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Retail Reimbursement For Warranty Parts — What Are You Waiting For?

by Joe Jankowski | February 15, 2018

When I was running dealerships for over 22 years, I recall looking through every nook and cranny for
opportunities to drive additional profits. Of course, there are very few things you can do in our industry
to generate revenue, without an investment in facilities, people, marketing, inventory, etc… Also, most
of these opportunities entailed additional time (which I did not have) and risk (which I did not want to
assume). Opportunities to generate revenue without investment, risk, or significant time commitment
come along very rarely, but there is such an opportunity available to dealers in 49 states. It’s retail
warranty reimbursement for parts included on your warranty claims. That’s right, you submit your
claims the way you do today, and receive a retail mark-up; there’s no additional effort on your part.

Since the passage of the various state laws requiring retail-level reimbursement, thousands of dealers in
all 49 states have taken advantage of this legislation by submitting for, and receiving, a market rate for
their warranty claims. Essentially the laws provide that a dealer is entitled to “retail” for warranty parts,
which in most cases is roughly double the contractual mark-up stipulated in the dealer agreement.
Most dealer agreements stipulate a 40% fixed mark-up; retail typically averages about double that,
depending on your Customer Pay pricing strategy. On average, dealers are enjoying an uplift of about
$100,000 annually per store where Armatus has performed the submission.

So, what’s holding you up?

“I’m not aware of these laws” – Yes, we hear it all the time: “this sounds too good to be true,”
“I’ve never heard of this before,” “if this is true, why hasn’t everyone done it?” There is still a
surprising lack of awareness in the market regarding this opportunity, but as more and more
states strengthen their laws, dealers are catching on. Seven or eight years ago, this was a
somewhat obscure and cryptic subject. There were niche vendors here and there performing
submissions in the relatively few states where the law mandated retail-level reimbursement
supported by a prescribed RO sample. Today, 49 states in all have the requirement, 44 of those
with very detailed processes, and more are coming on board. Additionally, as ever
more dealers join the retail-compensation ranks, the word is getting around through Dealer
Associations, 20 Groups, simple word-of-mouth, and articles like this. Retail warranty
reimbursement now has a huge and growing presence in the marketplace, and a lack of
awareness is becoming a thing of the past.

“I’m already getting retail (MSRP)” – The truth is you are not getting what most consider true MSRP.
Don’t be fooled by the claim by some manufacturers that they are paying you retail; you are being paid
that particular factory’s version of MSRP. Furthermore, don’t be deluded by certain other
manufacturers’ claims that such MSRP mark-up is, say, 67%. While that may be the notional rate touted
by the factory, our firm has performed multiple studies on MSRP reimbursement, and when lower mark-
ups on major assemblies, no-cost exchanges, recall parts and the like are factored in, the true blended
reimbursement rate is in the low to mid-50% range, versus something in the true retail spectrum of 75%
to 85%, if you do a proper submission in accordance with the statutory rules. This is an all-too-common
misconception, and many dealers wind-up leaving a significant amount of money on the table by simply
failing to consider a “true” retail reimbursement submission.

“I’m worried about factory retribution” – This is a wide-spread concern; and having walked in your
shoes for over 20 years, I can relate. Being on the other end of the manufacturers’ many “programs,”
the dealers’ mindset in this regard is completely understandable. Yet there have been no instances of
retribution of which our organization is aware. Industry legal professionals have talked about this
publicly in various conferences, and they all concur: retribution is largely a myth perpetrated in order to
dissuade dealers from requesting a retail mark-up for their warranty claims. If your submission is
performed honestly, and with respect for your manufacturer’s warranty audit staff, there should be no
issues. This is a process that you want handled with kid gloves; and not by someone with the “factory
fighter” mentality. There is no question that the risk of retribution exists, but if history gives you any
solace, the risk is not terribly high. In fact, many states specifically prohibit retribution, and in some
cases, even spell it out with some detail. Besides, the dealer is largely in control when it comes to retail
reimbursement, since if a manufacturer does retaliate, the dealer can simply rescind his submission and
revert to the original rate. This is not to say there is zero risk; there’s no such thing in the
franchisor/franchisee relationship.

“It’s too complicated, and I don’t have the time or staff to do it” – This is where the value of a
professional firm comes in. With thousands of submissions under their belt, a firm specializing in this
highly complex arena can be invaluable. Looking back on my retail days, and knowing what I know now,
I wouldn’t even consider doing this myself – and I came up on the financial and accounting side. Think
about it: Who on a dealer’s staff has the time or the expertise to pull off a successful submission? Let’s
face it, dealership personnel are experts in dealing with customers, inventory, and other key operating
issues; they don’t spend time studying the law, nor do they have a knowledge base of manufacturers’
behaviors related to retail mark-up submissions. Speaking of factory behaviors: Yes, a few have
established patterns of resistance (not to be confused with retribution or retaliation, addressed above),
but an experienced and highly-prepared uplift firm is equipped, not only to neutralize many of such
franchisors’ oppositional tactics, but to anticipate them before a dealer even submits. This process can
be fast, easy and cost- effective when performed by an outsourced professional; especially one that
does all work in-house, with nothing subcontracted.

“It costs too much” – The highest fee you will pay is the cost of procrastination; it’s costing dealers
several thousand dollars each month of delay; the fees are the least of your worries. The other key
element, besides time, is the inferior results derived from the “do it yourselfer” or vendors without the
technology to get you the best results. Each 5 points of mark-up costs a dealer 2% in gross profit; it’s
not unusual to see those without the proper expertise lose between 10 and 20 points of mark-up
opportunity. Imagine the difference, when looking at your financial statement, of seeing a warranty
parts gross profit of 32%, when you could be enjoying 40% or more. The smart money says: Put this in
an expert’s hands, let them do all the heavy lifting, and sit back and reap the rewards.

The bottom line!

You have an opportunity to generate significant bottom-line results without any up-front investment,
risk or significant time commitment, by simply letting a qualified professional perform a retail
submission to your manufacturer. Think about it: What else could you do to generate as much profit as
you would by doubling your warranty parts mark-up? Same work, double the gross. Most, if not all,
concerns can be overcome by simply making the right choice. No one understands better than us that
your concerns are real, and that some vendor telling you that everything will be OK is not very
comforting. Our suggestion is that you check with your fellow dealers; a simple phone call could incent
you to take the first step. If you take the time to understand this somewhat complicated landscape, it
will be well worth your while.

For more information, contact Armatus at 888-259-4471 or email [email protected]. You can also
visit their website at dealeruplift.com. Armatus has performed over 12,000 successful retail
warranty submissions to 29 manufacturers in 50 states.

See this article featured in the March/April edition of FixedOps Magazine!

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Joe Jankowski is the Managing Partner of Armatus Dealer Uplift, a Hunt Valley, Maryland-based firm specializing in retail warranty reimbursement submissions. Armatus has completed over 12,000 successful submissions nationwide.  Joe has been personally involved in consulting on fifteen retail warranty statutes and is widely recognized as a subject matter expert in this highly technical arena. Previously, Joe spent more than 20 years as CFO, COO, and CEO of a large automotive group in Maryland.