Annual Warranty Labor Rate Increase: Statutory or Factory Submission?

By Jordan Jankowski, Armatus Dealer Uplift

Every year, as dealers begin to work on their annual labor rate submissions, many are quick to grab their policies and procedures manuals to get started. For most, it’s a process that may involve filling out a competitive survey, producing a certain amount of consecutive qualified repair orders, or a combination of the two. Does this process yield as much of an increase as the dealership wants or is entitled to? Many times, the answer is no. 

Most dealers are surprised to learn that a factory submission isn’t their only choice. In fact, 48 states have some type of legislation in place that allows dealers to perform a statutory labor submission. The purpose of a statutory submission is for a dealer to achieve warranty labor compensation at its retail rate, which is a market driven rate based on its warranty-like customer-pay repair transactions. Any dealer who is submitting for a labor rate increase should be evaluating its factory protocol and its statutory protocol to determine which is most advantageous. 

Factory Submissions

The guidelines for a factory labor submission are different for each manufacturer and can typically be found in your policies and procedures manual. The process can be as simple as filling out a competitive survey or as arduous as producing 100 sequential qualified repair orders; most manufacturers will require a combination of a survey and a certain amount of qualified repair orders. In some cases, it's a quick and simple process to request your rate and wait for a response. While this process may seem enticing, there are some pitfalls to filing a factory submission. First, your manufacturer is not required to respond in a certain time frame; many dealers have told us they have waited months for a response, only to receive a significantly reduced offer. If this occurs, it is typically a “take it or it leave it” proposition. It is also possible that you’ll be afforded no increase, as to which you’ll likewise have no recourse. Although some factory protocols allow you to submit fewer total ROs than a statutory submission, following your state law may yield a greater increase for a variety of reasons.

Statutory Submissions

A statutory submission will give the dealer more control over the process and possible outcomes. Although a statutory submission involves more complicated protocols and can be more work than a factory submission, the benefits usually make the additional work worth it. Most states require 100 sequential qualifying ROs that have been closed in the last 180 days, and prescribe how the rate is to be calculated and what type of services can be excluded from the sample. Once the submission is complete, the manufacturer must respond within a specific time frame (usually 30 days), and most statutes will outline a rebuttal process, if the manufacturer approves a reduced rate or offers no increase at all. To further expound on the benefits, let’s focus on three reasons why a statutory submission may be more advantageous than your factory protocol, and what services are available to help dealers through what might be an unfamiliar process.

  1. Dealers Are Better Protected

One of the biggest benefits of a statutory submission is the state laws in place that protect dealers from their manufacturers having unilateral control over the resulting labor rate. Although the factory protocols often require less work, it's often advantageous to submit statutorily to put the dealer in control of the outcome, not the manufacturer. 

If you disagree with the outcome of your submission, most statutes have a rebuttal process in place that allows a dealer to dispute a rejection or reduction of its rate-increase submission. Simply put, a factory submission is controlled completely by the manufacturer and ultimately gives them the upper hand, while a statutory submission is controlled by state law to help dealers obtain a fair market rate from their labor submissions.

  1. States Exclude Certain Repairs

Many state laws have specific excluded repairs that are designed to eliminate from the sample non-repairs and non-warranty-like repairs to help you achieve your “true” retail rate. For example, the manufacturer’s rules may require that you include battery replacements or wheel alignments in your labor submission. This type of competitive routine maintenance work typically has a low effective labor rate, and does not represent what you charge your customers for warranty-like repairs. Certain state laws allow you to exclude this type of work, as well as other non-retail repairs such as those paid for by service contracts/insurance companies, or repairs for fleets or government agencies. All of these exclusions are placed in the law to protect dealers from having to include non-warranty-like work in their labor rate calculation. 

  1. The Resulting Numbers Are Often Higher

As previously mentioned, you should be evaluating both a statutory submission and a factory submission every year when contemplating a labor-rate increase. In most states, a statutory submission will have different rules than your factory protocol based on a number of specific nuances in the law. We’ve often had dealers ask why they would complete a statutory submission when their factory protocol required less work. Let’s say a manufacturer requires 20 consecutive qualified ROs that have closed in the last 30 days, which is far less than the 100 qualified ROs that most statutes require. You may wonder, how can a dealer get a larger increase providing 5 times the amount of ROs? One answer is that you can use the last 6 months of data in most states, rather than the limited timeframe prescribed by most factories. The larger data set for a statutory submission makes sure that your increase is indicative of your typical retail pricing policies, while a truncated period of time may be far less representative, or be subject to an unfavorable work-mix. The extra work can seem daunting to a dealer who has only ever performed factory submissions, but it usually pays for itself.

How Do I Get Started with My Statutory Submission?

The next time you are due to perform a labor rate increase submission, think twice about automatically submitting your factory RO sample or survey. 

A statutory submission can seem overwhelming to already overworked dealership personnel trying to focus on selling and servicing cars, but that’s where a qualified and well-referenced third-party vendor comes into play. A third-party vendor that is familiar with statutory submissions can guide you through the unfamiliar process and perform it for you, seamlessly.

Before you decide to engage a vendor, you should ask yourself some key questions to make sure you are achieving the optimal result with the least disruption to your business: 

Exactly how much work will the vendor be completing for your submission? The process between a vendor and dealer can be very different depending on who you work with. If you’re working with a best-in-class vendor to perform your submission, it should be completing all the work for you. If the vendor is asking you to complete tasks like pulling thousands of repair orders, you may be better off completing the submission yourself.

Does the vendor evaluate which submission type is best for you? Many vendors simply provide one form of submission over the other, without much thought given into which submission is right for the dealer. However, other vendors have processes in place that allow them to review a dealer’s data in a way that can identify the most profitable submission type. Most often, this is a statutory submission, but it is possible that a factory submission could be better—you won’t know for sure unless your vendor evaluates both opportunities.

How is the vendor ensuring you get the best result? Working with a best-in-class vendor means it will have software built specially to ensure the best labor rate submissions, based on both state and manufacturer guidelines.  If a vendor says it can produce the best result, ask it how; get specific; there are lots of loose claims out there. Attempting to use spreadsheets or DMS reports may help avoid some unfavorable repairs but will make it nearly impossible to identify the optimal range to submit within the prior 6 months. Most of the time you can only submit one time per year, so missing the best possible rate will cost you for at least the next 12 months.

Next Steps

A statutory submission doesn’t have to be as complex as it sounds; that’s why third-party vendors immerse themselves in state laws and factory behaviors, in order to give dealers the industry knowledge and tools needed to get you the best labor rate increase possible. With no commitment necessary, there’s really no reason not to take a look at working with a third-party vendor to see just how much you could be adding to your bottom line. 

*****

Jordan Jankowski is the Director of Operations of Armatus Dealer Uplift, a Hunt Valley, Maryland-based firm specializing in retail warranty reimbursement submissions. Starting as an auditor, Jordan built his knowledge base from the ground up, and today is recognized as an expert in this highly technical arena.  Jordan manages a team of 45 people, which produce thousands of retail-warranty submissions each year.

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