Jason Dawes of the Sunday Times (September issue) asks ”Are drivers being held to ransom by the warranty system?”
Car servicing seems to be one of those areas of commerce, like plumbing and wedding catering, where the normal rules of economics cease to apply. In the worst cases costs change arbitrarily, labour rates exceed your own salary by a factor of 10, and the price the customer pays for raw materials loses any relation to their real value.
But things are about to change on 1st October. The Office of Fair Trading (OFT) has launched an investigation into the car warranty system to see if drivers are being ripped off by what might effectively be a cartel operation. The current status quo is well understood and accepted with resignation by most drivers. Fortunately, new cars typically come with a three-year warranty, covering the cost of labour and parts required to repair defects that come to light.
Manufacturers sometimes say that servicing outside their network is allowed and will not affect the warranty, provided it is carried out to an “equivalent standard”. But if, when something later goes wrong, a main dealer judges that the work was substandard, the warranty could be invalidated. The risks of leaving the franchised fold are therefore quite significant.
The OFT’s wide-ranging study will look at all aspects of the warranty system, but crucially it will assess the system’s impact on drivers — in other words whether competition is being stifled and prices hiked. A negative verdict from the OFT could lead to manufacturers being referred to the Competition Commission.
Last week we conducted our own survey and found that evidence of a significant price gulf between franchised and independent garages was immediately apparent and impossible to ignore. Franchised dealers were charging up to 74% more on average than independent garages in the same area to carry out the same service.
Researchers called three franchised and three independent garages to ask for servicing quotes for each of five different cars. In each case they used industry reference books to check that the service being quoted by the independent garage would include exactly the same checks as those made by the main dealer. For four of the five cars at least one franchised dealer quoted prices double those of the independent garage.
Sytner BMW in Romford, Essex, quoted £610 for a full service (known as “inspection 2” in BMW circles) of an M5 registered in 2000. Not far away, in Chelmsford, the independent BMW specialist MRR quoted £300 for the same service (although it suggested we should stick to a main dealer to protect our warranty, which from 1 October will change). Renault Stockport quoted £370 for a 36,000-mile full service of an Espace V6, while the local independent, Riverside, asked for £170.
A 42,000-mile service of a Saab 95 SE turbo automatic was priced at £307 by a franchised dealer in Tunbridge Wells, and £140 by an independent in Hailsham..
Of course the main dealerships are likely to have higher overheads because they have plusher buildings in better locations. And a main dealer may well have greater obligations in some areas, for instance to keep spares in stock for old models, even if there is no profit in it. Car makers also invest more heavily in staff training. And the coffee may be better. But while the higher charges may be understandable, they still mean drivers whose warranties lock them into a franchised dealer network are being sentenced to paying much more.
There is also growing concern that as new-car prices are driven to record lows, dealerships are looking to servicing to soften the blow. Earlier this year a survey of hourly main-dealer labour rates found they had increased by an average of 44% over the past five years. The survey, by Warranty Direct, a company that insures against breakdowns, found a BMW dealer had the highest hourly rate, of £115 including VAT.
“It’s ironic that labour rates have soared as new-car prices tumble,” says Duncan McClure-Fisher, the firm’s managing director. “The odds are clearly stacked against the consumer and in favour of the franchised dealer network.”
When the air-conditioning failed on his Mercedes E300, Jim Scott, a marketing consultant from Bradwell, Derbyshire, took his car to a main dealer who quoted £1,300 plus Vat to fix it. A local independent later solved the problem for £106. With that experience, would he allow the independent to service his new cars in future? “I think that if I had a warranty I’d be worried about breaking its terms because of the subsequent costs,” he says.
SERVICE PRICES OBTAINED BY RESEARCHERS FOR COMPARISON
BMW M5 - Major Service – Ind. - £300 Dealer - £610
Saab 95 Turbo – 42,000 mile – Ind. - £140 Dealer - £307
Merc E320 – Major Service – Ind. - £223 Dealer - £360
L. Rover Discovery – 48,000 – Ind. - £335 Dealer - £501
Espace V6 Auto – 36,000 – Ind. £170 Dealer - £370
In each case prices are an average of three independent and three franchised dealers. All prices include labour, parts and VAT
