Every year, as dealers begin to work on their annual labor rate submissions, many are quick to grab their policies and procedures manuals to get started. For most, it’s a process that may involve filling out a competitive survey, producing a certain amount of consecutive qualified repair orders, or a combination of the two. Does this process yield as much of an increase as the dealership wants or is entitled to? Many times, the answer is no.

Most dealers are surprised to learn that a factory submission isn’t their only choice. In fact, 48 states have some type of legislation in place that allows dealers to perform a statutory labor submission. The purpose of a statutory submission is for a dealer to achieve warranty labor compensation at its retail rate, which is a market-driven rate based on its warranty-like customer-pay repair transactions. Any dealer who is submitting for a labor rate increase should be evaluating its factory protocol and its statutory protocol to determine which is most advantageous.

Factory Submissions

The guidelines for a factory labor submission are different for each manufacturer and can typically be found in your policies and procedures manual. The process can be as simple as filling out a competitive survey or as arduous as producing 100 sequential qualified repair orders; most manufacturers will require a combination of a survey and a certain amount of qualified repair orders. In some cases, it’s a quick and simple process to request your rate and wait for a response. While this process may seem enticing, there are some pitfalls to filing a factory submission. First, your manufacturer is not required to respond in a certain time frame; many dealers have told us they have waited months for a response, only to receive a significantly reduced offer. If this occurs, it is typically a “take it or it leave it” proposition. It is also possible that you’ll be afforded no increase, as to which you’ll likewise have no recourse. Although some factory protocols allow you to submit fewer total ROs than a statutory submission, following your state law may yield a greater increase for a variety of reasons.

Statutory Submissions

A statutory submission will give the dealer more control over the process and possible outcomes. Although a statutory submission involves more complicated protocols and can be more work than a factory submission, the benefits usually make the additional work worth it. Most states require 100 sequential qualifying ROs that have been closed in the last 180 days and prescribe how the rate is to be calculated and what type of services can be excluded from the sample. Once the submission is complete, the manufacturer must respond within a specific time frame (usually 30 days), and most statutes will outline a rebuttal process if the manufacturer approves a reduced rate or offers no increase at all. To further expound on the benefits, let’s focus on three reasons why a statutory submission may be more advantageous than your factory protocol and what services are available to help dealers through what might be an unfamiliar process.

1. Dealers Are Better Protected

One of the biggest benefits of a statutory submission is the state laws in place that protect dealers from their manufacturers having unilateral control over the resulting labor rate. Although the factory protocols often require less work, it’s often advantageous to submit statutorily to put the dealer in control of the outcome, not the manufacturer.

If you disagree with the outcome of your submission, most statutes have a rebuttal process in place that allows a dealer to dispute a rejection or reduction of its rate-increase submission. Simply put, a factory submission is controlled completely by the manufacturer and ultimately gives them the upper hand, while a statutory submission is controlled by state law to help dealers obtain a fair market rate from their labor submissions.

2. States Exclude Certain Repairs

Many state laws have specific excluded repairs that are designed to eliminate from the sample non-repairs and non-warranty-like repairs to help you achieve your “true” retail rate. For example, the manufacturer’s rules may require that you include battery replacements or wheel alignments in your labor submission. This type of competitive routine maintenance work typically has a low effective labor rate and does not represent what you charge your customers for warranty-like repairs. Certain state laws allow you to exclude this type of work, as well as other non-retail repairs such as those paid for by service contracts/insurance companies or repairs for fleets or government agencies. All of these exclusions are placed in the law to protect dealers from having to include non-warranty-like work in their labor rate calculation.

3. The Resulting Numbers Are Often Higher

As previously mentioned, you should be evaluating both a statutory submission and a factory submission every year when contemplating a labor-rate increase. In most states, a statutory submission will have different rules than your factory protocol based on a number of specific nuances in the law. We’ve often had dealers ask why they would complete a statutory submission when their factory protocol required less work. Let’s say a manufacturer requires 20 consecutive qualified ROs that have closed in the last 30 days, which is far less than the 100 qualified ROs that most statutes require. You may wonder, how can a dealer get a larger increase providing five times the amount of ROs? One answer is that you can use the last six months of data in most states, rather than the limited timeframe prescribed by most factories. The larger data set for a statutory submission makes sure that your increase is indicative of your typical retail pricing policies, while a truncated period of time may be far less representative or be subject to an unfavorable work-mix. The extra work can seem daunting to a dealer who has only ever performed factory submissions, but it usually pays for itself.