DETROIT—Ford Motor Co. is warning its dealers to increase their repair and maintenance work 50 percent by 2001 because warranty work is about to plummet. The automaker said it expects warranty repair revenue at a typical dealership to drop $115,000 annually by 2000 because the company plans to improve vehicle quality. Today, an average Ford or Lincoln-Mercury dealership grosses $300,000 annually in warranty repairs.
But Ford is recalculating 1,600 service repairs and may reduce warranty reimbursements to its dealers. Some dealers foresee an unfair take-away.
``They want us to go after the Jiffy Lube customer because they are taking away revenue,'' said a Southwestern Ford dealer familiar with the strategy.
``This will cost us revenue, and it will cost our employees revenue because mechanics are paid on a book (designated) rate, not on an hourly basis.''
According to documents distributed by Ford, the company said 14 percent of the service work performed on Ford, Lincoln and Mercury brand vehicles is performed by its dealers.
On the other hand, the carmaker estimates it loses:
17 percent of the service work to mass merchandisers;
10 percent to general auto repair facilities;
10 percent to repair specialists;
24 percent to other outlets;
16 percent to auto parts retailers; and
9 percent to quick oil change outlets.
Joe Grant, a warranty expert, said that ``labor-time reductions are an area in which the dealers can't let the factory take away any more. It is too skinny as it is. All the manufacturers, especially the Big 3, are on a big push to cut what they call warranty waste.''
Mr. Grant is president of J&L Services Inc. of Auburn, Mich.; the firm specializes in warranty training, consulting and processing.
Ford spelled out the warranty changes in a document called ``Quality and Business Growth'' that it is distributing to dealers.
Retail service traffic at Ford and Lincoln-Mercury dealerships has remained flat in the last three years, and dealers are losing dollars to aggressive independent service businesses, the company said.
Dealers need 72 cents of more profitable retail service work to match every dollar of lost warranty work, Ford is telling its dealers.
The company wants its dealerships to court retail customers more aggressively, promote service business with mailers and phone calls, meet new service competency standards, and provide additional technician training.
The parts and service department accounts for 39 percent of total gross profit for the average Ford and Lincoln-Mercury dealership, the document states.
Quality is job 1
Two corporate actions will affect dealership profitability in the next three to four years, Ford said.
By 2000, the company wants to reduce product defects by two-thirds in six vehicle systems. The six—which account for about 70 percent of warranty outlay—are: powertrain, brakes, squeak/rattle, electrical, climate control and steering gear/pump, Ford said.
Already in the 1997 model year, the per-unit measure of ``things gone wrong'' declined 21 percent from 1996 and spurred a drop in warranty costs, Ford said.
Today, 25 percent of a service department's gross profit comes from warranty work. But dealers should expect ``a significant reduction'' as quality improves, Ford said.
Ford is studying recalculation of labor time standards—the time needed to make a repair—for its 1,600 highest-frequency fixes. When the recalculation is completed in the third quarter of 1997, warranty repair amounts paid to dealers could drop.
For example, in studying the replacement of the radiator on the 1996 Ford Taurus and Mercury Sable, the company discovered the radiator could be removed through the bottom of the vehicle rather than disassembling the front of the vehicle. Repair time dropped by 2.8 hours, to 1.5 hours.
Even as Ford Motor moves for internal cost savings and efficiencies, its dealerships are beset by growing external competition.
``Ford and Lincoln-Mercury dealers, at 14 percent, have a lower share of the service work done on Ford and Lincoln-Mercury vehicles than mass merchandisers such as Sears, Wal-Mart and Kmart,'' the company said. ``And we have a lower share than the auto parts retailers such as Pep Boys and Western Auto.''
Indeed, only 39 percent of Ford's customers return for service in the first year of vehicle ownership, compared with 65 percent for Honda, which Ford called the leader in routine maintenance.
Independent competitors stress convenience and price, and in so doing garner $10 billion annually in service work on Ford and Lincoln-Mercury vehicles, Ford said.
The carmaker is trying to reduce parts prices to compete against lower-priced independent service businesses and to gain customers.
For example, in July 1996, a company cost evaluation led to a 42-percent price reduction on 63 brake parts. The price of shock absorbers will drop in mid-1997. And 25 additional parts are under study, including oil filters, air conditioning components and mufflers, the document said.
To bring vehicle owners back to dealerships, Ford dealers are being asked to participate in a service-reminder program that includes letters, promotional coupons and phone messages. Scheduling a customer's first service appointment at vehicle delivery is advised.
New adjustment policy
Moreover, Ford said it will shift its spending for after-warranty adjustments—payments designed to boost customer satisfaction. The company will decrease the outlay for vehicles with more than 50,000 miles and spend more money on customers with lower-mileage odometers and a greater chance of buying another Ford product.
``Research shows that we get the biggest bang for our buck between 36,000 and 50,000 miles of ownership,'' the document stated.
In June, Ford will begin technician training and will require dealerships to meet repair competency standards. Techs will be measured for proficiency in eight key areas. Currently, an estimated 21 to 27 percent of technicians have not had Ford training in the systems they repair, Ford said.
In addition, dealers with ``consistently high'' warranty costs will be required to obtain pre-approval for certain paint, glass and trim repairs. The transactions will be conducted via video imaging equipment in the dealership service area connected to a preapproval office in Detroit.