I know this may not hit home for many of you, as it doesnt appear GM does it (as badly).
Does anyone know the legality of pricing recall parts SUBSTANTIALLY below normal dealer price?
For example, a current Audi recall includes a throttle body as well as a bunch of hoses, valves, etc. Normal dealer net on the throttle body alone is $305. The WHOLE RECALL KIT (which contains said throttle body as well as more) dealer net is $90.
Another Audi recall involves tie rod ends. A kit with two ends and a bunch of hardware (nuts, etc) has a dealer cost less than a single non-recall tie rod for the same car.
My feeling is this is an attempt to reduce warranty handling costs at the dealer expense. My dealer is not interested in pursuing it unless I can provide him with law stating it is illegal (rather than just immoral).
I expect to do 500 vehicles with that throttle body kit, and at a 40% reimbursement, thats a nearly $43,000 loss to my department versus the individual parts.
Thanks to anyone who can shed some information on the practice.
Legality Of Recall Parts Pricing
8 posts
• Page 1 of 1
Legality Of Recall Parts Pricing
by sallen1 » Sat Jan 01, 2000 4:29 am
I don't know anything about your Audi franchise agreement, but under the GM agreement, GM retains the right to price parts (dealer cost) sold to the dealership anyway they want. Just look at the price changes that come every month on the update tapes.
So what does this have to do with your question? Simple: since (for GM) there is a general policy of warranty parts having across-the-board gross (40% for GM) then you really only earn that gross based on what the factory charges wholesale for the parts. In your case, Audi seems to have created a new 'parts kit' for the recall and as such priced it much less than identical parts ordered separately. Obviously, this is supposed to reduce the recall costs. My concern is that if the dealers are always shorted on warranty reimbursement, they will take less care of those customers.
Immoral, yet. Illegal, probably not. One observation: My impression was that the imports (especially Audi, etc.) didn't treat their dealers as badly as GM. I guess I was wrong!
scott
So what does this have to do with your question? Simple: since (for GM) there is a general policy of warranty parts having across-the-board gross (40% for GM) then you really only earn that gross based on what the factory charges wholesale for the parts. In your case, Audi seems to have created a new 'parts kit' for the recall and as such priced it much less than identical parts ordered separately. Obviously, this is supposed to reduce the recall costs. My concern is that if the dealers are always shorted on warranty reimbursement, they will take less care of those customers.
Immoral, yet. Illegal, probably not. One observation: My impression was that the imports (especially Audi, etc.) didn't treat their dealers as badly as GM. I guess I was wrong!
scott
- sallen1
Legality Of Recall Parts Pricing
by Chuck Hartle » Sat Jan 01, 2000 1:48 pm
I hesitate to even comment on this subject as it seems to be one of those "taboo" issues we have to deal with working for a franchised dealership.
Three things here worth noting.
Shared Expense:
The manufacturer reserves the right to price campaign parts for the sole purpose of fixing a problem that usually the federal government deemed as unsafe. To a degree, I can't blame the manufacturer for pricing themselves out of the problem by reducing the cost of the part(s) needed to fix the problem and minimizing the labor accompanied by the repair.
In fact, we used to go on the offensive here. Forget the recall parts cost and the labor, look at it as an opportunity to get the customer back into your shop and show them what else you have to offer. This is particularly helpful on recalls for vehicles over 3 years old. We loved the "opportunities" for recall retention!
The J.D. Power Factor:
By reducing the costs of recall repairs it also keeps the costs of repair per unit down considerably. Since companies like J.D. Power and Associates keep a record of these types of things, it makes good 'business' sense to keep repair costs per vehicle to the absolute minimum it can be.
The Exchange Practice:
Once upon a time, at least with one manufacturer, campaign parts were delivered to the dealership at "no charge". The dealer was only allowed to charge for the labor allowed by the manufacturer. This practice was finally thrown out 5 years ago after dealers basically were 'unoffically' turning away the campaign customer. The manufacturer realized this as too extreme and changed their policy.
However, now there is a program by this manufacturer (and I am sure they are not the only ones) that to this day still raises the hair on my shoulders. It is the warranty exchange program.
On high dollar parts such as electronic modules, engines, and transmissions; you have to call into a 'Center' with you diagnosis and then they authorize the parts and send them to you for the repair. First off, you are not allowed to carry these parts in your inventory because they are on an 'exchange' basis only. Second, the dealership only makes the labor to install the high dollar part.
