Quality a Mixed Blessing?
02-14-2003, 03:59 AM
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Quality a Mixed Blessing?
Tough cars mean dealers earn less warranty money
February 14, 2003
BY JEFFREY MCCRACKEN
DETROIT FREE PRESS BUSINESS WRITER
New cars and trucks are of higher quality, and that's a problem -- at least if you make money repairing them.
Auto dealerships across the country have seen an estimated 20-percent decline in their warranty business in the last year and up to a 50-percent drop over the last five years, say dealers and automakers.
For each dealership, most of which are relatively small businesses, that can be a difference of a few hundred thousand dollars to $1 million a year. The average dealer does about $550,000 a year in warranty sales, according to J&L Warranty Pros, a dealer-warranty consulting firm.
Not all the decline in warranty sales is due to better vehicles. Automakers are reducing the labor hours for which they will reimburse dealers. They're using cheaper repair parts or sending some warranty work to Mexico. There's also the impact of lower new-vehicle sales. Sales dropped from 17.4 million in 2000 to 17.1 million in 2001 to 16.8 million last year.
Nonetheless, improved quality is a key reason warranty revenue has gone down, dealers say.
"It's a double-edged sword. It's great for the company and the buyer that it's a better product. Not so great for my service department," said Bill McSkimming, a Chrysler-Jeep dealer near Chicago and chairman of the Chrysler-Jeep National Dealer Council. "My warranty business is down 50 percent from 1999."
Among General Motors Corp.'s 7,400 dealers, for example, warranty work dropped 20 percent in 2002 at the same time the automaker's ranking in the J.D. Power & Associates initial-quality survey jumped 11 percent.
Overall, new-vehicle quality -- based on the number of customer complaints -- improved 10 percent last year and 24 percent over five years, according to the annual study. A separate J.D. Power dealer study showed the number of people who returned to dealers with warranty claims dropped 10 percent in two years.
Ford Motor Co. says warranty costsfell 25 percent in 2002 and the Chrysler Group says warranty costs were down 21 percent last year and are down 50 percent in the last six years. Automakers refuse to disclose warranty spending, but analysts estimate it around $12 billion at the 21,725 dealers nationwide.
Basic new-vehicle warranties are typically for three years or 36,000 miles, though last year Chrysler launched a 7-year/70,000-mile warranty for powertrains.
Considering that warranty repairs account for 5 to 25 percent of a dealer's profits, and plunging warranty revenue coincides with dropping vehicle sales, the decline can be a real concern for a dealer.
"The new cars are just better. Transmissions on new cars just don't burn up like they used to," says Jim Muir, a Sterling Heights Oldsmobile-GMC dealer who estimates his warranty income has dropped 35 percent in five years. "Five years ago I'd have two guys working all day in the winter fixing transmissions. Now I don't even need one."
Muir and other dealers said they are doing similar amounts of warranty work per car or truck brought in, but substantially fewer are brought in than four or five years ago. The National Auto Dealers Association estimates the average per-vehicle warranty work at about $130, about the same as a year ago.
Of course fewer defects and higher quality ratings are generally good things for automakers. They mean a better image with consumers and fewer dollars flowing from automaker coffers to their dealers for warranty repairs.
"Consistently, since 1988 or 1989, we've seen a decline in the number of customers complaining about their cars. That has to eventually have real impact on the dealers' bottom line," said Joe Ivers, a partner at J.D Power who oversees quality and dealer studies. "Warranty work used to be a primary source of income for the dealer's service department."
In response, dealers and automakers are making a push to get drivers to bring their cars and trucks to dealers after the warranties expire -- so-called customer-pay work.
Automakers estimate the U.S. market for post-warranty auto maintenance and repair is $42 billion. And they estimate 70 percent of that work -- everything from oil changes to tire replacement to brake repairs -- is done outside dealerships at places like Sears Auto Centers and Meineke Discount Mufflers on down to small mom-and-pop shops.
Part of the effort to pull in car owners involves more advertising. Doug Herberger, vice president of GM's Service Parts Operation, says the automaker "will be at industry-leading ad levels this year" in promoting the Goodwrench brand of repair parts and it will resume national ads.
"There are a zillion of those auto-repair shops out there and they are getting a lot of service business our dealers don't get," said John F. Smith, GM's group vice president of sales, service and marketing.
"I think part of the problem is dealers don't have the 24/7 mentality to be open on weekends or late to handle that work. But their shops have less warranty work, which they can fill now with maintenance work," he said.
Ford is in the middle of a national advertising campaign that tells drivers that "no one knows your Ford, Lincoln and Mercury product better" than your dealer.
Ford has supported dealers who've opened 164 Quick Lane stores nationwide; they're geared toward oil changes and other minor upkeep work. Ford dealers also opened 27 Quality Care Service Centers for bigger work like tire replacement or tuneups.
"The fact is we've got room in our service shops now, so we need to get people in here getting their oil changed, brakes fixed or whatever," Muir said.
i personally think this is a good sign that they are not in so often for warranty work <a sign of a poorly built/designed car>
February 14, 2003
BY JEFFREY MCCRACKEN
DETROIT FREE PRESS BUSINESS WRITER
New cars and trucks are of higher quality, and that's a problem -- at least if you make money repairing them.
