Some dealerships say in-person audits are back with a vengeance

Rob Gehring has seen a lot in his 35 years in the auto industry, 20 of them as a dealership management consultant. But his latest work helping a client fight a warranty audit chargeback of $250,000 has surprised him.

Automakers assign a standard number of labor hours each warranty repair should require. If a dealership service department exceeds that, it can expect a possible penalty. But Gehring's client, whom he wouldn't name, got in trouble — in part — because the technician billed what the automaker considered too few hours, and the automaker felt the repair wasn't done. The audit was eventually settled for $55,000, Gehring says.

"Dealers I know are having issues," says Gehring, president of Fixed Performance Inc. in Huron, Ohio. "But they shut up in public because they are fearful of the manufacturers."

Automakers have resumed warranty audit visits after they mostly shelved the practice last year because of the pandemic. Some dealers consider the return of audits to be business as usual. But others complain the automakers are being less forgiving and more punitive than usual.

Service managers say the margin for error is now tighter. As a result, what might have triggered a phone call in the past now leads to an in-person visit and potential audit.

For their part, automakers maintain they are interested in enforcing standards but say they don't regard warranty audits as moneymakers.

The factories may be feeling some urgency to ramp up warranty audits because, according to laws in most states, auditors typically can't go back beyond one year to review past claims, says dealer attorney Richard Sox, managing partner at Bass Sox Mercer, of Tallahassee, Fla.

"What we've seen, really, since the beginning of the year, maybe a little earlier, was audits for sales incentives and warranty reimbursement ramping up — I would say, to make up for lost time," Sox says. "Yes, it's going back to normal, but they went out very aggressively to capture as much of the time limits as they could."

Rob Campbell, a dealership consultant with WithumSmith and Brown in Princeton, N.J., says automaker audits find plenty of mistakes within the typical one-year window, so there's no need "to dig deeper."

While there have been complaints in some corners, other dealership service departments have shrugged off the return to in-dealership warranty audits this year.

"There has been no feedback to me from any dealers" complaining about warranty audits, says Mike Bowsher, CEO of Carl Black Automotive Group in Kennesaw, Ga., and chairman of the Chevrolet National Dealer Council.

For dealerships that stay on top of compliance, warranty audits are no big deal, says Dave Bergamotto, service director for Park Avenue BMW in Rochelle Park, N.J.

He has been audited six times in his career. The largest chargeback amounted to next to nothing, he says, considering the dealership averages $2 million per month in revenue for parts and labor. A BMW warranty audit in May resulted in "a very minimal amount" in chargebacks, he says.

He tells new hires on their first day that committing warranty fraud or performing unnecessary work will get them fired. "No warning, no second chances," he says.

Veteran dealership consultant Rich Reinicke believes warranty audits became a higher priority for automakers during the Great Recession because the factories had been lax previously and then suddenly needed cash.

"Warranty has gotten so different over the years," says Reinicke, president of Warranty Management Consulting in Littleton, Colo. "Before 2008, you'd get a slap on the hands, and a warranty auditor would tell you what you were doing wrong and tell you not to do it again. After 2008, the manufacturers started scrambling for money, and they discovered they had huge, huge cash gaps with warranty."