This week, something strange happened. We charged a customer to diagnose and repair an issue that was 100% covered by their new vehicle warranty. Normally, we just wouldn’t feel right about a situation like this, but the customer was happy to pay because they had taken the vehicle into the local dealership multiple times for this issue, but the dealership was unable to correct the problem each time.
The customer – let’s name him John – was pretty upset about his experience at the dealership, and questioned the capability of the technicians working at the dealership. I stopped him there, and tried to explain to John that the dealership’s technicians were likely very capable, but the technician assigned to his car simply wasn’t getting paid to find his problem!
What? Let’s rewind for a little explanation! The dealership in question (along with most dealerships, and some big name chain stores such as the “__ Tire” franchises) pay their technicians using a system called flat rate. Under this system, the technicians receive no hourly wage, and are 100% commission paid. Every repair job has a “book” or labour guide time assigned to it, and the technician is paid the listed number of hours for each repair they complete. As an example, replacing the front brake pads on John’s car is listed at 1.0 hours, so a flat rate technician would be paid 1.0 hours at their regular wage to replace these pads. If they can do the job in half an hour, they are still paid for one. Of course, it works the other way, too: If the technician runs into problems (such as a rusted or broken bolt) and the job takes two hours, they are still paid for one.
Understanding how flat rate works, let’s get back to John’s experience. In an effort to reduce warranty costs, many vehicle manufacturers have modified their labour guides in recent years so technicians do not receive any credit for their time spent diagnosing problems that are covered under warranty. Other manufacturers will pay a little, but cap diagnostic pay at 0.3 or 0.5 hours for most problems. Technicians working on these vehicles must hope to be able to find the problems fast, and then “make back” their lost diagnostic time by completing the repair very quickly – which is a challenge in itself, since warranty repairs are paid out at reduced “warranty times”. As a result of all of this, many dealership technicians will only spend a little time looking at a problem like John’s, before “giving up” or replacing a part at random, in order to move on to the next repair – which is hopefully a better paying one. Is this right? Of course it isn’t. But can you blame the technician? Maybe not.
Just think about it: Imagine that your boss handed you a folder. Inside the folder is a report that needs to be completed, but your boss tells you that you won’t be paid for any time you spend doing the report. How much effort would you put into this report, especially if you knew there was a rack full of reports waiting outside your office that you would be paid to complete?
It’s a broken system, and customers like John – who, ironically, are paying for the whole system – are losing out.
So why would a business owner choose to pay their technicians on flat rate? For one thing, it makes management’s job much easier. Flat rate can allow a poorly managed or disorganized shop which normally wouldn’t turn much of a profit to do quite well, since technicians are 100% commission paid. If there are no vehicles for a technician to service because of scheduling errors, incorrect parts or other problems, there are also no wage costs to cover. Plus, it has been proven that most technicians will work faster with some sort of incentive-based pay system in place. Unfortunately, it’s also a fact that some mechanics will cut corners in order to beat the book time. Some of the “shortcuts” we’ve seen over the years would make most customers quite upset!
Honesty also suffers under flat rate pay, but that’s another subject for a different article one day.
Ten years ago, a customer would never ask a shop how their technicians are paid. But today, more vehicle owners are starting to understand how pay systems like flat rate negatively affect the quality of diagnostics and repairs that they are paying good money for; and we’re glad that customers are asking. Many of you already know that we do things a little differently at My Garage, and this includes something that almost no other large shop is doing: We pay our technicians a straight hourly wage, with no incentive-based pay system in place at all. Our focus is on quality over quantity, and we have hand-picked an awesome group of technicians who are doing their jobs for all the right reasons.
We work hard, and as a team, because we really love what we do.
NOTE: This article was originally written by Chris Dekker in 2012, and has been re-published here. In the 5 years that have passed since then, flat rate warranty times at many dealerships have fallen even further, and some of the problems mentioned in the article are even more prevalent today. There have been some positive developments too, though! Car dealerships are finding it harder and harder to attract quality technicians because of their pay plans, and a few auto manufacturers are slowly making changes as a result. Just recently, General Motors has announced changes to their pay plan to ensure that technicians are paid for some (but still not all) of the time they spend diagnosing vehicles.