Up Your Business is an exclusive GEARS Magazine feature in which I share stories, insights, and reflections about real business and life challenges.
In over 20 years as an arbitrator and mediator, I’ve observed that most customer disputes are over unmet expectations or misunderstandings. The BBB reports that warranty disputes significantly outnumber almost all other categories.
You often hear people refer to living by the “Golden Rule.” It’s a personal statement of moral commitment to honoring others without expectation of reciprocity. It appears in a variety of formats and wordings in nearly every major religion and culture 
throughout the world, with origins that date back before the advent of the written word.
That simple principle has served as the foundation for ATRA’s ethical standards of conduct since 1954. It’s no coincidence that the founders of ATRA named our nationwide warranty the “Golden Rule Warranty.”
In this article, I’m going to discuss some little-known facts about warranties and the regulations that govern them. Many times, shops face warranty disputes that challenge their ethics and sound business practices. They’re often blindsided by adverse court or arbitration rulings involving “out-of-warranty” repair work. But you can protect your shop and your customers, and I’ll show you some ways to do that.
For a more detailed backdrop to this discussion, consider referring to these previous GEARS articles: When Do You End a Warranty? (December 2016), and Sorry… It’s Out of Warranty (August 2012).
The ATRA Golden Rule Warranty
One of the primary driving forces behind the creation of ATRA was to compete with the national chains with a nationwide warranty program. The Golden Rule Warranty Program is the result.
As our competitive environment has changed over the years, so has the Golden Rule Warranty program. ATRA has responded with Golden Rule warranties of 1, 2, and 3 years for up to 50,000 miles.
The Problem with Time and Mileage Limits
Here’s a little-known fact about warranty time and mileage limits: If challenged in a competent court of jurisdiction, the limits aren’t necessarily enforceable.
Have you ever wondered why written warranties, including the Golden Rule Warranty, include the following disclaimer?
All implied warranties are limited to terms of this written warranty. Consequential and incidental damages are not covered by this warranty. Some states or provinces do not allow limitations on the length of an implied warranty, or the exclusions or limitation of incidental or consequential damages; therefore, the above exclusions or limitations may not apply to you. This warranty gives you specific legal rights, which can vary from state to state or province to province.
Legally speaking, a transmission warranty document is an expressed warranty. It expresses a beginning and an end in terms of time or mileage. But, under the law, an implied warranty means the lifespan of a warranty can be whatever a judge or arbitrator deems reasonable.
So, when a customer thinks a failed product or service should have lasted longer than stated in the written warranty, and they take the dispute to court. The judge or arbitrator will usually apply a body of law called the Uniform Commercial Code (UCC). The UCC contains provisions that deal with what’s called an “implied warranty of merchantability.”
This implied/unwritten consumer protection provides that products and services are free of substantial defects and will function properly for a reasonable period of time: the reasonable service life expectancy. What’s “reasonable” largely depends on the type of product, the amount you paid, and, ultimately, what the judge or arbitrator thinks.
Depending on the judge or arbitrator, major repairs and major component replacements or rebuilds (transmissions, engines, differentials, and transfer cases, for example) typically fall into this category.
What about the implied warranty disclaimer that’s stated on the warranty? The answer is a bit complicated but bear with me. Most states allow a company to disclaim the implied warranty by simply stating that there’s no implied warranty, as you see on the Golden Rule Warranty.
But, the federal Magnuson-Moss Warranty Act of 1975 prohibits companies from disclaiming implied warranties during the time that their written warranty or any service contract is in effect. Plus, there are eleven states and the District of Columbia that specifically prohibit disclaiming the implied warranty. So the question is whether the judge chooses to apply federal or state regulations.
One more complication stems from the things you say in your marketing and advertising as well as verbally in your sales pitch. The claims you make can, at minimum, expand the effect of any implied warranty, and may even expand your written warranty beyond its respective limits.
For instance, if you make a statement like, “We rebuild our transmissions with heavy duty parts and components so they’ll last longer than the original transmission that came in the vehicle,” you’ve just opened the door to an implied warranty.
Or, if you state that your units are built to last longer than your written warranty, you might just as well have given them a longer warranty. This vague statement begs the question, “What does long after the written warranty expires mean?”
What You Can Do About It
Start with the attitude that most regulations regarding warranties are protective regulations. That means they’re intended and designed to protect the consumer. This stems from the fact that, while not typically true of our industry, many businesses try to use warranties to limit or even abrogate their responsibility and liability or make it difficult for customers to use their warranties.