Auto dealerships across the country have seen an estimated 20-percent decline in their warranty business in the last year and up to a 50-percent drop over the last five years, say dealers and automakers.
For each dealership, most of which are relatively small businesses, that can be a difference of a few hundred thousand dollars to $1 million a year. The average dealer does about $550,000 a year in warranty sales, according to J&L Warranty Pros, a dealer-warranty consulting firm.
Not all the decline in warranty sales is due to better vehicles. Automakers are reducing the labor hours for which they will reimburse dealers. They're using cheaper repair parts or sending some warranty work to Mexico. There's also the impact of lower new-vehicle sales. Sales dropped from 17.4 million in 2000 to 17.1 million in 2001 to 16.8 million last year.
Nonetheless, improved quality is a key reason warranty revenue has gone down, dealers say.
"It's a double-edged sword. It's great for the company and the buyer that it's a better product. Not so great for my service department," said Bill McSkimming, a Chrysler-Jeep dealer near Chicago and chairman of the Chrysler-Jeep National Dealer Council. "My warranty business is down 50 percent from 1999."
Among General Motors Corp.'s 7,400 dealers, for example, warranty work dropped 20 percent in 2002 at the same time the automaker's ranking in the J.D. Power & Associates initial-quality survey jumped 11 percent.
Overall, new-vehicle quality -- based on the number of customer complaints -- improved 10 percent last year and 24 percent over five years, according to the annual study. A separate J.D. Power dealer study showed the number of people who returned to dealers with warranty claims dropped 10 percent in two years.
Ford Motor Co. says warranty costsfell 25 percent in 2002 and the Chrysler Group says warranty costs were down 21 percent last year and are down 50 percent in the last six years. Automakers refuse to disclose warranty spending, but analysts estimate it around $12 billion at the 21,725 dealers nationwide.
Basic new-vehicle warranties are typically for three years or 36,000 miles, though last year Chrysler launched a 7-year/70,000-mile warranty for powertrains.
Considering that warranty repairs account for 5 to 25 percent of a dealer's profits, and plunging warranty revenue coincides with dropping vehicle sales, the decline can be a real concern for a dealer.
"The new cars are just better. Transmissions on new cars just don't burn up like they used to," says Jim Muir, a Sterling Heights Oldsmobile-GMC dealer who estimates his warranty income has dropped 35 percent in five years. "Five years ago I'd have two guys working all day in the winter fixing transmissions. Now I don't even need one."
Muir and other dealers said they are doing similar amounts of warranty work per car or truck brought in, but substantially fewer are brought in than four or five years ago. The National Auto Dealers Association estimates the average per-vehicle warranty work at about $130, about the same as a year ago.
Of course fewer defects and higher quality ratings are generally good things for automakers. They mean a better image with consumers and fewer dollars flowing from automaker coffers to their dealers for warranty repairs.
"Consistently, since 1988 or 1989, we've seen a decline in the number of customers complaining about their cars. That has to eventually have real impact on the dealers' bottom line," said Joe Ivers, a partner at J.D Power who oversees quality and dealer studies. "Warranty work used to be a primary source of income for the dealer's service department."
In response, dealers and automakers are making a push to get drivers to bring their cars and trucks to dealers after the warranties expire -- so-called customer-pay work.
Automakers estimate the U.S. market for post-warranty auto maintenance and repair is $42 billion. And they estimate 70 percent of that work -- everything from oil changes to tire replacement to brake repairs -- is done outside dealerships at places like Sears Auto Centers and Meineke Discount Mufflers on down to small mom-and-pop shops.
Part of the effort to pull in car owners involves more advertising. Doug Herberger, vice president of GM's Service Parts Operation, says the automaker "will be at industry-leading ad levels this year" in promoting the Goodwrench brand of repair parts and it will resume national ads.
"There are a zillion of those auto-repair shops out there and they are getting a lot of service business our dealers don't get," said John F. Smith, GM's group vice president of sales, service and marketing.
"I think part of the problem is dealers don't have the 24/7 mentality to be open on weekends or late to handle that work. But their shops have less warranty work, which they can fill now with maintenance work," he said.
Ford is in the middle of a national advertising campaign that tells drivers that "no one knows your Ford, Lincoln and Mercury product better" than your dealer.
Ford has supported dealers who've opened 164 Quick Lane stores nationwide; they're geared toward oil changes and other minor upkeep work. Ford dealers also opened 27 Quality Care Service Centers for bigger work like tire replacement or tuneups.
"The fact is we've got room in our service shops now, so we need to get people in here getting their oil changed, brakes fixed or whatever," Muir said.
i personally think this is a good sign that they are not in so often for warranty work <a sign of a poorly built/designed car>
02-14-2003, 07:12 PM
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Hence the reason your Honda dealer charges 250.00 for the frivolously recomended 30,000 mile service when all you really need is a 25.00 oil change. If they didn't, there'd be no revenue generated, and there'd be no cars in the garage to begin with.