Ford Motor Co. has managed in the past three years to lessen the number of warranty claims per vehicle by over 25% percent in some instances. But this newfound quality has proved a double edged sword for dealers who once relied on their service departments to keep them profitable.
In just the one year period of 2005-2006, Ford lowered its warranty payouts to dealers by a whopping 12%! While this may be good news for the suits at Ford corporate, the lower level dealership employees like service advisors and parts suppliers are made to suffer. You see, most of these employees are paid solely on commission. That commission check based on warranty claims will be dramatically lessened each month when the cars no longer need to be in the shop so often.
But even earlier in the decade, Ford was managing to pay out huge sums of money to its dealer’s service and parts departments. According to Dave Knittel, owner of Charlotte County Lincoln/Mercury in Florida, his store made over $400,000 a year in warranty claims in 2001. In 2006, that number had dwindled down to $93,000. Doesn’t sound like a very busy store now, does it?
According to Knittel, “Ford cars don’t break down anymore. You don’t see the amount of warranty work we used to.” That is an understatement in that Knittel also says he remembers an even earlier time when his store did $100,000 a month in warranty work alone! Was that when the Pinto was still out, we wonder?
So what about all the money these Ford dealerships make in the sales department? Well, contrary to what most consumers think, the majority of the profit in a dealership is not from the sale of new vehicles. Most Ford dealers claim that they wind up losing a couple hundred dollars on each vehicle.
That ,is of course, before the manufacturer sends out buyback checks and incentives to dealers. Finding out how much a dealer actually makes on the sale of a new car is like trying to uncover the mystery of the Sphinx.
Aside from new car sales, the biggest profit margins for the dealers are in the sale of used cars and the service/parts department. It is kind of like business at a movie theatre. The theatre makes no money on your ticket, that all goes to the movie studios. The theatre gets all of its revenue by overcharging you at the concession stand. The same principal goes at the dealership what with most new car profit going to the manufacturer. This can also help you understand why dealership service can be so expensive!