Warranty Parts – Annual Rate Adjustment
Frank O’Brien Principal, CPA, CIA, CFE

17 April 2018

One of the most overlooked aspects of the warranty parts law is the dealer’s right to request a parts reimbursement rate increase annually. Most state laws permit a dealer to submit for a rate increase once per calendar year; while some states allow two submissions per year. There have been a few dealers that have submitted a second time for an even higher parts rate but more dealers should take advantage of this opportunity.

On average, the dealers that prepare a second or even third submission, increase their rate about 10{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}. The impact to the bottom line will vary based on the volume of warranty sales, but it typically yields $3,000 to $4,000 of additional gross profit per month. Additionally, this will only yield a profitable impact if the dealership increases its parts matrix or makes changes to its discounting practices. Based upon our experience, the

most striking observation has been the drastic difference between the average markup charged by dealerships to their retail customers for parts. Some dealers have been approved at over a 100{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c} mark up while other dealers have been approved below 60{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}. The main reasons for such discrepancies directly relate to the parts matrix in place and discounts. Oftentimes, parts departments do not implement an aggressive enough parts matrix to maximize their profitability. Other times, the matrix is effective; however, discounts are utilized too liberally, reducing the rate and profitability.

Please see the table below which shows a list of the average approved markup rates by franchise:

General Motors 81{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}
Ford 70{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}
Chrysler 77{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}
Honda 78{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}
Nissan 69{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}
Hyundai 74{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}
Subaru 75{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}
Luxury Franchises 89{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}
Other Franchises 76{dbc2a7977897ed6bb279211f092ba1f542e4cbaf62b292c7a918387c014c548c}

As you can see, the average approved rate for most franchises is in the mid to upper 70’s, with the luxury brands much higher.

It makes sense for dealerships that were approved at or below the average to analyze both its parts matrix and its discounting practices. We can assist you with this.




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