Here's the kicker..... These parts have to be tracked, inventoried, and sent back just as expeditiously as the other warranty parts. In many cases, it is far more 'labor' intensive for the parts department to handle these parts than any other and they make absolutely nothing for their efforts. This labor done all for the 'priviledge' of being a franchised dealer.
The later carries a far greater impact than campaign parts ever could. This has always been my greatest fear when it came to the retail reimbursemnt for warranty repair lawsuits that have been creeping up. The manufacturer will ultimately continue to add more and more parts to this list of 'exchange' parts. Where will it end?
I look at it this way:
Rule Number One - The manufacturer will always win and ;
Rule Number Two - See Rule Number One!
What do you think out there? Anyone else have a manufacturer with the same practices?
Chuck Hartle'
Three things here worth noting.
Shared Expense:
The manufacturer reserves the right to price campaign parts for the sole purpose of fixing a problem that usually the federal government deemed as unsafe. To a degree, I can't blame the manufacturer for pricing themselves out of the problem by reducing the cost of the part(s) needed to fix the problem and minimizing the labor accompanied by the repair.
In fact, we used to go on the offensive here. Forget the recall parts cost and the labor, look at it as an opportunity to get the customer back into your shop and show them what else you have to offer. This is particularly helpful on recalls for vehicles over 3 years old. We loved the "opportunities" for recall retention!
The J.D. Power Factor:
By reducing the costs of recall repairs it also keeps the costs of repair per unit down considerably. Since companies like J.D. Power and Associates keep a record of these types of things, it makes good 'business' sense to keep repair costs per vehicle to the absolute minimum it can be.
The Exchange Practice:
Once upon a time, at least with one manufacturer, campaign parts were delivered to the dealership at "no charge". The dealer was only allowed to charge for the labor allowed by the manufacturer. This practice was finally thrown out 5 years ago after dealers basically were 'unoffically' turning away the campaign customer. The manufacturer realized this as too extreme and changed their policy.
However, now there is a program by this manufacturer (and I am sure they are not the only ones) that to this day still raises the hair on my shoulders. It is the warranty exchange program.
On high dollar parts such as electronic modules, engines, and transmissions; you have to call into a 'Center' with you diagnosis and then they authorize the parts and send them to you for the repair. First off, you are not allowed to carry these parts in your inventory because they are on an 'exchange' basis only. Second, the dealership only makes the labor to install the high dollar part.
Here's the kicker..... These parts have to be tracked, inventoried, and sent back just as expeditiously as the other warranty parts. In many cases, it is far more 'labor' intensive for the parts department to handle these parts than any other and they make absolutely nothing for their efforts. This labor done all for the 'priviledge' of being a franchised dealer.
The later carries a far greater impact than campaign parts ever could. This has always been my greatest fear when it came to the retail reimbursemnt for warranty repair lawsuits that have been creeping up. The manufacturer will ultimately continue to add more and more parts to this list of 'exchange' parts. Where will it end?
I look at it this way:
Rule Number One - The manufacturer will always win and ;
Rule Number Two - See Rule Number One!
What do you think out there? Anyone else have a manufacturer with the same practices?
Chuck Hartle'
- Chuck Hartle
Legality Of Recall Parts Pricing
by Greg H » Sat Jan 01, 2000 6:14 pm
I agree with some of the above and disagree with some...
In reference to sallen1's comment about if the dealer is always getting shorted, they will definatly (intentionally or not) care less about those customers. This will result in lower CSI scores both for the dealer(s), and the manufacturer. If the vehicles are out of warranty however, of course the dealer will jump at any chance to get the vehicles back in. That doesnt apply on my examples, these are 98-99 vehicles.
In reference to Chuck's comments:
As far as the JD Power factor goes: OK, I agree with the need to keep unit repair costs down. So price the everyday part lower and use it to do the repairs. I still disagree with the need to make a special "kit" part number at a lower price. Just lower the prices on the regular parts. That way the customer who (by some odd reason) needs a throttle body is entitled to the same price break. I actually could see a class action suit by car owners claiming to be screwed having more merit than a dealer lawsuit on this case.
This applies much more to the tie rod recall I mentioned. The tie rod fits 96+ cars, but only 98-99 are recalled. The regular tie rod is $90, and the kit of two is $85. Would it then be unethical for me to stop buying the $90 part for the early cars, and open up the recall kits and sell the (same $90) tie rods which now only cost $42.50 for the full list price of the $90 ones? (I have been doing this, and I sleep fine at night thanks to the pricing of the other recalls). The hardest part has been getting my controller to see my point, and give me the proper inventory/profit credits/debits.
