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We shouldn't make money off of claims? Why not? I say we should.

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So as my shop is getting set up I have been meeting with all of my parts reps. I had a long conversation with the Oreilly rep yesterday and when I asked about warranty claims due to a bad part THEY sold me I was told that they do not do them...? He went on to tell me that they submit them to the manufacturer and they warranty the item and labor at $25-$35/hour. After some further discussion he informed me that shops should not make money on claims and I disagree. Why, when I put on a part and it fails should it cost me money to repair it? Am I not losing money when I have a vehicle on my lift making $25/hour vs $85/hour? Sure I do, I am losing money? When does a customer (we are customers to the parts store) have to lose money in any other industry? Early that same day he was telling me about their CSC program in which they will pay other shops to fix parts failures across the country... Excuse me, you just told me that you won't pay me to put a part back on but you'll pay Bob in Idaho?



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why on earth would you use oreilley. they are the worst parts dist we have ever used. Autozone pays us warranty claims, they deduct it from our bill immediately. Autozone used to be shit too but more and more these days they are getting better manufacturers, thus better parts.

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I think there may be another way to look at this, and although it doesn't change the math, I can tell you, it's just how I decided to deal with it so I could move on with my life, and not "fester" as I'm unfortunately, prone to do sometimes.


The warranty on the part isn't hard to understand. We'd like to believe that the parts that are made to a higher standard just naturally carry a longer warranty period, but what is the warranty, anyhow? Isn't the warranty on the part just the manufacturer's way of putting some "wiggle room" into the cost structure of our business, so we can feel confortable installing their brand, knowing that if the mean ol' manufacturers make a product that just doesn't seem to hold up, that they'll (of course) give us another? So it's decided, I think, that the parts warranty is easy to figure out.


The labor warranty, well, that's where I had to make some hard decisions, and if you'll bear with me, I think I can offer a solution that will make some of you smile, knowing you'll get paid for EVERY labor claim, to the very penny, that you deserve.


First of all, here's what I think of labor claims: The labor is mine. The labor is what I provide, and the part of the service that's most personal, and DEFINITELY between me and my customer. So, for the record, just like a distributor/manufacturer is willing to give up another new part that cost them just as much to make as the first one, because they are taking care of THEIR customer, I'm willing to give up my time to take care of MY customer. (Don't scream at me just yet - remember, I said you're gonna get paid for it, right?)


This is a fallen, fractured, rusting and busting world. That's what makes it exciting for us to be in such a business....we KNOW that the cars are going to continue to break down. Trying to hold the manufacturer or distributor to carrying the full weight of a labor claim isn't any different that asking me to carry some responsibility in the replacement of a part I had no involvement in designing or manufacturing. The way my business operates is this - my vendors, my customers, and me...we're the dream team! Between the three of us, putting together our collective, rational heads, we can overcome any situation, and resolve it in a way that's fair to everyone.


So here's what I've done:


First, I work with aftermarket suppliers that are willing to carry SOME of the responsibility for all costs incurred if the parts they are representing don't hold up for reasons unexplained, or more obviously related to something in the manufacturing process. Not only will they get me replacement parts, but they'll typically be able/willing to give me $25-$35 on the hour. If you're getting $50, then I applaud you. If your labor rate is anywhere near $100 an hour, then you've got close to half your labor paid for without batting an eye.


Second, for the love of Pete...don't fear getting correct, profitable parts margins! When people ask why the part they get from their local parts store is $11 and your estimate is reflecting a charge of $25.50....tell them the truth! Reputable installers charge a markup on their parts. Our margin runs between 55 & 60%, depending on the starting cost of the part. If you're running healthy margins to begin with on everything from a cotter pin to a $300 starter, TRUST ME...the money is in the bank, and you can afford to give the customer in front of you a break by standing tall behind the part you put in. I worked as a consultant to a shop that had 3 locations, and had been profitable for many years, that wanted to charge the customer the difference between what the labor claim would pay, and what his rate was. Shame on him! If you focus on serving your customers, the money will always follow, without exception.


And lastly, (and here's where you're gonna get paid for every labor claim), my advice is easy. I've trained lots of service advisors in the past, and a circumstance that always comes up is when they're struggling with making margin on an estimate, and they don't know what to do. The truth is, they DO know what to do, they're just afraid. Don't be afraid to charge what you NEED to charge to remain profitable! If you're so afraid of pitching the needed services to the customer on the phone for fear of what they might say, then HANG UP!


I calculated how many labor claims I typically have in a year, and how many hours of time it accounted for. I cut that number in half, divided by 52 weeks in a year, then by how many labor hours I generally sell in a week. Do you see where I'm going with this? i know EXACTLY how much labor I was "giving away" everytime I assigned a technician to an hour of labor in the bay. I have a pretty good idea how many labor hours will be tied up in a abor claim this year, so all I've done is negotiated the very best deal I can with my suppliers, and spread the difference out across ALL labor hours I sell. That, accompanied with a healthy parts margin, absolutely GUARANTEES that I'm getting paid for my time.


I raised my labor rate 13 cents for EVERY hour. That money annually, plus the money I get from my vendor on labor claims at $35/hour...that equals my standard labor rate against all potential labor claims...so we get paid regardless.


The best part is that because no one was now worried about the almighty dollar as it related to the question of a labor claim, so everyone relaxed, and was able to give a response that sounded like this: "Well of COURSE we're going to stand behind the part, as well as the labor in this case, Mr. Smith. Although my suppliers don't shield me from all the additional time it'll take to do so, your business with us is far too important to us to let you worry for one moment that your choice in mechanics was a mistake. I hope you'll let us take care of this for you, and you'll continue to count on us in the future, should the need arise."


Of course, we KNOW the need will arise, don't we? Remember my rusted, busted commentary?



Just one man's approach to not sweating the small stuff.

Edited by stowintegrity
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Great post stow.


It really goes back to perception. If we are charging enough for our parts and labor then we as an industry should be able to offer long warranties to our customers without blinking. I think more time should be focused on what margins do you need to remain profitable, what kind of value you can give to the customer and how to keep getting more of these customers. If you are charging the right amount as stow has stated, you should be charging enough to cover your end if problems arise.


What also gets lost in the mix is the value of the customer to your business. Sometimes we are so quick to deny claims or push off responsibility to someone else such as our suppliers, the customer, the roads, etc etc. When in fact again if you are charging properly you should be making enough to confidently tell your customer, "Of course. Mr. xxxxx we will take care of that for you because you are a valued client and we are here to help." Something magical kind of happens after that... you create a happy customer that wants to spend more money with you and wants to sing your praises to others. Like everyone else I really hate having to eat jobs, time, money, parts when we know we are not at fault however in the grand scheme of things it is worth more to me not to "fester" and brood over small things and look at the bigger picture which is you have tons of money to make moving forward and taking care of your customers will net you far more value than to "win" and not take care of them.

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I agree, great post Stow, simple fix to a nagging industry problem. In WV it was an easy fix, I call both supplies and informed them that they would either warranty our $95/hour or lose our 10k+ per week in sales. Here in IN, I'm a one man shop again so I have zero pull.


I've always want to do some sort of extended warranty but haven't reallys sat down and layed it out.

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