(Printed in the Journal of The Alliance of Automotive Service Providers, AASP) 

It all started with one little article. Yet it was a little article about a huge topic. The topic of labor claims.

One evening after work, I was relaxing at home reading one of the automotive service trade magazines. Well, my intent that evening was to relax but the more I read the more tense I became. I could not believe the words in front of my eyes. I had stumbled on an article about the relationship between repair shops and their part's suppliers. The writer, who runs a shop, was complaining about shop owners beating up the parts vendors on price while ignoring the fact that the shops make the most profit among everyone else in the parts supply chain. Then the author even implied that shop owners should not bother turning in any labor claims that are under four hours. He even had the nerve to suggest that shops should not bill labor claims at anything greater than 25.00 per hour. I know this writer is a shop owner as I have read his articles in the past. Now, I was starting to wonder if he also owned a parts store.  Besides, how on earth could a shop owner come up with such an outlandish policy on labor claims? What was this guy thinking?

First, lets clear up the air on who makes what in the parts market. The author claims that the repair shop makes the highest profit percentage per part than other contacts in the parts supply channel. Well, is that a fact? Says who? I will agree that the installing shop may make the most mark up on certain parts like exhaust and brake parts. That may be true at times on a per part basis. Nevertheless, what does the parts store make due to purchase in bulk volume? Let's not forget how Wal-Mart got to be the largest retailer in America. Look at that side of the coin and you will see where the profit is being made.

I can tell you from experience that I personally know two different parts store owners. I can also tell you that their gross profit percentage is a lot higher than mine. Just to wet your appetite I will also tell you that one owner of one parts store I know has 11 homes, three of which are vacation properties. Although I am not privy to the second store owner's assets, I can tell you that the second parts vendor draws more than 110,000 in annual salary plus a decent yearly stock option. I hate to admit this it but I will: Both of these parts store owners are making way more than I am.

Second, as to not charging the regular shop rate on a labor claim, don't get me going on that subject. What shop do you know of that can afford to work for 25.00 per hour? Technicians alone nowadays can make that much per hour. If you have a legitimate parts failure under warranty you are entitled to bill the parts supplier for the actual labor it took to diagnose and replace that part. We do that several times a year in our shop. We cannot afford to replace defective parts for free anymore. I don't care who made which percentage on it. When a customer comes back with a problem under warranty, the shop is under the gun. If the part is not the cause then the shop eats the labor and the part. Even if a parts quality issue is not obvious, we will eat the loss. Yet, when a part fails under warranty without any obvious installer error, you can bet your boots I want the parts supplier to step up to the plate. Why shouldn't I? Why should the shop eat the labor on a legitimate parts failure? Would you expect a technician to work for free on a car due to a failed part? Ask your technicians sometime and see what they say. Our parts suppliers know that we have a labor claim form that we fill out and submit with each defective part. The form lists everything from the purchasing invoice numbers to the expected reimbursement amount. By the way, that amount includes towing and rental expense if they were incurred because of the part's failure. The labor rate charged out on the claim is the same labor rate that we billed for on the initial job. No reduced 25.00 rates here. Any experienced shop owner will tell you that any labor claim, even at the retail rate, is a loss. Why a loss? In reality, that technician should be working on another car at the retail rate with the addition of a profit on the sale of the parts. On a labor claim there is no parts profit because you are only charging the parts store your cost on the replacement part. In addition, we do not go by flat rate time. I don't care what the book says the job can be done in. If the job took 2.2 hours its billed 2.2 hours.

Sure, I will get some flack from time to time on certain claims. In those instances we work with our parts suppliers to come to an agreeable amount. One vender stopped paying for labor claims all together. Over a period of three years the five unpaid claims came to just more than 1,700.00. Guess how we finally got their attention? I had our office staff take that same amount off the latest monthly invoice we owed them. Within two months of that move they asked us if we would agree to pay our bill and settle for a 1,300.00 labor claim credit.

Just my thoughts on the industry and how to deal with labor claims. If your not billing for your actual parts failures perhaps you should give it some thought.