As for the "Exchange" practice. You (and I) have the right to refuse to do it. If enough dealers refuse to "sell" a zero profit part, the manufacturer will have no choice but to change that. I know GM currently has that practice with radios and clusters (and I can see the reasoning for it as those are expensive repairable components). It is unfair to not pay the dealer a token ($25?) handling fee to process those however. Usually the phone call to order it, and the freight to return the core is the dealers responsibility, they need to be reimbursed. If they are not, then dealers are not going to want to replace these items. I can already see it... "Hmm, I can do this instrument cluster and lose $25 in labor and shipping, or we can pull in the next customer pay major service...". Sooner or later the customer will get upset that their car isnt finished, and lower the manufacturers / dealers CSI.
Also, having a large number of parts that are available on an "exchange only" basis will quickly drive customers from that manufacturer. Once the customers cars need to be tied up overnight for fuel pumps and water pumps, and switches, the manufacturer
will be pressured by the customer to change. I already know of customers who are unhappy waiting for radios. Of course if you let the customer take their car, you know they wont be back until the 32'nd day when the new unused part has been sent back to the exchange center.
I was speaking with an Lotus parts manager at a recent meeting, and he was telling me what Lotus was doing to him on a recall. It involved 4 wheels. They shipped them all at no charge. He refused the shipment and then fought out with Lotus that if the were not going to pay him to deal with them, he wasnt going to be responsible for them (with the hint that they might "become damaged"), or store them in a protected area (with the hint that they might be "stolen"). His reasoning, that if they were not in his inventory, and he was not being rembursed, they were not his problem to protect. Lotus turned around and agreed to pay normal warranty handling charges. This amounted to almost $1000 per car! The dealer CAN win.
As to the "Where will it end?". It will end wherever we draw the line. The big bullies (manufacturers) will keep pushing us for whatever they will get away with. And with them being the largest customer of the service dept in quite a few dealers, any little bit they can take on each warranty car, makes quite a difference on their bottom line. (Ours too).
As for rules one and two. Maybe you are right, but should it be that way? If it was a marriage, and it was the wife (or husband) was always right, dont you think there would be a quick divorce?
In reference to sallen1's comment about if the dealer is always getting shorted, they will definatly (intentionally or not) care less about those customers. This will result in lower CSI scores both for the dealer(s), and the manufacturer. If the vehicles are out of warranty however, of course the dealer will jump at any chance to get the vehicles back in. That doesnt apply on my examples, these are 98-99 vehicles.
In reference to Chuck's comments:
As far as the JD Power factor goes: OK, I agree with the need to keep unit repair costs down. So price the everyday part lower and use it to do the repairs. I still disagree with the need to make a special "kit" part number at a lower price. Just lower the prices on the regular parts. That way the customer who (by some odd reason) needs a throttle body is entitled to the same price break. I actually could see a class action suit by car owners claiming to be screwed having more merit than a dealer lawsuit on this case.
This applies much more to the tie rod recall I mentioned. The tie rod fits 96+ cars, but only 98-99 are recalled. The regular tie rod is $90, and the kit of two is $85. Would it then be unethical for me to stop buying the $90 part for the early cars, and open up the recall kits and sell the (same $90) tie rods which now only cost $42.50 for the full list price of the $90 ones? (I have been doing this, and I sleep fine at night thanks to the pricing of the other recalls). The hardest part has been getting my controller to see my point, and give me the proper inventory/profit credits/debits.
As for the "Exchange" practice. You (and I) have the right to refuse to do it. If enough dealers refuse to "sell" a zero profit part, the manufacturer will have no choice but to change that. I know GM currently has that practice with radios and clusters (and I can see the reasoning for it as those are expensive repairable components). It is unfair to not pay the dealer a token ($25?) handling fee to process those however. Usually the phone call to order it, and the freight to return the core is the dealers responsibility, they need to be reimbursed. If they are not, then dealers are not going to want to replace these items. I can already see it... "Hmm, I can do this instrument cluster and lose $25 in labor and shipping, or we can pull in the next customer pay major service...". Sooner or later the customer will get upset that their car isnt finished, and lower the manufacturers / dealers CSI.
Also, having a large number of parts that are available on an "exchange only" basis will quickly drive customers from that manufacturer. Once the customers cars need to be tied up overnight for fuel pumps and water pumps, and switches, the manufacturer
will be pressured by the customer to change. I already know of customers who are unhappy waiting for radios. Of course if you let the customer take their car, you know they wont be back until the 32'nd day when the new unused part has been sent back to the exchange center.
