Warranty / Insurance

[KAN Diagnostics]

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[bantar]

Welcome.  I'll tackle a few points for you.

Warranty:  Likely no warranty on engine rebuilds from most places.  You need to charge enough to pay for the possible disaster yourself.   Engine rebuilds are a danger zone.   We try not to do much engine internals, although I have one such project active now, but it's on the most beautiful 74 Bronco.  It's a head turner.  We're charging dearly for it.   Most we refuse.  Timing chains if basic and we are sure of the outcome.  No learning on the job for these.

Warranty:  I like having a nationwide warranty for my customers because it gives ME peace of mind.  When their car breaks down while a 1000 miles away on vacation, call the warranty company.  I'm not involved.   I've used Pronto Warranty which covered repairs 25 miles from the shop, with a reimbursement program, up to the cost of my repair and of course only if one of my parts is the failure.  New failures are on them.  This was about $600/yr.   I've switched to TechNet Warranty.  They are more expensive at $89/month (1$068/yr).  They have the same coverage as Pronto, but they will refer customers to another TechNet shop for repairs.   They also will cover labor for repairs in YOUR shop if and only if you bought the parts from one of their vendors:  WorldPac or Advance Auto Parts.   I think $75/hr labor warranty.  They do cover anyone's parts when it is not in your shop.   So, bottom line, you charge enough to eat the cost of warranty work when you must eat it.   In this business, you win some and you lose some.   Shoot for more wins than losses!    You can get a 2/24K or 3/36K warranty.  We have a 2/24K.  We don't do much warranty repairs, but they happen.

Parts Margin:   You should be aiming for 60% gross margin (buy for $40, sell for $100, gives $60 profit: $100 * 60% GM = $60)  I have a parts matrix that runs from 80% down to 42% GM at the bottom.  Our parts margin for 2022 was 60.09%.  Low $ parts sell at high margins and very expensive parts sell at a lower margin.   MSRP is a made up number.  I mark my dealer parts up just like the dealer does.  The counter price is for DIY guys.

Labor Margin:  You should be aiming for 70% labor margin.   Book times are not accurate and sometimes are downright wrong.   My favorite mistake was 1.5 hours for a transmission valve body.....  after it was on a table belly up.   AllData wasn't exactly clear on this.  We were expecting a pan drop and switcheroo.

SMS:  You need a Shop Management System.  These tend to cost about $400-$600/month and are worth it.    Possibly need a DVI system too.

The one thing that I was told as a new shop owner was this:   Watch out.  Some customers prey on new shop owners and try to take advantage of you.   Not every car that shows up is your customer.   If it does feel right, don't do it.  You might want / need that income, but when you marry it with the resultant warranty costs, you lose big.    I had many used car lot salesmen tell me how much business they could bring me.... if I could cut them a deal.

Start listening to the "Changing the Industry Podcast" - Lucas Underwood and David Roman.  Also "Business by the Numbers" - Hunt Demarest.    Do your best to attend the Ratchet and Wrench Management conference.  I learned so much there. 

[KAN Diagnostics]

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[bantar]

First, if CarShield or American Car Shield graces your door, slam it shut!  Never work with these consumer warranty companies.   They will waste hours and hours of your time and they'll deny most claims.  They are a consumer plan, not a shop plan.  I work with other extended warranties, but we have a conversation.  The warranty is a contract between you and them.  Our invoice is a contract between you and us.  You pay the difference.  We'll fight for the best payout, but they are experts at their own fine print.   We'll both learn what is and is not covered when we go thru this process.   Are you ok with this?

You can get a nationwide warranty through AutoZone or NAPA as well.  I don't know their terms.  Like any warranty, you want one that will pay out when it is needed and give your customer a positive warranty experience.   Across the street from my shop is an AZ.   I may spend $250-500 monthly with them.   I'm both their closest and worst customer.  We focus on brand names vs their white boxes.

If you are going to price your parts right, then you will be selling them for more than 2x the cost of these parts.   If you put the part number on the invoice and the customer googles that part to see what his cost would be, you will then have an unpleasant conversation.  (And if asked, I say, Oh, that's the DIY price). This avoids the post-sale depression / regret by your customers.   We build value before starting any repair and again build value at the end.  We got that part installed.  It's working like it should.   You'll be happy, but if anything goes wrong, we have you covered.  Bring it back and we'll make it right.  If you are traveling call these guys and they will help you get it repaired elsewhere.  If the customer does not leave nervous, they are less likely to want to dig into your invoice.  You want them happy with the value that they received on the way out.  Received Good Value means that they are not (likely) going to question your labor rate or parts markup. 

--brian