L WV wants, c mmunity lobby - Canton Public Library

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4b(b.w,t*10) ,
fhuraday, January 16, 1975
WARRANTY
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Everyone pays for service but who profits ?
By RICHARD GOLD
Who pays for warranty work on a new automobile?
This question is not as simple as it may
seem, because it is not always clear who is footing
the bill. It might be the factory, the consumer,
the mechanic or the dealer.
One thing is clear, however, the financial incentive
for the dealer and mechanic to do retail
repair is much greater than the incentive for warranty
work. Bill Brown Sr., of Bill Brown Ford in
Lansing says, "There's no question that we make
more money in retail repair on a per capita basis.
We're lucky to make any profit on warranty repairs,
and I've been a dealer for 34 years. The factory
probably approves work for me that they
wouldn't for other dealers."
Donald Randall, author of "The Great American
Automobile Repair Robbery, A Ten Billion National
Swindle and What You Can Do About It" is
more emphatic about the relationship between the
factory and the dealer, the mechanic and the consumer.
"In effect the retail customer, the dealer and
the mechanic subsidize warranty work—the retail
customer by paying more than the manufacturer
for the same repair, the dealer by taking in less
income for the same job and the mechanic by
earning fewer wages for warranty work than for
retail work." he writes.
WHEN A NEW CAR owner brings his auto in
for warranty repair work, the dealer does the
work and bills the factory. The rates for labor
and parts are established by the manufacturer
and must be accepted by the franchised dealer.
According to Randall and many car dealers, the
rebate from the factory is inadequate and this is
where the problem begins. The dealer either loses
money or makes at best a "marginal profit."
The mechanic at a dealership is pdid according
to a flat rate manual. The manual designates
the number of hours a job should take and the mechanic
is paid accordingly, regardless of the number
of hours it actually takes him. But the warranty
manual is established by the manufacturer,
while retail work is done according to another
manual, usually "The Chilton Auto Repair Manual"
or "The Motor's Auto Repair Guide." However.
the flat rate guide for warranty work allows
fewer hours than the manual for comparable retail
repair work
In some instances, in fact, the hourly wage is
less on warranty work.
As a result the mechanic and the (jlealer get
less money on warranty labor than on comparable
retail repair. (The dealer and the mechanic
split the labor fee on 50-50 basis.)
SIMILARLY, profit on parts for warranty
work is reduced by the factory. The factory pays
the dealer cost plus 20 to 25 per cent on parts,
and many dealers argue that this does not allow
them any profit. On retail work, the dealer often
makes more than 40 per cent on parts.
In 1968, the National Automobile Dealers' Association
hired an independent consulting firm to
find out if they were losing money on warranties.
According to Randall, "The study showed that
dealers were losing $3.45 per warranty claim on
warranty-related clerical and administrative costs
alone "
Jim North of North Brother's Ford Inc. in
Westland concurs. 'There's a lot of special work
that goes on in a warranty repair. There's extra
clerical work and we aren't compensated for
that."
The survey also indicated dealers were often
losing money on labor and barely breaking even
on parts. The Ford Dealers' Association, a dissident
group of Ford dealers is fighting the warranty
rebate provisions. One member, Ed Mullane,
a dealer for 20 years, claims he is losing
money on both parts and labor.
"We get cost plus 25 per cent on parts, and
the consultant we hired said that in 1969 we
needed 33 per cent just to break even. Now we
need 40 per cent over cost if we arent going to
loae any money on the deal. Since the factory
doesnt pay us enough, our customers and our mechanics
end up subsidizing the manufacturer on
warranty work."
ONE LOCAL Ford dealer, who asked to ref
/
main unidentified, agreed, "I'm doing all right if
I'm breaking even."
Lou La Riche, of Lou La Riche Chevrolet in
Plymouth, explains, "We break even in warranty
and we make it up in retail. What we need is for
the factory to turn out better cars. The people
just don't have pride in their jobs any more." He
also says the brunt of any money loss usually
falls on the mechanic. "There should be more latitude
in the manual so our people can do all right
on warranty work."
Bob Cann, of Fiesta AMC and Jeep in
Plymouth, views the problefri in a different light.
"What we have to do is get rid of the gray areas
in the warranty. There are tjwo coverages in most
warranties, one involves a 90-day adjustment period,
and the other coverage is for 12 months and
12,000 miles. If an adjustment problem comes up
in between 90 days and 12 months there's a hassle
between the dealer, the buyer and the factory.
