You may not have known it yet but service departments are the backbone of the revenue stream for dealers, not the sales department. Don’t get me wrong, dealers want to sell you cars but they know that they will keep your dollars coming back through the service department. But if dealers are all (ok almost all) franchises, how do they make money when doing work under warranties?
Well simply put, the manufacturer pays for the warranty work. After warranty work is completed by the dealer’s service tech, they submit a warranty claim to the manufacturer. You essentially leave with a zeroed out invoice and go on with life. The manufacturer will sometimes audit the warranty claim, or straight out just pay the dealer for it.
It’s important to note that dealers do not get to set their own prices for warranty claims as parts and labors are based on established flat rates. The “warranty time”, or time to complete the warranty service, is often lower in time than the amount you would be quoted for a non-warranty item. Along with the labor rate already discussed, the parts will be marked up a the predetermined rate from dealer cost. In total, these set rates are obviously cheaper than what a regular customer would get quoted on these jobs but these jobs are made up for in quantity.
Dealers want warranty work because it fills up the time slots that they would normally not get filled. Dealerships have also been able to improve their systems, and with well trained technicians they can maximize the amount of money they can squeeze out of warranty repairs by reducing the time technicians spend on the repair.
