Floor plan interest reimbursement on recalled units

With almost twenty million vehicles already recalled in 2014 from more than ten manufacturers, dealers are raising concerns as they are work with both the manufacturer and the customer. What is it truly costing the dealership?

In most instances, recall notices allow the dealer to continue to sell the vehicles they have in inventory and perform the recall repair when parts are available. However, in some of the more recent recalls, the manufacturer is putting the units on hold, which means the units cannot be sold until the recall repair is complete.

This puts an entirely new spin on recalls from the dealership’s perspective. When a unit is put on hold, the dealership has inventory it must maintain until the recall repair work is complete. Holding this inventory comes with more issues and costs than one would imagine. To begin, many manufacturer incentives and programs are built on sales volume. Dealers then set up their goals, objectives, performance incentives, and advertising budgets based on the availability of the inventory and projected number of units they expect to sell. When a significant recall occurs, similar to what we have experienced in 2014, all the dealership’s programs put into place need to be modified. The obvious first step is to keep the customers happy by getting the parts from the manufacturer and servicing the customer’s vehicle; the not-so-obvious challenge is to maintain employee morale as your employees cannot sell some of their most popular vehicles due to the recall, meaning they may not reach their goals for the month and, in some instances, leading to less compensation. The dealership may also lose incentive monies from the manufacturer for not hitting sales targets or objectives.

Although the total cost of these recalls is difficult to determine, one way to decrease your cost is to request reimbursement from the manufacturer on the interest charges you incur to hold these units in your inventory without the ability to sell. Some manufacturers will provide their dealers with interest reimbursement for the period the unit is put on hold by the manufacturer until the vehicle is repaired for the recall. Many times, the interest reimbursement must be requested at the time of the warranty claim recall submission. You should review your recall service bulletins carefully to ensure you are correctly submitting for interest reimbursement for the duration these vehicles are unable to be sold due to the recall.

For more information on this topic, or to learn how Baker Tilly dealership industry specialists can help, contact our team.