Artwork by: Rebecca Zook

Dealers... Why Is Their Labor So Expensive?

An Editorial by Lester Seal (#080)

First a disclaimer. This is just my opinion and not a known fact. There are many variables to consider (type of dealership, geographic area etc. etc.). I have worked at a new car multi line dealership (Mazda, Buick and Volkswagon) for the last 12 years, these comments come from this experience. Your mileage may vary!

The main reason for a dealership being in business is to sell new cars. They would not have a franchise from a car manufacturer if this was not the case. If you sell new cars, you have to warranty them. That's why dealerships have a service facility. That "free" warranty you get with a new car, is why any other non warranty service (customer pay) you have performed on the car is so expensive.

The dealer will tell you, it's because the technicians need to be constantly trained on new product, and all the special tools have to be purchased. This is true, the franchise mandates these things (you can not do new car warranty without these). What they do not tell you, is the money they loose doing warranty repairs is made up by doing maintenances and service to older cars out of warranty.

Warranty repairs are dictated by the manufacturer (Mazda in this case). The time that is paid to do a specific repair is also set by Mazda. They have control over what is repaired, how long it should take to do the repair, and how much time they will pay to diagnose the problem (Dealers are paid on a flat rate basis by Mazda, that means if Mazda say's it will take .5 of an hour to do a certain job, they get paid .5 of their hourly service rate).

You have probably heard of book time, that's Chilton or Motor repair time guides. There is also warranty time. Warranty times set by Mazda is considerably less than what Chilton or Motor would allow. For a technician to do eight hours of warranty time in an eight hour day is very difficult.

The Dealership is usually broken up into three parts. Sales, service and parts. Each department runs on a budget, and each department wants to show a profit. Years ago, it was always new car sales that made the most money for a dealer. Recently, it's parts and service that makes the money (along with used car sales).

Most dealer service departments do more warranty work than regular customer pay work. It is in the dealer's best interest to get paid as much as they can for the warranty work they perform. They can not change the amount of time Mazda will pay them, but they can change how much Mazda will pay, by raising their labor rate. The more warranty work a dealer does, the more likely the labor rate is high.

The dealers have also found that customer pay service is quite profitable. So they compromise on the labor rate they would like from Mazda, and the rate customers are willing to pay out of pocket. In the shop I worked at, Mazda would only pay the same rate we charged the customer (we couldn't charge less for customer pay, the labor rate had to be the same).

Independent repair shops have the ability to spend their time on service work, not warranty work. This, tied in with lower overhead and profit on the parts sold (something a dealer service department does not get, the parts department gets all profits from parts sales) allow the independent to charge a more competitive labor rate.

Happy Motoring!