With our new Buyer Protection Plan we avoid this
issue."
Cann also explains that pie dealer has to give
a "discount" to the factorv on warranty parts.
•They're our biggest customer, and we do the
same for the cars we sell to the state. It's a volume
discount."
MOST DEALERS agree warranty work is the
largest single item keeping the shops busy. Usually
40 per cent of the repair;work is warranty and
60 per cent is retail.
Dick Green, of Dick Gfeen Plymouth in Detroit
says his shop is able tjo run because of warranty
work. "This way, I cih keep my men busy,
otherwise business would b4 up and down, and I'd
either have men sitting around or I'd have to hire
more when it got too busy* it stabilizes the back
shop."
Green is satisfied with his factory arrangement.
"They give you what they can. A lot of the
time it's the dealer's fault, he's trying to cheat
the factory. We have to have a good team effort
to give the customer service, we have to work together.
Of course though, I'd like to control the
rates on warranty work, but we aren't losing
money."
IF THERE IS a rift bitween the dealer and
the factory, the implications are serious for the
car buyer.
Randall suggests two
• When it is possible,
the dealer will not do
the warranty work, or he will make it a last priority
item because the financial incentive is to do
other kinds of work first
• When the car is brought in for warranty
work, the dealer or the mechanic may seek out
other repairs on the vehicle that are not covered
by the warranty to minimize losses on warranty
woric.
"Other problems exist that make it difficult for
the consumer to get a decent shake on warranty
work. Often, Randall says, dealers do not get paid
for road tests on a new car brought in for warranty
repair, and the incentive for the mechanic
to do a complete check up an the vehicle is diminished.
Also, dealers do
some repairs when the f
owner with "excessive a
ry may require "prior app
of work done under the wa
BUT IF the consumer lis getting poor service,
his problem is even more insulting because, in essence,
the warranty work hjas been paid for in the
purchase price of the car.
Tom Houston, Chrysler spokesman says, "Obviously
the costs of doing warranty work are fully
transferred to the consurrjer when he buys the
car. It's part of the purchase price."
B. F. "Moon" Mullins,; another Chrysler official
explains that the cost of warranty work is included
in a category called "the cost of doing business."
But the price of an automobile is established
by two factors, all the coats of producing it and
what the competition is charging. Basically, the
costs are added together, including the cost of
f
major problems:
t get reimbursed for
tory charges the car
e." Finally the factoval"
on certain kinds
anty, forcing the con-
sumer to wait up to j"10 days" for work that
needs immediate attention.
Jim North says, however, that some delays
are not the result of prior approval, but simply because
the factory doesn't have the part.
doing business, and a desired profit percentage is
tacked on.
This would suggest, in fact, that a profit is
being made on the warranty costs, because a profit
margin is computed on and added to the entire
cost of production, and part of the entire cost is
the warranty cost.
THE COST of the warranty in the purchase
price of a new car is closely guarded information.
Representatives of all four domestic manufacturers
will not even divulge "ball park" figures.
They claim it would "give up their competitive position."
But it is clear that the costs of warranty are
closely monitored and the manufacturers know
precisely which items constantly need attention,
and what design failures are causing them the
most problems.
"We try to determine what the warranty cost
will be b&ore we sell the car, but the vehicles are
priced before the information is in," says Bud
McMullen, a General Motors representative.
Larry Knox, a consultant who works for Cummunico,
has been intimately involved with all four
manufacturers. He suggests warranty costs are
between $25 and $50 a car. "They watch for a pattern
of repairs over a number of years, and they
have the cost of the warranty nailed down to
three decimal points," he says.
However, one American Motors official, who
preferred to remain anonymous, suggests the cost
per car is "more like $100. This amount is included
in the purchase price of each car."
But, he also adds, "It depends on the comprehensiveness
of your plan and the company.
TTie more cars you sell, the less the cost is going
to be for each car. It's a question of size and volume
of the company."
THE BEST indication of the cost of warranties
is the second year option AMC offers. It
has been selling for $99.95. George Brown, director
of the AMC service department,says the company
is lucky to break even on this option.
He also states that most warranty work or. a
car is done in the first six months of ownership.
"Our records indicate that the most trouble and
the most adjustments made to a new car occur
within six months after the car is sold. Usually
any problem will appear in the first six months
and the owner will notice it and bring it right in."
