Why Are Dealerships So Reluctant To Do Warranty Repairs?

Dear Tom and Ray:

I've been reading your column for a long time, and I've noticed an interesting pattern in the questions. I see a lot of dealerships trying to "wait out" customers on repairs that should be done under warranty. I was under the impression that if the dealership does work under warranty, it gets the same amount of money as if it had done the work for a retail customer. So why would they want to wait people out? Am I wrong? -- Matt

TOM: Well, legally, they can't "wait people out" as a way to avoid fixing a problem, Matt. If you complain about a problem while the car is covered under warranty, the manufacturer is obligated to fix the problem, even if the warranty expires before they actually fix it.

RAY: But you're right that a lot of dealers are not eager to fix problems under warranty. Generally speaking, the manufacturer pays a lower labor rate to the dealer for warranty work. And, since the parts come from the manufacturer, the dealership can't earn its usual markup on the cost of parts, either.

TOM: Plus, it's hard to sweet-talk the manufacturer into buying a fresh set of fuzzy dice every time they come in.

RAY: But a lot of the fault here lies with the manufacturer. The manufacturers have traditionally made it less appealing for dealers to do repairs under warranty. In order to keep dealers from taking advantage of the warranty reimbursements, they've historically made those reimbursements small and authorization hard to get.

TOM: In recent years, most manufacturers have seen the effects of these policies (angry customers), so they've increased their warranty reimbursements and have used other means of ensuring that unnecessary work doesn't get charged to them (like installing secret video cameras in the coffee machine). But manufacturers still don't pay as much as you do when you make an appointment.

RAY: Despite the disincentive, some dealerships have realized that doing warranty work graciously can be good -- in the long term -- for business. Such good service can create a customer for life. And, over a lifetime, that customer can be worth a lot more to the dealership than the few hundred bucks they forgo by replacing the customer's transmission under warranty.

TOM: But until warranty repairs generate income equivalent to nonwarranty repairs, there will always be dealers out there who will shirk the warranty work -- assuming they've got enough work that they can pick and choose. So you can blame the shortsighted dealers, but some of the blame also has to go to the manufacturers for creating this customer-unfriendly disincentive.

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