Maximize Warranty Claims and Avoid Costly Warranty Mistakes

Transcription

1 Maximize Warranty Claims and Avoid Costly Warranty Mistakes A White Paper

2 No dealer is squeaky clean in its warranty administration. Every dealer can improve in this area. The service manager and Dear Auto Dealer and General Manager, Manufacturers are increasingly cost conscious when it comes to warranty repairs. They are eyeing claims with increasing scrutiny. Protecting your dealership s warranty claims process is a critical job and you play a vital role in it. As diligent and careful as you are, however, claims issues can arise and cost your dealership money in penalties and unrecovered claims. Prevention includes pre-emptive warranty audits that help identify and then correct potential problems before the factory s auditors do. After all, you don t want to pay factory chargebacks and you surely want to be paid for the repairs you do for your customers. An internal audit of your warranty claims can help verify the integrity of your processes. It can also help find where costly problems might be occurring, such as: Fraudulent claims Falsified punch times Parts thefts Unpaid claims We have prepared this white paper, Maximize Warranty Claims and Avoid Costly Warranty Mistakes, to help you assess your claims processes and ensure their quality and integrity. We trust you will find it of great value to you personally and to the warranty claims function s value to your dealership. Regards, Terry Dortch, President Automotive Compliance Consultants Crystal Lake, Illinois 2 P a g e

3 No dealer is squeaky clean in its warranty administration. Every dealer can improve in this area. No one s perfect For sure, no dealership manages and maintains its warranty claims process as cleanly and thoroughly as they should, but given the nature of the job, probably the best they can. Still, because processing warranties correctly requires diligence to warranty claim integrity by so many people in fixed operations, the devil can too easily hide in the details. When this particular devil s left unchecked, the result can be costly to the dealership. A poorly managed and maintained warranty process can result in factory audit chargebacks of $100,000 and up. In addition, unpaid claims, whatever the reason, cost you money money owed you by the factory. After all, you ve paid your service manager, service advisors and technicians for the warranty work that has passed through your shop but have you been paid the money due the dealership for every legitimate warranty claim? Warranty audits are inevitable Manufacturers are increasingly cost conscious when it comes to warranty repairs and as such are eyeing claims with increasing scrutiny. Certainly no dealer wants to be surprised by factory audit findings. Prevention here includes preemptive warranty audits that help identify and then correct potential problems before the factory s auditors do. An internal audit of your warranty claims can help verify the integrity of your processes. It can also help find where costly problems might be occurring, such as: Fraudulent claims Falsified punch times Parts thefts Unpaid claims 3 P a g e

4 A poorly managed and maintained warranty process can result in factory audit chargebacks of $100,000 and up. In addition, unpaid claims cost you money money owed you by the factory. Catch potential losses early Your best offense against warranty losses is your diligence to promptly reviewing your warranty trend analysis provided by your OEMs. This report is a snapshot of your warranty performances in comparison to same-make dealers in your zone, region, state and the nation. How does your performance compare to these other dealers? Where are your claims substantially different from theirs? Does it cost more to have a vehicle repaired at your dealership compared to other dealers in your region? Some legitimate reasons for variances might include a factory-approved labor rate higher than others in your comparison group. On the other hand, perhaps your labor hours or straight time is excessive. Are you claiming more testing and trouble-shooting time? Are you putting more parts on vehicles for the same repair than the other dealers? Are your sublets being marked up higher than they should be by your vendors? Factory audit triggers These activities will trigger factory audits: Cost per repair and frequency of repair Cost influences such as parts, sublets (like tow costs, glass repair, etc.), labor hours, straight time, and excess hours Repetitively charging Warranty for the same repair Frequency of visits, potential comebacks, repairs per visit and addons If your trends analysis includes these red flags, an independent warranty audit may catch them and help you correct them before the factory sweeps in and analyzes your records instead. In more detail, these triggers include: Too frequent visits the vehicle continues coming back for the same complaint Add-on repairs the customer comes in with one complaint and leaves with five repairs done to the vehicle; did the service advisor inspect the vehicle before adding these additional lines to the repair order? Both the advisor and tech do make more money when the RO contains more add-on work 4 P a g e

