Auto Dealers | April 2025 Maximize your dealership’s warranty service reimbursements

Reimbursed service work provides a reliable source of steady revenue. With the right measures, it can become even more lucrative. Dealers who study warranty reimbursement details, refine workflow tracking and documentation to optimize warranty payments, and follow OEM program requirements can maximize rates and reimbursements, leading to increased service revenue.

Maximizing warranty reimbursements depends on state laws, which dictate how retail rates for labor and parts are determined. Most states require manufacturers to reimburse dealers for warranty work at the same rates charged to retail customers. These laws are subject to change from time to time, necessitating that dealers keep up with the latest legislation and adjust their strategies accordingly.

There are subtle but meaningful details that determine the labor time standards used, the method for calculating retail rates, and how retail parts costs are set. While state laws require OEMs to pay retail rates, it’s up to dealers to document and justify the rates they charge customers. For instance, dealers may be required to submit a sample of 100 recent service orders to establish an average hourly rate for retail customers. The manufacturer then uses this average retail rate to calculate reimbursement amounts.

In the ongoing negotiation between dealers seeking fair reimbursement and OEMs aiming to control costs, be cautious of OEM offers that circumvent state-mandated legal protections. For example, offers to provide necessary warranty parts at no or reduced cost may allow manufacturers to skirt legal protections to reimburse parts at retail rates.

Follow these practical steps to help you get the most in warranty reimbursements.

Ensure that your reimbursement rate matches what you are currently charging the retail customer.

Costs for labor, parts, and equipment have risen sharply in recent years. Modern vehicles require specialized equipment and highly skilled technicians who command higher wages. If your OEM reimbursement rates rely on outdated data, you may be losing out on revenue.

Applying discounts may seem like an effective way to build relationships and loyalty, but the goodwill you create for one customer may negatively affect your warranty reimbursement rates overall. Providing “friends and family” rates or discounting repair invoices can decrease the average hourly charge in your service sample, reducing the reimbursement rate for all warranty work. Updating your published rate consistently is one of the most effective ways to maximize reimbursement.

Pricing data drives reimbursement rates, so meticulous record-keeping can have an outsized impact on potential revenue. Ensure records accurately reflect customer concerns and include detailed descriptions of work performed. Misclassified service work, especially within the service work sample, can distort data and negatively affect reimbursement rates on all your warranty work.

Additionally, configure your service workflow system to generate reports used to update retail rates as frequently as allowed by OEMs and state laws.

Your service manager should understand the complexities of warranty reimbursement and their impact on dealership profitability. Choose a program leader who’s keen to stay informed about state statutes and OEM reimbursement programs that maximize service revenue and your service absorption rate.

Most states require that manufacturers permit dealers to request annual rate adjustments for warranty reimbursements. While the process can be time-consuming, the financial benefits make it worthwhile. Even small adjustments can significantly boost service revenue, given the volume of warranty work.

Even if you don’t request a reimbursement rate adjustment, assess your pricing structure annually. Ensure that the rate you receive from the manufacturer aligns with market conditions and reflects increasing labor costs. Today’s skilled technicians earn considerably more than they did just a few years ago, and your reimbursement rate should account for these rising expenses.

OEM-offered, CPI-based multi-year programs may seem like a convenient way to secure annual rate increases. However, these programs base increases on changes to the national CPI—not the amounts you charge customers—and typically cap increases to less than 5%. While convenient, dealers that opt for these programs may forfeit their right to request more substantial rate adjustments allowed by law.

Special thanks to Jason Allen, shareholder at Bass Sox Mercer, Attorneys at Law. Bass Sox Mercer is a dealer franchise law firm representing automobile, truck, and motorcycle dealers in complex commercial transactions, business and franchise disputes, operational issues, and litigation. The firm specializes in dealer rights, including warranty reimbursement matters. Contact Jason Allen at jallen@bsm-law.com or (850) 878-6404