Guest commentary: Unrepaired recalls are $36 billion opportunity for dealers

Automotive retailers are sitting on a largely untapped source of revenue that is easily within their grasp. Unrepaired vehicle safety recalls represent a $36 billion industrywide opportunity. These vehicle repairs can provide dealers with additional parts and service revenue, which can boost profitability in both good times and bad.

Unrepaired safety recalls are a chronic challenge for the automotive industry. According to AutoAp Inc. research, about 20 percent of all vehicles on the road have one or more unrepaired safety recalls at any given time. Several factors contribute to this, including confusing discrepancies and timing delays between sources of information, human error entering recall data, and good old-fashioned consumer apathy about perceived minor repairs.

With nearly 230 million vehicles that are 2000 model year or newer on the road, there are approximately 46 million with unrepaired safety recalls. Our data shows that many vehicles have more than one unrepaired recall for an average of 1.25 each, which means a total of 57.5 million recalls available to be repaired. According to the National Automobile Dealers Association, the average recall parts and service repair reimbursement is $440. In addition, AutoAp clients generate $250 to $430 in additional customer pay during each recall visit. That means 46 million vehicles with 1.25 recalls at $440 each, plus another $225 in added repairs each (to be conservative), for a potential of more than $36 billion.

On a per-dealership basis, assuming roughly 16,800 franchised dealerships, that comes to at least $2.1 million in potential additional revenue per dealership. That's a lot of money just waiting to be made. And, with new recalls coming out every day, the opportunity continuously refreshes.

Why aren't more dealers taking advantage of this potential windfall?

Many dealership owners mistakenly assume they are covered from a liability standpoint. Due to data errors and timing delays, many open recalls fall through the cracks and dealers are NOT covered. Period. This needs to change, industrywide.

In addition, dealers often simply ignore the revenue-generating potential of finding and fixing open safety recalls because it is not the "sexy" end of the automotive retail business.

Finding open recalls using manual processes is time-consuming, expensive and error prone, so many dealers simply don't take advantage of the opportunities to find recalls by monitoring current inventory or customers' vehicles. An automated process that checks against multiple industry sources, provides dealers with daily updates on inventory and periodically checks customers' vehicles is an efficient method for finding open recalls. This helps dealers limit liability and drive additional revenue, and is quite easy to implement.

There are two primary sets of unrepaired safety recalls dealers can tap to generate additional revenue. The first is from vehicles in their inventory that are unsafe because they have open recalls. The second is from customer vehicles and the opportunity to bring them back for service.

According to our research, nearly 15 percent of a typical franchised dealer's new- and used-vehicle inventory has one or more open safety recalls. By missing recalls in their inventory, they leave themselves unnecessarily exposed from a liability standpoint and, at the same time, leave easy money on the table.

The second set — customers' vehicles — generally mirrors the industry average of about 20 percent of vehicles having one or more open safety recalls. Often, customers drive off the lot with a clean vehicle, only to have a recall issued days, months or years later. Even though manufacturer recall programs strive to catch recalled vehicles, there are still tens of millions of vehicles that fall through the cracks.

Identifying the first set — recalls within inventory — is a necessity to limit dealer liability. Plus, it still generates incremental repair revenue. The second set — recent customers — is where dealers are often missing both revenue and customer relationship enhancement opportunities.

Of course, finding open recalls is only half the battle. Dealers still need to get customers back into the dealership to get their vehicles repaired. Most dealers, however, already have the infrastructure necessary to seamlessly bring back customers. They just need a more powerful reason to do so. Enter recalls.

Customer information is at their fingertips through their customer relationship management system, which can be cross-referenced against recalls obtained through an automated approach. Outreach can be implemented through their services CRM, a business development center, service advisers or other dealership marketing channels.

The nature of the outreach can be powerful as well. Dealers are alerting their customers to a potential safety issue that could injure or even kill customers and their families. And, repairs will be free. That's something that can help cement long-term customer relationships. It's probably a much more effective marketing tool than sending a birthday card or an oil-change reminder or coupon.

Recalls are not going away anytime soon. The increasing technological complexity of today's vehicles means there are more safety features that could go wrong as many advances are safety related. Electric vehicles and autonomous vehicles are unknowns and will be under close watch from safety advocates. These will likely increase NHTSA scrutiny over time, resulting in even higher rates of safety recalls.

If dealers want to grab a slice of the $36 billion pie, they should consider getting their recall processes under control and automate them, which will allow for constant revenue generation, through inventory and customer vehicle recall review. This will also help dealers limit liability and create better customer relationships.