-optimal increase in your warranty labor rate and parts mark-up reimbursements. 


The third option, and most lucrative, is to start chasing the ever-elusive “Bigfoot” i.e. The Perfect RO; working it into your regular routine and constantly optimizing your ROS in preparation for your next warranty reimbursement evaluation.


On the surface, paths one and two appear to be the paths of least resistance and easiest options to deploy right now. Faced with all the daily pressures you have on the service lane, both of these choices enable the Fixed-Ops team to get “back to business as usual” and not implement any change as the next increase is not a priority anymore. As Fixed-Ops leaders seriously consider the self-submission methodology of going-it-alone, there are two options within this path. Accept the OEM’s 3-year Automatic cost of living increase but realize minimal gains. Or, manually attempt to find the best set of RO’s that maximize your increase. You may deploy some spreadsheet magic to organize your RO’s for self- analysis, however, finding the real “Bigfoot” may prove to be an easier quest.


The second path of getting help for your next submission date is a viable one. However, if you have done nothing from now until then, your results will not be as stellar as the windfall received with the recent changes from California enacting AB-179. Without doing anything different in the year ahead, your next increase filing will land a little flat. Since Warranty Labor Rate and Parts Mark-up Increase reimbursements are based upon retail customer pay warranty-like repairs, doing nothing to move the needle here is not going to yield a significant incremental outcome next year.


This brings us to the third path; pursuit of The Perfect Repair Order. Start chasing the perfect RO now and you will be positioned well for next year’s increase filing. What is The Perfect RO? It is the ideal mix of Perfect Content And Perfect Price. This means that Service Advisors sell everything that is appropriate for the customer at the perfect price.



The Power of Perfect Content


It is important to explore this newly introduced concept of Perfect Content in more depth; what is the perfect content on a RO? The answer is: “it depends”. It depends on what the customer in front of you plans to do with their vehicle. For example, two identical vehicles, with the same mileage and condition with two different owners may have completely different service requirements. The owner planning on keeping the car for several more years will require a different service plan than an owner trading the vehicle in within the next 30 days. The best way to determine a course of action for either of these customers is to ask about “their plans for the vehicle”. This is the magic question to scope out and tailor your service recommendations considering the customer’s goals. Once you have their goals identified, it is time to address the perfect RO content customized for the individual customer and their vehicle.


4 Elements of Perfect Content:


  1. The work that the customer requests.. this could be a symptom that they are experiencing requiring diagnosis of the problem to determine the course of repair, or they may have come into the dealership for required maintenance, to fix a known problem, or to have a recall work performed. Whatever the reason that brought the customer to the service lane, it should be captured on the repair order.


  1. Items identified during the “walk around” – integral to the write-up process, the walk around typically uncovers related services to keep the vehicle in optimal condition, such as tires, tire rotations, balancing and alignments, light bulbs, wipers, battery or fluid services.


  1. Items identified as due based on the vehicle history, time, and mile aye this includes OEM scheduled maintenance, dealer recommended enhanced maintenance, previously declined repair recommendations and recalls.


  1. Additional service requests identified in the -hop and presented to the customer-resulting from the diagnosis of a customer concern, or the technician performing a multi-point inspection.


Whether any of these identified services are accepted, or declined by the customer, it is crucial to have them all noted on the RO, creating the Perfect Content on the Perfect RO. Now that you have nailed down the Perfect Content, it is time to turn to charging the Perfect Price for the work you performed.



Zeroing in on the Perfect Price


By definition, the Perfect Price is the price that is not so high that it impacts customer retention, nor so low that it leaves gross profit on the table. Finding that intersection point is not a simple proposition and must address numerous factors that determine each service’s Perfect Price.

On average, Fixed-Ops leaders manage pricing for approximately 1,200 “jobs” across as many as different customer segment types. While this is an extreme example, most dealerships are juggling about 4,800 price points within their service department.


The type of work can be classified into 3 categories based on job complexity, skill and tools required and the competitive environment:


  1. Lube Oil and Filter (LOF)
  2. Maintenance
  3. Repair


And, the customer types are typically broken- down into the following categories:


  1. A retail customer
  2. A dealership employee
  3. A fleet customer
  4. An insurance company for extended warranty


In search of the Perfect Price, the two main factors that must be addressed are the type of work being performed and the type of customer who is paying for the work. The amount charged to a fleet customer is different than that for a retail customer, or the dealership’s internal work rate. Pricing concessions, or reductions should be captured separately on the RO to differentiate the type of customer and attributable labor rates.


While the LOF is the most common service performed on the vehicles, it is also the most competitive and available from a variety of providers. Therefore, it is usually the most price sensitive and positioned as a “loss-leader” to get customers into the service drive. Of importance, though the LOF is a relatively low skill level, low cost service to provide, it also drives the customer perception of your dealership’s overall pricing and critical to get pricing perfect.


Turning to the Maintenance category, the required technician skill level increases and competition is still significant. It is important to cut through the confusion created by the competitors promoting similar services, even though they are not “apples to apples” comparable to the dealership offerings. Make sure to understand the nuances of OEM parts versus aftermarket, quality of parts and repair and warranties as you position your pricing for these services.


The dealership’s and OEM’s greatest competitive edge is showcased in the Repair category. This is the highest skill work and often requires specialized tools and training that the competitors cannot match. Consequently, pricing for these jobs offer dealers the greatest flexibility and revenue opportunity.



Setting up for the Next Win


Capitalizing on your current success, implementing a pricing strategy that drives The Perfect RO with the Perfect Content at the Perfect Price, and ensuring compliance to these requirements will help you optimize your dealership’s bottom line when filing the next warranty reimbursement submissions. The Perfect RO requires your constant focus on price and content. Stay true to this quest, track the ever-elusive Perfect RO and you may find “Bigfoot” hiding in the details while maintaining a Fixed Absorption over 100%.


For more information and assistance in tracking Bigfoot within your Fixed-Ops hidden opportunities