Brown's statements would imply that the second
year of warranty is cheaper than the first,
and this would place the cost of warranty minimally
at $100 per car.
Brown also states a second reason for warranties.
"They are more than a protective device
for the owner, they are a marketing tool for the
company."
"Our sales have increased 50 per cent since
we instituted the 'buyer protection plan' two
years ago. It aroused product interest and helped
us sell over 100,000 more cars in each of the last
two years," says Brown
IN FACT, many of the changes that have occured
in warranty policies can be interpreted in.
terms of marketing.
Prior to the early '60s most warranties were
for 90 days or 4,000 miles. Then Chrysler introduced
a 12 month-12,000 mile warranty and followed
with a five year-50,000 mile warranty on
the power train. This proved to be too expensive
and too unwieldy to administer, and the company
retreated to one year and 12,000 mile coverage.
Many auto executives explain the five-year
policy as a marketing device to attract fleet car
sales, which constitute a large portion of the new
car market.
Chrysler's new warranty, "the clincher," has
a one-year limit, but no mileage restrictions It is
also interpreted to be an effort to capture a larger
amount of the fleet car market, which constitutes
approximately 25 per cent of the total automobile
market, according to Ford representative Stephen
Madeline.
Knox says that he is glad to see the automobile
companies use warranties as an advertising
tool. "That puts the pressure on all of the manufacturers
to come up with equivalent or better
warranty programs, and it also puts the warranty
performance of the dealer and the factory under
the spotlight "
THE CENTER for Auto Safety in Washington
D C. has a complaint of a different nature against
both domestic and foreign manufacturers. Their
complaint is against "arbitrary warranty extensions."
,
These warranty extensions allow some vehicles
to be fixed free after the warranty has expired.
Usually the problem is "chronic" in that it
occurs with great frequency.
But the way the warranty extension is implemented
is "unfair," says Lowell Dodge, former director
of the center. "These policies benefit only
those who are either chronic complainers, welleducated,
or in the right place at the right time,
rather than applying evenly to all affected
owners."
He continues, "We believe that elementary
fairness requires that all auto companies disclose
fully all decisions to extend warranties beyond the
limits set forth in the standard warranty."
New car owners beware:
Warranty provisions vary
Not all new car warranties are
alike, and there are several provisions
and disclaimers that are peculiar
to individual manufacturers', guarantees.
All four domestic manufacturers
offer a 12-month warranty for repair
of defective materials and workmanship
in the car.
That is where the parellel ends.
With the exception of Chrysler, American
manufacturers alsb have a 12,000
mile limit in their warranties. And
with the exception of American
Motors, there is a 90- day adjustment
period, after which the owner is asked
to assume adjustments as part of his
maintenance.
The Chrysler warranty explains this
by stating, "After the first 90 days of
use, adjustments are considered
owner-maintenance responsibility
unless required in connection with the
repair oj replacement of a part we
supplied which proves defective during
the warranty period."
After 90 days. Ford, Chrysler, and
General Motors will not cover items
they consider to be "selected wear
parts." Items such as spark plugs,
PCV valves, filters, hoses and belts
are usually mentioned specifically.
NOT ALL companies supply loaners
when a car is being serviced for warranty
repairs overnight. Often appointments
have to be made in advance for
a consumer to get a "loaner."
Tires are warranteed by the tire
manufacturer, and batteries are
under a special provision in all the
warranties with the exception of
AMC. They are replaced free in the
first 12 months and are prorated thereafter.
All four manufacturers have provisions
that will prevent repair if
"owner abuse" is indicated. The
Bulck warranty is representative
when it states, "Repairs and service
adjustments required because of misuse,
negligence, alteration, accident,
or lack of reasonable and proper
maintenance are not covered."
The AMC warranty is a little less
specific: "All we require that the
car be properly maintained and cared
for under normal use and service."
rhe Ford warranty has a disclaimer
that is common to all warranties with
the exception of AMC. It says, "Loss
of use of the vehicle loss of time, inconvenience,
commercial loss or consequential
damages are not covered."
BEFORE PURCHASING a new car,
consumers should scrutinize the warranty
and make sure that all provisions
are fully explained. If problems
arise after the purchase of a new car,
each maiyifacturer has zone offices,
regional offices and, in some instances,
specific service offices to register
complaints.
These offices may be of assistance
when the dealer and the consumer do
not see eye to eye over repair and
warranty problems.
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