Not just a handshake anymore
By Brendan Baker
The competition faced by engine builders has never been tougher. There seems to be no end to the new car incentives that the manufacturers can dream up in order to continue the torrid pace of new car sales. This factor, along with consumer perceptions of improved OEM engine quality and performance, several years ago was one of the primary ingredients that led many independent production engine remanufacturers (PERs) to develop extended nationwide warranties for their engines, some now offering limited lifetime coverage.
As a result of these warranties, PERs were better able to compete for a remanufactured engine sale, whether that be sales and distribution through their own branch outlets, or through those of their retail, wholesale or installer customers.
PER nationwide warranties were also a distinct advantage when competing against the automotive machine shop or custom engine rebuilder (CER) that typically offered a more limited warranty on a local basis. However, nationwide engine warranty programs are now available to the CER, too, through a variety of sources.
In the aftermarket, a warranty is primarily a marketing tool used to create consumer, as well as installer, confidence that their rebuilt engine will perform as expected. It also provides insurance that if there is a problem it will be taken care of by the engine builder within the established parameters of the warranty’s coverage.
Giving your customers what they want is what it’s really all about. However, if you’ve ever thought about purchasing a nationwide warranty for your engines it is a good idea to do your homework first.
Warranties are one way to build a strong, long lasting relationship, especially with your distribution and/or installer customers. The catch is that they must be administered efficiently and properly in the least amount of time. Otherwise, the warranty can become a liability rather than an asset to the sale of an engine. Warranty programs can be good marketing tools that instill customer confidence. But, if implemented poorly, you may risk losing a good customer, which may be much more difficult to replace than a few parts.
Essentially, there are currently two companies offering nationwide warranties to PERs and CERs – National Warranty, Lincoln, NE; and Dell Financial, Farmington Hills, MI. Engine Pro, headquartered in Wheat Ridge, CO, the largest consortium of nationwide engine hard parts distributors, now also offers a national warranty directly to its custom engine rebuilder (CER) customers.
National Warranty Insurance
"CERs use more specialized warranties," notes Jamie Jerabek, marketing/sales manager, National Warranty Insurance. "CERs usually look to gain the advantage over the competition down the street by offering warranties with features other shops they compete with don’t have (e.g., towing, rental car, etc.)."
National Warranty Insurance offers policies to both PERs and CERs. PERs, due to higher sales volumes, usually use more of a one-size-fits-all type of policy. "By nature, their warranties can’t be as customized as a CER’s," says National Warranty Insurance’s marketing/technical support director, Ed Lahmann.
Over the last few years, warranties have become increasingly important, and expected. Consumers now expect warranties to be available for everything from telephones to televisions. It’s part and parcel of today’s consumer purchasing psyche. But what a nationwide engine warranty really boils down to is value, as well as the consumer’s and installer’s or distributor’s perception of it.
So let’s answer the question you really want answered. What are engine builders really looking for in a warranty program? "They are looking for three things," explains National Warranty Insurance’s Jerabek, "flexibility, risk removal and security."
Let’s look at flexibility first. This refers to the terms of the warranty you offer, like length and extent of coverage, shop warranty labor rates, and the bells-and-whistle add-ons such as towing, rental car, etc. The terms you choose vary according to your location, competition and installer wants and needs.
"Policy features depend on what market you’re located in," says National Warranty Insurance’s Lahmann. "Machine shops are different in California than they are in Illinois, and the marketplace sets the standard."
According to Lahmann and Jerabek, competition is what drives the need and type of warranty policy the most. If the competition down the street builds engines and offers a warranty, same as you, how do you get the edge? One way is to know what your competitors are doing and what their terms are. If they don’t offer towing or a rental car, you may consider adding one or both of these to sweeten your deal.
Another way you gain the advantage on the competition is by adding longer coverage. A typical CER warranty, according to National Warranty Insurance, is 12-months/12,000-miles (12/12). Therefore, to add value, a 36 month/36,000mile/day-one extended warranty may be more appealing to your customers.
