Warranty pay service could be your next growth area

Dealerships will agree that that the past year has caused more stress than any time since the last recession. But, the chip shortage aside, more and more owners are discovering as we exit COVID restrictions, it’s not a bad time to be a dealer. Service is beginning to return, and dealers are getting better margins.

As prognosticators look ahead, however, the horizon is showing some new challenges. Inventory continues to shrink because of the chip shortage; any new stock arrives with disabled features like push to start. And buyers are comfortable moving to a used model, but even those are in short supply because of high demand.

After the hot market cools off, low sales margins will return, and dealerships will be looking to service to drive profit for the long term. Since luck always favors the prepared, are you ready for what’s coming?

Getting Ready

Over the last four years before COVID, dealerships service grew at an average service growth of 2.6% in the US, which won’t support a healthy service department. But, digging deeper, customer pay growth in 2019 was an averaging 1.3%. Still, warranty pay service growth, over that same period, “increased over 38% at an average of 7.7% per year,” according to Jim Roche at WarCoud.

Warranty Pay Service Growth

Every service department has two service tiers: warranty and owner pay. According to MSXI, with the government push to make EVs and include more safety tech, warranty pay service is set to grow in size and complexity. This increase also has the potential to drive increased profits. Warranty pay service growth is going to continue because of:

• More technology built into vehicles, equaling more repairs
• The increasing length of OEM warranty years and miles
• Increase parts markup and labor rates

As growth increases in the warranty pay service area, there’ll also be more technicians, advisors, and a needed evolution in the warranty processing department. Since most warranty processing is still manual labor, it’s an area that’s primed for technological efficiencies.

Increasing Claims. Increasing Prosperity.

According to Warranty Week, OEMs claims have consistently averaged 2.32% of sales revenue, while accruals averaged 2.81% of revenue. And dealers spend a good chunk of time and money to process those claims.

With warranty processing continuing to be a high turnover position, companies like WarCloud fill a need for dealers. Like other dealership areas, technology can automate most of the work and leave more complex claims to current employees.

Once dealers automated their warranty processing, the increased warranty claims will eventually result in lower costs and higher profits. Leveraging the technology and rising dealership service profitability can be the path is the key to dealership prosperity.

Is Warranty Pay the Answer for Profitability?

When looking at the increased complexity of today’s vehicles, it would be wise to plan for an increased flood of warranty claims. Automation is now available to process these claims more efficiently than in the past. Customer pay won’t go away, but warranty pay could be your ticket to a profitable future. It never hurts to be prepared.

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