Pub. 7 2017 Issue 4

20 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com Reading the Tea Leaves for Knowing When to Submit for a Warranty Parts or Labor Reimbursement Increase BY LEONARD A. BELLAVIA, ESQ. BELLAVIA BLATT & CROSETT, PC W hen it comes to meet i ng t he demands of manufacturers, a dealer’s job is never finished. Illinois dealers continuously respond to things like sales deficiency letters, audits, chargebacks, facility upgrade requests, allocation decisions and other manufacturer actions that in ultimately impact that dealer’s bottom line. With so many balls in the air, it is easy for you as a dealer to overlook when it is time to increase the warranty parts markup or labor rate for each rooftop you own. Nonetheless, it is critical to monitor your warranty reimbursement levels because, when there is a chance to realize profit by submitting for higher reimbursement, each month delayed in submitting is profit lost to you for that month. When might it be a good time for higher warranty parts markups and labor rates? Below are a few good indicators. 1. Buying a new dealership: When you purchase a new dealership, thewarranty partsmarkup for you as the newdealer- principal typically goes back to 40%. Therefore, a fewmonths after the sale has closed may be a good time to re-submit for a higher warranty parts markup, particularly if the dealership is getting 80% or more markup on retail parts. Additionally, the prior owners may not have implemented other strategies that could have further raised customer pay levels, leading to an even greater opportunity for you to raise warranty parts markups and labor rates. 2. Implementing a Matrix: If your dealership has implemented a customer pay matrix after it last submitted for higher warranty labor rates, it could be time to re-submit if the matrix significantly boosted retail labor rates. We have often found that implementing a customer paymatrix has raised retail rates significantly at many dealerships, leading to an opportunity to raise warranty reimbursement as well. 3. Understanding Market Demand for Retail Repairs: Is your dealership currently providing below-market pricing for retail repairs? If so, your dealership may need to increase retail markups and labor rates to better leverage demand for the dealership’s services. When it does, warranty reimbursement can stay in lockstep with retail pricing, as the dealership can apply for increased warranty reimbursement twice each calendar year under Illinois law. 4. Getting Control of Dealer Discounting: If your service writers are giving out too many discounts for customer pay repairs, it may be time to get that under control in order to increase the retail rates that will then justify higher warranty parts and labor. Under Illinois law, it may be challenging to exclude such discounts from the calculations that set the submitted warranty parts markup or labor rate. Call Your Attorney before You Submit Once you determine it is time to submit for a warranty parts or labor increase for your dealership, your first call should be to your attorney, who can tactfully work behind the scenes so as not to create an adversarial relationship between your dealership and the manufacturer. Establishing a warranty parts and labor reimbursement “at retail” is a legal process because a dealership’s right to such warranty rates at retail and the manufacturer’s corresponding obligations are embedded in the intricacies of Illinois state law. Manufacturers, with behind-the-scenes support from their own attorneys, have steadily increased their pushback on submissions by interpreting Illinois state law inways that limit warranty reimbursement growth. This is why your dealership needs its own attorney to analyze issues, draft correspondence and craft reasonable justifications for their reimbursement requests when negotiating with manufacturers. With the rights afforded to Illinois dealers under state warranty reimbursement law and the availability of experienced counsel ready to help, there is no better time than now to check if your dealership’s current warranty parts markups and labor rates can be increased further. Leonard A. Bellavia is the founding partner of Bellavia Blatt & Crossett, PC and a nationally recognized authority in the field of automotive franchise law. Mr. Bellavia has provided more than thirty years of legal counsel to dealerships nationwide. Through itsWarranty Reimbursement Program, Bellavia Blatt &Crossett has helped thousands of dealerships in forty states get their warranty repairs reimbursed at retail levels. Note: this article does not constitute legal advice. Please consult your attorney for the matters discussed herein.