Some warranties are referred to as "day-one" warranties because their coverage begins the minute the engine is installed. Others start after a period of, typically, 90 days to ensure a proper installation and break-in period.
It can be useful to set up several options with your warranty underwriter. This way you will have more choices to offer your customers. What type of warranty they choose depend on what the market demands, as well as what the CER and their customer are willing to pay for.
Risk Removal – Being exposed to risk is a big factor for many rebuilders and installers, especially smaller automotive machine shops and vehicle service outlets. Who wants to eat the expense of a comeback if you don’t have to? Comebacks cost shops a lot of money in parts and labor, as well as time. Any way to reduce this cost would be a benefit to rebuilders and installers. Warranties for this purpose alone are usually worth it. Nationwide warranties reduce the amount of time the engine rebuilder and/or installer has to be liable.
Security – installers, and ultimately the car owner, are looking for protection, too. In the past, many installers have chosen a PER exchange engine (whether that is offered direct, through traditional distribution or retailers) instead of the CER engine because of the extended warranty. Many installers are fearful of being liable for engine problems and have felt that extended nationwide warranties offered by PERs and their distributors help to alleviate that concern. PERs, typically, have had more resources to be able to provide these warranties either directly or through companies such as National Warranty Insurance or Dell Financial. However, although a CER could offer an extended warranty and more direct customer service to their customers, what they have lacked is an ability to provide warranty coverage on a nationwide basis.
Dell Financial is one of the big dogs in the engine warranty business. Paul Pawlusiak, Director, Dell Financial, points out that Dell is ISO 9001/2000 certified and is the only administrator to obtain this certification in the U.S. or Canada.
Pawlusiak says, "We take the risk out for rebuilders. We’re a warranty company that offers private-label warranties for the engine rebuilders that are underwritten by AON (www.aon.com), the largest underwriter of warranties in the world." He says Dell also has the ability to custom-tailor each warranty form for the specific need of the engine rebuilder.
"All of Dell’s rebuilders get an Insurance Certificate from our carrier outlining their coverage," Pawlusiak says. "It’s important to know exactly who your insurance carrier is and their financial stability in the marketplace. Some companies do not have adequate coverage or are only risk-retention groups. In the past, this has proven to be a serious problem for numerous rebuilders around the country when those groups closed up shop with no warning and were not there to service their warranty claims. Thus, it can create a severe monetary risk condition, which the smaller independent engine rebuilders, especially, don’t want to encounter.
Pawlusiak adds that the purchaser of the warranty also must have some responsibility. "It is built into the contract that the customer must have proof of oil changes at least every 4,000 miles, from an accredited oil change facility," he explains. "This requirement ensures that the purchaser has responsibility. It also helps to protect our customer, the rebuilder, from the purchaser not doing any maintenance because they feel they have a warranty to fall back on in case of any problems.
"Our warranty forms are printed in-house in Dell’s graphic-arts department and includes the client’s logo in color as well as other on-site sales materials," Pawlusiak continues. "The material is shipped within 24 hours of a new rebuilder agreeing to participate in the program. All of this is at no start-up cost to our customer. This makes our customers feel more comfortable knowing that the resources will be there if they ever need to make a change in a warranty form to be more competitive to suit their particular marketplace."
Dell’s claims department has a group of ex-GM and Chrysler technical assistants and factory warranty individuals who have all of their Master ASE Certifications in place. "Our claims department’s knowledge is on par with the engine rebuilders, giving Dell the mechanical knowledge edge that our competitors don’t have," says Pawlusiak. "We have the ability to have the customer’s vehicle inspected in every zip code in the U.S. or Canada with overnight digital photos if necessary to ensure prompt claims handling and immediate payment to that shop for repairs."
Dell’s client list ranges from the Big Three to high-performance icons around the country, as well as numerous independent rebuilders both in the U.S. and Canada. Furthermore, Pawlusiak says that Dell offers programs that his competition has been reluctant to offer in the performance and industrial marketplaces.