I was speaking with an Lotus parts manager at a recent meeting, and he was telling me what Lotus was doing to him on a recall. It involved 4 wheels. They shipped them all at no charge. He refused the shipment and then fought out with Lotus that if the were not going to pay him to deal with them, he wasnt going to be responsible for them (with the hint that they might "become damaged"), or store them in a protected area (with the hint that they might be "stolen"). His reasoning, that if they were not in his inventory, and he was not being rembursed, they were not his problem to protect. Lotus turned around and agreed to pay normal warranty handling charges. This amounted to almost $1000 per car! The dealer CAN win.
As to the "Where will it end?". It will end wherever we draw the line. The big bullies (manufacturers) will keep pushing us for whatever they will get away with. And with them being the largest customer of the service dept in quite a few dealers, any little bit they can take on each warranty car, makes quite a difference on their bottom line. (Ours too).
As for rules one and two. Maybe you are right, but should it be that way? If it was a marriage, and it was the wife (or husband) was always right, dont you think there would be a quick divorce?
- Greg H
Legality Of Recall Parts Pricing
by mbowers » Fri Jan 07, 2000 3:42 pm
A couple of states have taken the lead an amended their state franchise laws to cover the situation. New Jersey requires that dealers be reimbused for warranty-recall-exchange parts as though they were sold at retail.
- mbowers
Legality Of Recall Parts Pricing
by MARY SHERICK » Sun Mar 12, 2000 2:37 am
JUST ONE NOTE: I DO NOT DISAGREE THAT THIS IS AN UNFAIR SITUATION, HOWEVER, GM DOES PROVIDE UNDER THE SUBLET POLICY S A .2LABOR HOUR PAYMENT FOR SUBLET REPAIRS SUCH AS CLUSTERS AND RADIOS, AS WELL AS AN ADDITIONAL .3 LABOR HOURS IF THE DEALER DELIVERS THE VEHICLE/COMPONENT THEMSELVES. YOU MIGHT WANT TO MAKE SURE YOUR WARRANTY ADMINISTRATOR IS CLAIMING THIS, AS WELL AS LOOK AT WHERE THE MONEY IS ACTUALLY BEING POSTED IF IT IS BEING CLAIMED. SINCE IT IS INTENDED AS AN ADMINSTRATIVE ALLOWANCE, YOU MAY NOT BE SEING IT IN GROSS, BUT AS A REDUCTION IN AN ADMIN ACCOUNT
- MARY SHERICK
Legality Of Recall Parts Pricing
by joe r » Sun Mar 12, 2000 1:09 pm
You just hit my favorite subject. The exchange radio and cluster. Chrysler not only exchanges them, but if you don't submit the labor claim on the ro you ordered the unit on they will bill you $200.00 or $500.00
for the unit. Then you have to beg the service rep to get your money back. And that's if you return the core. If one get by you for 60 days they bill you for the radio. If you then send it back unused you may get credit in about 3 months. If you don't get your credit you must fax all the information to what I believe is a non-existent person in Detroit. As of today I have never received a credit for any of ny faxes. My DMM can't seem to help me either.
I have already been to two guild meetings to try to get letters written to Chrysler to have these units put in the rebuilt program.
jor r
for the unit. Then you have to beg the service rep to get your money back. And that's if you return the core. If one get by you for 60 days they bill you for the radio. If you then send it back unused you may get credit in about 3 months. If you don't get your credit you must fax all the information to what I believe is a non-existent person in Detroit. As of today I have never received a credit for any of ny faxes. My DMM can't seem to help me either.
I have already been to two guild meetings to try to get letters written to Chrysler to have these units put in the rebuilt program.
jor r
- joe r
Legality Of Recall Parts Pricing
by Robert a Bamert jr » Tue Mar 14, 2000 2:04 pm
JUST THE FACTS,THERE ARE SEVERAL THINGS
THAT HAVE NO SUBLET MARKUP FOR GM WARRANTY
REPAIR. INJECTION PUMPS IS A GREAT EXAMPLE.
We to often our asked by the manf.to suck it
up.It's a good thing most of us like what we
do.We also have the Cluster and Radio Dilemma
the time allowed for removel just to id the correct model is unrealistic,but thats a whole new topic,LOL
THAT HAVE NO SUBLET MARKUP FOR GM WARRANTY
REPAIR. INJECTION PUMPS IS A GREAT EXAMPLE.
We to often our asked by the manf.to suck it
up.It's a good thing most of us like what we
do.We also have the Cluster and Radio Dilemma
the time allowed for removel just to id the correct model is unrealistic,but thats a whole new topic,LOL
- Robert a Bamert jr
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