With rare exception, transmission shops stand behind their work long after the written warranty has expired. They might not cover 100% of the cost for expired warranty repairs, but they’ll work out a reasonable solution as long as the customer is also reasonable.
In essence, as an industry, we’ve become our own arbitrators and, without knowing it, we’ve honored implied warranties as a normal cost of doing business, in the name of keeping customers happy. If you’re a successful shop owner in today’s world, you’ve applied the principle of fair and reasonable to maintain your good reputation and grow your business.
With that said, how would you like to protect your business from occasional unreasonable customers without damaging your relationship with your good reasonable customers? You can do it and actually add even more value to your already valuable transmission rebuilds. Whether you charge more is up to you, but many shops I’ve coached on this idea do.
Don’t Put Time and Mileage Limits on Warranties
No, I’m not kidding or crazy. Well maybe crazy, but if you hang in here with me and think it through, I think you’ll be on board with the idea.
First, let’s consider some basic truths about what happens if a customer has an expired warranty.
- The customer doesn’t contact you because he thinks his warranty is expired and you won’t cover the problem. He expects an argument and doesn’t want deal with it.
- The customer takes it to a competitor. Nothing good comes from one of your customers going to a competitor with one of your failed units.
- Even if the competitor doesn’t throw you under the bus, the customer isn’t happy with you. You’ve lost his future business as well as that of his friends and relatives.
- You lost control of the opportunity to retain the customer. He didn’t know that you value him and would have wanted to resolve the problem and keep him happy. And since he didn’t come back, he’ll never know that.
- The customer comes in knowing or not knowing the warranty has expired. After you explain that it’s expired and offer a reasonable compromise, he becomes irate and unreasonable. Other than treating the job as a 100% covered repair and renewing his warranty, there’s nothing you can do to satisfy him, let alone make him happy. At least you have a choice… what you do is up to you.
- Since the warranty has expired, technically he no longer has to abide by the provision that he must contact you before having another shop perform repairs. If any contract expires, the parties are no longer bound. But nothing stops him from pursuing you for the bill after he gets the work done elsewhere. And, if a dispute ends up in court, you still face the unpredictable implied warranty situation.
How You Can Do It
Give them a fair and reasonable warranty that continues after the basic warranty expires. Because you can’t modify a Golden Rule Warranty, you’ll need to create a supplement that doesn’t expire. It’s valid as long as the customer owns the vehicle and abides by the preventive maintenance provisions set forth in the supplement.
For the sake of this article, we’ll call it the Golden Rule Warranty Plus Program. ATRA has a written 3-year/50,000-mile Golden Rule Warranty Agreement available. The nice thing about it is that it clearly states what the customer must do to maintain the transmission properly.
While ATRA won’t allow you to extend the actual Golden Rule Warranty, you could simply extend the other terms and conditions of the agreement indefinitely.
Make it clear that the extensions will only be honored at your shop, and only if the customer gets the required maintenance services performed at your shop on a timely basis. By doing this, you might catch problems while they’re still minor and prevent a major warranty repair. In addition, the customer would pay for the services as a normal cost of maintenance.
If you want to mitigate your financial exposure, add a provision that sets forth a schedule of shared expense for covered repairs, in which the customer pays a specific percentage. This is more or less like a deductible on health insurance. The customer’s share could increase every year or so many miles, up to a fixed amount that’s still a great deal for him. Keep it reasonable, so he’ll have no reason to go anywhere but back to your shop.
We used to do this with a little different twist. After the basic Golden Rule Warranty expired, we offered a 12-month/18,000-mile warranty that was renewable every year for successive years, for as long and they owned the vehicle, provided they brought the vehicle in for a maintenance service.
There was deductible for repairs that increased on a schedule with each renewal, and we capped the deductible at a dollar amount of about 50% of the original rebuild price.
We enjoyed the ongoing relationship, fees for the maintenance services, and, since it was a repair deductible, we charged up to the deductible for minor repairs like leaks. When a major problem occurred, the customer’s deductible share was clearly stated.
In conclusion, however you choose to handle expired warranties, use a fair and reasonable approach, and you’ll likely keep your customers happy. Perhaps our founders had the right idea: live by the Golden Rule by treating others the same way you would like them to treat you.
About the Author
Thom Tschetter has served our industry for nearly four decades as a management and sales educator. He owned a chain of award-winning transmission centers in Washington State for over 25 years.
He calls on over 30 years of experience as a speaker, writer, business consultant, and certified arbitrator for topics for this feature column.
Thom is always eager to help you improve your business and your life. You can contact him by phone at (480) 773-3131 or e-mail to couchthom@gmail.com.
