Warranty reimbursement is a significant expense for automotive manufacturers that continues to rise. While these warranties serve as a crucial value proposition for customers, representing billions of dollars in claims annually, the costs are driven by rising labor rates, increasing parts markups, and the growing complexity as well as the growing cost of modern vehicles. To put it in perspective, our company processes over $2 billion per year collectively for all OEMs, and we process for less than 8% of the dealerships in the U.S. To manage these escalating costs, manufacturers are increasingly scrutinizing warranty claims submitted by dealerships. This rise in audits creates ripples across the industry, prompting dealerships to reevaluate their internal processes to safeguard their warranty receivables.
Warranty audits are becoming more frequent and stringent. It is not a matter of IF a dealership is going to be audited, but WHEN. Some manufacturers will use submission performance to flag a dealership for an audit, while others will just plan to perform audits periodically regardless of their warranty performance. Manufacturers are investing heavily in advanced analytics and audit teams to flag anomalies in warranty claims. Even minor discrepancies in documentation, coding errors, or deviations from policies and procedures can result in claims chargebacks and a huge financial impact for dealerships.
Dealerships that fail to prepare for these audits may face significant revenue losses, tarnished reputations, and strained relationships with manufacturers. The financial implications of denied claims can be devastating, especially for smaller dealerships that rely heavily on warranty reimbursements to sustain their operations.
To mitigate the risk of denied claims, limit audit charge-backs, and ensure compliance with manufacturers’ expectations, dealerships must take proactive steps to strengthen their warranty management processes. Below are key strategies to consider implementing today if you are not already doing so:
a. Conduct regular training sessions for service advisors, technicians, and warranty administrators to ensure they understand the latest warranty policies and claim submission guidelines. Emphasize the importance of accurate diagnosis, proper repair procedures, and thorough documentation.
b. Ensure that your technicians know how to make sure all one-time-use parts are identified in the repair procedure and repair the vehicle accordingly.
a. Ensure all warranty claims are backed by detailed documentation, including repair orders, parts invoices, and diagnostic reports.
b. Require technicians to provide comprehensive notes on repairs, including step-by-step processes, test results, proper time recordings.
c. Require your service advisors to ensure they have all the proper signatures and authorizations on the repair order, including customer signatures and signed add-on repairs.
a. Conduct internal audits periodically to review warranty claims for accuracy and compliance.
b. Develop a checklist for reviewing claims before submission to ensure they meet manufacturers’ standards.
a. Establish open lines of communication with manufacturer representatives to clarify policies and address potential discrepancies proactively.
b. Participate in manufacturer training sessions or webinars to stay informed about updates to warranty programs.
a. Track metrics such as claim approval rates, processing times, and denied claims to identify trends and address issues promptly.
b. Set benchmarks for your team and celebrate successes in maintaining high compliance rates.
Manufacturers’ increased focus on auditing warranty claims signals a shift in how they manage warranty expenses. While these audits can pose challenges for dealerships, they also present an opportunity to refine internal operations and build stronger partnerships with manufacturers. By implementing robust training, meticulous documentation, and proactive compliance measures, dealerships can protect their warranty receivables and navigate this evolving landscape with confidence.
As the industry continues to evolve, those who prioritize transparency, accuracy, and efficiency will not only survive but thrive in the face of mounting scrutiny.
If you need help with any of these suggested action items, Automotive Warranty Network has the expertise and experience to help you, and your staff successfully develop these processes. We also offer mock audits, where we can evaluate a select number of repair orders in the same manner that the manufacturer would, to show you what your potential loss would be if you were audited today.
David Reinicke could say that he has been in the automotive industry for a better part of his life. His grandfather was a factory rep for Chrysler back in the 70’s and 80’s. His mother started as a warranty administrator for one of the local Chrysler stores in Colorado. She was one of the pioneers of outsourced warranty claims administration companies when he was 5 years old. Most of his afterschool and summer activities involved sorting and organizing warranty repairs and other clerical duties. In his late teens he became interested in technology and computer systems. In 2000 he came to work for Automotive Warranty Network (AWN) and applied his knowledge in technology and IT systems to help the company grow into an international company. In 2020 my wife Jami and I purchased AWN from Lisa and Rich. Then partnered with Jami’s incredible ability to lead our amazing team and his ability to creatively develop new technologies, the company has nearly quadrupled in size. Today AWN has close to 1,400 clients we service with over 324 experienced warranty administrators and support staff.