Engine Pro, the nation’s largest engine parts distributor network, and a new entry in the engine warranty field, has put together an impressive warranty program to help its CER customers compete with PERs, OEMs and other engine sellers offering warranties.
According to Greg Dunlap, president of Engine Pro, "the Engine Pro Protection Plan is the first warranty program truly built around the needs of the custom engine rebuilder. The program provides our customers, the CERs, with a significant tool to help them compete with the larger production engine rebuilders providing warranty coverage."
The group’s engine parts distributors honor the warranty program across the country, and the warranty may be purchased in conjunction with a master engine kit. The warranty includes a 3-year/unlimited-mileage term, added value extras like towing and rental car coverage and other provisions not found in the typical competitor’s exchange engine warranty.
"In today’s environment, consumers expect a warranty with any significant purchase," explained Dunlap. "To their credit, a number of PERs had already figured this out. The Engine Pro Protection Plan provides an effective way to help our CER customers meet these consumer expectations.
"The warranty enhances the value of the CERs product by adding the consumer warranty protection. Equally important, the warranty provisions provide superior protection to the rebuilders professional installer customers in the event of a comeback. In our view, the program has addressed a significant need among our customers and represents a great opportunity for them to more effectively market their products," says Dunlap.
According to Dunlap, there are several important issues automotive machine shops and CERs need to be aware of when shopping for warranty coverage. One is, at what rate is the warranty paid? Dunlap notes that the coverage provided by many other warranties specify a fixed labor rate for warranty repairs, which may not adequately compensate the rebuilder or the installer for their true costs. It is important to look for a labor rate that is "reasonable and customary" by market, especially in the case of out-of-area warranty repairs.
Another important factor: how are repair hours determined? Some warranties identify maximum or mandated labor hours, as opposed to using published and accredited flat rate manual repair times. Maximum and mandated labor hours can be a problem, says Dunlap, having a big impact on the rebuilder’s or installer’s ability to get adequately compensated for their warranty repair work.
Dunlap offers that Engine Pro’s CER customers typically bundle the warranty with the rebuilt engine as opposed to selling the warranty as a separate item. "Offering the warranty with the engine, and not as a separate purchase, is critically important," says Dunlap. "It speaks to the rebuilder’s confidence in his product and it enhances the consumer’s perception of value." He also points out that some states require that the warranty be included with the product and not sold separately.
"Our customer, the custom engine builder, is known for producing a high quality, custom built product," says Dunlap. "But a consistent, national and competitive warranty has been his missing ingredient. Our warranty protection plan program provides that missing ingredient."
Mark Fellanto, Promar Engines, a PER located in Patterson, NJ, says, "When we went to a 3 year/unlimited mileage warranty we noticed a sales increase. Although, adding to the tail end of the warranty is more of a sales incentive then anything else. We also track all of our warranties and have noticed a definite drop in claims after the first 6 months. And our claims continue to drop each month after that."
"We mine our data for a number of factors – once the data is in the system we can use it to determine a variety of things. We can track, for example, what employee built a specific engine, and where and why someone might be having a problem."
Fellanto adds that warranties are a complex thing. "We have to take each one on a case-by-case basis really. First thing we do for a claim is check the installer’s sales history to see if there is a problem. If an installer has been "good-willed" several engines – you have to stick to the guidelines of the warranty."
In sum, warranties offer another way to add value as well as profit to your engines. They offer a method to differentiate and successfully sell your product against a commodity, lowest priced engine. A good warranty also provides the expected and necessary consumer and installer confidence required in today’s competitive market. It makes the decision to purchase an engine from you that much easier.
In the end, engine rebuilders today have to produce a better quality unit than they ever have. Providing a high quality rebuilt engine, a good national warranty and outstanding customer service are all essential ingredients in generating the sales and profit margins necessary to grow the business over the long term.
"Most custom engine builders are selling on reputation," says National Warranty Insurance’s Lahmann. "Warranties enhance their reputation." Now instead of just a handshake, engine builders can be handing over the modern, formalized equivalent, i.e., a national warranty contract tailored specifically to the customer and the market.