Production Service Leadership Operations

Solving Warranty Problems

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Service_CaseStudy_0617

Joseph Minns remembers the golden days of warranty work: In the early 1980s and '90s, he says manufacturer reps would come in and teach service departments how to manipulate those warranty numbers—even if it meant putting in a lightbulb for every vehicle that came through.

Those days, however, are gone, he says. In the last 15 years, manufacturers have become increasingly strict on warranty work, the labor rate, the time and what they will pay for. Not to mention the amount of warranty work a service center gets can fluctuate greatly. And if service departments don’t meet those requirements, an audit team won’t be far behind.

However, Minns doesn’t sweat any of this. In fact, he says his service center, Bill Kolb, Jr. Subaru in Orangeburg, N.Y., welcomes warranty work. And thanks to a process and training regimen he implemented, he’s seeing 78 percent gross profit on that work.

 

The Build-Up

Minns has worked at Bill Kolb, Jr. Subaru for nearly three years. During that time, he’s turned the small nine-bay shop into a high-production powerhouse: Fourteen technicians produce $24,000 gross per bay with an average of $220,000 per month in service gross and $7.6 million in ROs last year.

Minns has managed to compete with the larger luxury dealerships around him by focusing on creative solutions that allow the service department to max out its facility. In particular, having technicians on six different schedules, which means technicians are booking 12-hour days four days per week.

“Authentically, I am a problem solver. I’ll find a problem and I’ll find whatever ways and avenues I need,” he says. “I balance all of this by trying to fill every bay, every day, all day long with a body. It’s having the right mix of techs.”

Having those highly trained technicians—his staff is 120 percent trained based on Subaru standards and has the equivalent of seven senior master technicians—has been particularly valuable as Subaru sales have risen from 180,000 new units three years ago to nearly 800,000 today.  

 

The Warranty Roadblock

First, the cons of warranty work: Franchise agreements are very particular on warranty work and the book times are limited. For example, Minns says that Subaru will pay 12.3 hours to put a short block in an engine. That job would be 40 percent higher in labor time if it were a customer-pay job. In addition, “warranty upsells” are strictly frowned up and eligible for automatic audit chargement—unless it’s a safety-related item that will affect the longevity of the vehicle .

“Every manufacturer watches your numbers in comparison to everybody else. If suddenly my warranty expense is 150 percent of what everyone else’s is, I can expect an audit team come in and find out why I’m spending more than everybody else is,” he says. “No dealership wants audit teams walking in because franchise agreements are written so you cannot be 100 percent perfect.”

However, despite the difficulties, Minns says there’s another way to think about warranty work: You’re not discounting, you have predetermined markups and labor rates, and according to most state laws, the manufacturer must pay retail on both. That’s the mindset Minns has chosen to adopt as he’s navigated a new era of warranty work.

 

The Staffing and Scheduling Solution

There are two ways that manufacturers handle warranty work training requirements: shop competency and technician competency. With shop competency, the technician doing a brake job, for example, must be a master certified brake technician, while in technician competency, there simply must be a qualified technician in the service department to oversee those repairs. Subaru requires shop competency, which while beneficial for training purposes, can create its own set of problems.

“In a shop competency–based shop, if I give one of my lower-end techs an electrical nightmare problem and I’m $5,000 into the car and a week later the car still isn’t fixed, I don’t really have an argument for the OEM when they ask about why this tech was assigned the repair,” he says. “They leave a gray area for them to come after you if there’s an issue.”

That’s why Minns has created a specialized service department. He doesn’t believe in a “one-guy-can-do-everything” shop. Instead, he says you have to utilize your technicians for what their best attributes are.

“Realistically, the manufacturer's times are close. You need your guys specialized in each category so they can perform on those jobs,” he says. “What most service managers do is take their high-end techs they want to keep happy and give them customer-pay work. They give the warranty work to the least experienced guys, which takes them two or three times longer to do the job, just to keep the A-techs happy.”

In Minns’ shop, A-techs do A-tech work, and B-techs do B-tech work, and so on. Minns divides out what the technicians’ specialties are and ensures he has at least three or four technicians qualified to do a good job on any given category of repairs.

“I have four guys in my shop that can replace engines and they can do engines in six hours. While I have 12 guys in my shop that can do engines, other than the four masters, it will take them a day, eight or nine hours. If I don’t use them for an engine, I just acquired five more hours in the day by having one of my engine guys get that done faster,” he says. “I have guys that do airbag recalls. They do them in 30 minutes, whereas I have other guys that it will take them three or four hours.”

To keep up that level of training, Minns is always cross-training technicians on other repairs. For example, he has four technicians who are qualified to work on a manual transmission shifting problem. Of those four, two are highly efficient and the other two are somewhat efficient. While he will almost always try to give those jobs to the two highly efficient technicians, not only does he have two backups (who also happen to be the fastest at engines), he trains those technicians to eventually work at the same level as the most efficient transmission techs.

 

The Results

Since switching to this system two years ago, performance has skyrocketed in the service center, which is now performing at a rate more than double industry standards. Gross profit on warranty work is higher than any other type of work in the department—customer pay is at 76 percent, internal is 71 percent and service contract is 77 percent—and technicians are frequently beating warranty book times.

“It’s not any faster to do customer-pay work; you just don’t have to follow all the same rules,” he says. “If you’re running your shop the right way, it doesn’t matter whether it’s customer pay, warranty or internal. You’re still going to diagnose and fix the car the same way.”

 

The Lesson Learned

Ultimately, Minns says, turning a profit on warranty work comes down to management.

“Many service managers have been in the business for a very long time and they don’t understand that in this day and age, you cannot have a one-size-fits-all technician base. You have to run your shop specialized,” he says. “Really, manufacturers don’t give away warranty money. You have to work for it. Everyone compares making a profit to customer pay. In the real world, the only difference between the warranty work and customer pay is you can charge the customer 40 percent more for labor. They don’t see that and they call that losing a profit.”

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