At the end of July 2021, a new law passed in Illinois requiring dealerships to pay retail rates to technicians for the actual time and labor it takes to repair vehicles that are under warranty. The justification being that technicians are highly trained workers and should be paid wages that mirror the high-tech compensation of other industries. This could be both good and bad for dealerships if this trend spreads to other states in the nation.

1. Dealerships in states that have passed legislation requiring manufacturers to pay retail rates for warranty and service repairs won’t be affected IF they also passed that labor rate increase to their technicians. Dealerships that have NOT passed the increase to their technicians will need to. As such, dealerships will see a drop in their net service revenue or risk losing some technicians to competitors.

2. Dealerships in states that have NOT passed legislation requiring manufacturers to pay retail labor rates for warranty and recall repairs will be forced to pay their technicians retail labor rates while the dealership continues to receive manufacturer-mandated rates. This will REALLY hurt dealerships since they may end up having to pay more to the technicians than what they are receiving from the manufacturer or, at the very least, get close to breaking even.

This Illinois legislation should ultimately force Automobile Dealers Associations in states that have NOT passed similar legislation to do so, as dealers will be seeing a decrease in service penetration. Most dealers are surprised when they learn that a factory submission isn't their only choice. In fact, 49 states have some type of legislation in place that allows dealers to perform a statutory labor rate 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.

Technicians are in high demand. Increasing their wages based on the work they perform rather than what the manufacturer will pay should benefit dealers by attracting more technicians, thus alleviating some of the demand versus supply issue.

In addition, it could encourage young individuals to choose to train to be an automotive technician. This then increases the available workforce, increases supply, and makes it easier for the dealerships to find new technicians. This, of course, is a long-term result. It won’t be instantaneous for the younger workforce to join the labor pool and discover that being an automotive technician is a lucrative position.

 Keep in mind that software and electronics recalls were the largest category of recalls, affecting 7,541,325 vehicles from 77 NHTSA recall campaigns. These are exactly the types of recalls that more tech-savvy technicians – many of whom can be new to our industry – can tackle without years as a master technician. This is how we’re going to resolve a technician shortage while also generating more revenue.

Remember, the consumer probably has little knowledge of or interest in any of this. They simply want the dealership to fix their vehicle and ensure it is safe, regardless of whether it's routine maintenance, customer-pay, warranty or recall repairs.

It is likely to be quite a balancing act. What are your thoughts on what this will mean for the future of service departments and technicians?