5 An internal audit should begin by pulling three months service records. This documentation should include every warranty claim RO and every customer-pay RO. Are techs stockpiling scrap parts they can be used by an unscrupulous tech to create false warranty claims or to sell to a scrap dealer for cash, which is not their asset to sell Make sure the vehicle for which warranty claims are made was indeed in the shop As noted, some red flags are flagrant thefts. These can be a challenge to identify and their pursuit can certainly strain colleague relationships. What to audit An internal audit should begin by pulling three months service records. This documentation should include every warranty claim RO and every customer-pay RO. This documentation should be in electronic and hardcopy format. Remember, federal law requires these documents be retained for seven years. Here s what the auditor s scrutiny of this documentation can help you uncover, if it exists: Inaccurate punch times does the warranty claim show two hours of work being performed but the tech s punch time shows less time? Is a customer signature on every document? Is your parts-return stamp on replaced parts destined for factory return? Is the description of the repair on every RO accurate and complete? Does every RO include and follow the three Cs of fixed operations the Complaint, the Cause and the Correction. Are all three Cs documented correctly and thoroughly? Customer complains of squeak handwritten on a RO begs for scrutiny. The length of time that warranty documents must be retained is determined by your OEM, and your state, if more stringent than the federal requirement of seven years. Be sure to convert digital files to Read-Only once all paperwork is complete. 5 P a g e

6 Enforcing The Preventive service warranty manager process audits and warranty help control dealerships administrator to ferret weed out and are out stop the trouble human firstdefense error, neglect the here; weeds isn t be and the sure of yes, human sort they re maliciousness of job error, scrutinizing most neglect employees that claims, and hurts yes, will the accurately relish. dealership before infractions maliciousness, assigning brand. operations harm the codes, dealership and filing brand. correctly. How to audit Many dealerships already busy with day-to-day activities often turn the internal warranty process over to a third-party auditor. An independent warranty auditor will most likely be: More qualified to conduct a warranty analysis and interpret the findings and recommend remedies to prevent noncompliance or fraud going forward More objective, able to see issues in black and white and free of relational burdens within the dealership, thereby being more effective at having to level bad news and recommend any necessary oversight and policing actions Enforcing warranty process control to ferret out and stop infractions isn t the sort of job most employees will relish. No service manager or GM wants the responsibility of confronting employees hoarding unpaid claims or carrying out egregious warranty activities. Furthermore, in some cases, the employee or employees having warranty administration oversight can be part of the problem. Thus, many dealers find using outside warranty compliance as the bad guy to handle warranty audits to be a better option. Automotive Compliance Consultants offers more than 20 years experience in fixed operations with dealerships and OEMs. Preventive warranty audits help dealerships identify risks before human error, neglect, and, yes, maliciousness can cause harm to dealership management, the dealership brand and customers respect and trust in the business. It s your money keep it! No dealer is squeaky clean in its warranty administration. Every dealer can improve in this area. The service manager and warranty administrator are the first-defense here, so be sure they re scrutinizing claims, accurately assigning operations codes, and filing correctly. Be sure to review the factory s warranty reports, but know that by the time warnings show there the troubles are likely already causing problems. On the other hand, efforts to recover unfiled claims can be rewarding too often not more than $10,000 per claim; not a gold mine, but not peanuts either. 6 P a g e

7 This is an area of your business to button down tight. As diligent and careful as you are, claims issues can arise and cost your dealership money. Summary Protecting your dealership s warranty claims process is a critical job and you play a vital role in it. As diligent and careful as you are, however, claims issues can arise and cost your dealership money in penalties and unrecovered claims. Prevention here includes pre-emptive warranty audits that help identify and then correct potential problems that could cost you money, frustration and time. We trust this report will serve as a reminder and guideline to help you better identify warranty audit red flags, catch potential claim losses early and uncover root audit and claim loss problems. This is an area of your business to button down tight. It is also an area for which outside auditing is often preferred. Third-party audit compliance will help your warranty administrator improve and assure you that he or she is going the job properly. There is considerable money involved in the warranty process. Correct warranty claims processing will ensure that you are paid for the warranty work your dealership has performed while minimizing your risk to costly claim chargebacks. If you should like a second opinion about your warranty claims processes and oversight, we would be happy to discuss our services with you. Please visit us at to review all of our dealership compliance services, including network/data security; state and federal OSHA, EEOC, FCRA, Dodd-Frank, and Red Flags regulations as well as all other compliance requirements of the modern automobile dealership. Automotive Compliance Consultants 60 - B West Terra Cotta Dr. #159 Crystal Lake, IL Telephone: Fax: info@compliantnow.com 7 P a g e