Self-Funded Warranty: It’s Not For Everyone

That’s what I often advise prospective clients when discussing self-funded warranties, and it’s surprising how many motor dealers still aren’t aware of the huge benefits of this tried and tested method of delivering a warranty solution. But like I said in the title, it really isn’t for everyone.

So what do I mean by that? Helping motor dealers “self-fund” their own warranty is something we have lived and breathed for over 33 years. So for those thinking “is it right for my business?”, the answer to that is simple and comes in two parts.

Firstly, how much time do you spend on vehicle preparation? If the answer is not a lot, then self-funding your own warranty is not for you. Self-funding your own warranty means covering the risk yourself should something go faulty with the customers car. For dealers who have the time and resources to prepare a vehicle well, it means you reap all the rewards.

The second part to the question “is self-funded warranty right for my business?”, comes in the form of a simple test.

Look at your last full year accounts, and see how much you spent on buying-in warranties. Then, over the same period, total up the income you received back from the warranty company in authorised claim repairs. If you don’t do your own repairs, ask your warranty company for the data.

Now, deduct the total claims paid out by your warranty provider, from your spend over the same period and you are left with a figure that may resemble a telephone number.

 

Let’s look at an example!

A good quality dealer, let’s call them Excellent Autos, selling 30 cars a month with 12 month warranties at an average cost of £130 per warranty. They would spend a total of £46,800 a year buying-in warranties (30 x 12 x £130).

Now, let’s look at one of our established dealers who has been using our self-funded warranty for over 18 years. They use an “all components covered” level of cover with a £3,000 individual claim limit, and an overall claim limit of the price paid for the vehicle.

They are currently running at £77.93 in claims per warranty, which includes internal and 3rd party claims. Using these figures for Excellent Autos, they would have claims costs totalling £28,054.80 (30 x 12 x £77.93).

In other words:

So what do these numbers tell us?

  • In one year, our example dealer “Excellent Autos” paid £46,800 to the warranty company.
  • They provided £18,745.20 toward “other dealers” warranty costs.
  • With a self-funded warranty, that £18,745.20 would be returned back to Excellent Autos as expired profit. This is just one of the huge benefits that comes with a self-funded warranty.

So do the sum for your business – are you a net contributor, or receiver? Then ask yourself, are you comfortable with the results?

I hope this post gave you some food for thought over the festive period. Perhaps the new year is the ideal time to look at your warranty costs. Next month we will lift the lid off the smoke & mirrors that is often referred to as “Burn Rate” .

Thanks for reading and may I close by wishing you all a very Merry Christmas and a positively prosperous New Year.

Alan Davison
Managing Director
Crystal Clear Warranty