How 28 seconds is quietly transforming dealership profits

Welcome to another edition of expert insights from the Car Dealership Guy Podcast, an episode recap that breaks down the high-level takeaways from the conversation.

In this episode, Jim Roche, founder and CEO of WarrCloud, discusses how dealers can drastically improve their warranty processing times and lower their fixed-ops expenses through automation and “smartsourcing.” Jim is an industry veteran with a track record of using technology to develop solutions for auto retailers.

You can stream the full episode now on YouTube, Spotify, or Apple.

1. Jim’s background.

Jim Roche has been working alongside dealers for roughly 30 years, almost exclusively within the confines of fixed-ops, as a serial entrepreneur. “People will tell you their problems, and when you see a pattern, then I go in to check to see if anybody has solved or is in the process of solving that problem, and if not then we’ll see if we can pull together a technology solution that makes dealers, service leaders’ lives easier.”

2. The service vs. sales pendulum.

Jim explains that the industry’s profit drivers often wobble back and forth between service and new or used sales. “Clearly, the pendulum is swinging back towards service,” Jim adds. New vehicle gross profits are down 34.4% from last year, compared to a decline of 19.3% for used vehicle gross. This, plus a small drop in F&I earnings, has driven a 20.4% dip in overall dealership profits. Faced with such declines, dealers must rely on service to drive growth and bring in money.

3. Service is reliable.

Although car sales are great for driving profit, they are also subject to market conditions and other factors outside dealers’ control. On the other hand, retailers have complete control over their fixed operations and can optimize the service drive regardless of whether new or used vehicle demand is trending up or down. “When we were making money hand over fist on vehicle sales that’s where the focus was,” Jim explains. “Now that market conditions are swinging back to margin compression on the sales side, of course, you’re going to focus on all aspects of the operation, but your focus will drift a little bit more towards service because that’s where you have more control.”

4. Smartsourcing and automation.

“Smartsourcing,” also known as intelligent outsourcing, is the emerging practice of combining new technologies, like artificial intelligence, with highly capable agents, improving efficiency and lowering costs for customers. While outsourcing has been around for decades, AI is offering new ways to automate tasks without sacrificing human oversight.

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5. Why the warranty process needs to change.

Warranty processing is both time-consuming and expensive. “The typical dealer has one or more warranty clerks,” Jim explains, each of whom is forced to use old-school processes due to the lack of a technological solution. Because of this, the average expense of warranty processing is roughly $70,000, with each claim taking 22 minutes. By smartsourcing, dealers can send their claims to a third party that uses automation to check for inconsistencies and upload them to the manufacturer’s website. The only effort required from the dealer is offering receipts for certain circumstances that may arise. This not only lowers costs but also brings processing times down to an average of 28 seconds per claim.

6. Warranty trends.

Warranties are a valuable source of income for dealerships. This has become especially true over the last few years. The National Automobile Dealers Association recently reported a year-over-year increase in both the number of warranty claims and the amount that customers pay, with the former rising 7.6% and the latter rising 4.4%. This means dealers are serving more customers and earning more money per order. While Jim clarifies that customer pay is starting to stagnate, he urges dealers to take advantage of these increases by expanding their ability to service warranty claims.

7. Behind the scenes.

Jim believes there are two factors driving these trends. For one, dealers are selling more new vehicles than they were previously, which translates into more warranty-covered vehicles on the road. A less obvious factor is that electric vehicle warranty work costs about 300% more than an internal combustion engine vehicle, a gap driven by differences in technological complexity and component costs. With new vehicle sales projected to rise even more in the coming years and EVs becoming more popular, it’s highly likely the industry will see even greater increases in warranty volume and revenues.

8. Boosting recall work.

Recalls present significant opportunities for dealers, both in terms of boosting customer service scores and bringing in profit. To boost their recall market share, Jim recommends that retailers find a provider that has the ability to identify customers impacted by active recalls and reach out to them to schedule a service appointment. On top of this, Jim suggests hunting for recall opportunities in three additional areas: your PMA (primary market area), in the service lane, and in your own vehicle inventory.

9. AI’s impact.

Artificial intelligence will change the face of the car buying process. Dealers are already using AI to handle phone calls, schedule appointments and conduct multi-point inspections. Some vendors are coupling AI with RPA (robotic process automation: a technology that mimics a human conducting a variety of workflow tasks such as inputting data into a system). Giving RPA platforms the ability to make decisions through AI could revolutionize everything from warranty claims processing to updating financials in accounting. Jim believes the technology will only improve and make dealership operations more efficient. However, he urges retailers to spend more time researching the different kinds of AI.

10. Looking ahead.

Jim plans to identify more ways that AI can enhance the warranty claims process. Currently, automation can handle up to 60% of claims but only for specific brands. Jim’s goal is to boost that number to 80% for any and all brands. He is also focused on trimming down installation speeds so that dealers can get the solutions they need faster, and is planning to expand WarrCloud’s customer support department to ensure retailers have access to all the help they need.

You can stream the full episode now on YouTube, Spotify, or Apple.

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