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Fred Clements: Dealers question recall reimbursement

Published July 2, 2014
A blog by NBDA executive director Fred Clements.

Editor’s note: This blog post was written by Fred Clements, executive director of the National Bicycle Dealers Association. Clements’ previous blog posts can be read on bikedealerblog.wordpress.com.

Last week's recall of 125,000 bicycles for defective forks was bad news for everyone involved. But the solution has been energetic and purposeful, as bike shops nationwide leap into action to notify the public, fix the recalled bikes, and file the paperwork.

All this is necessary and even heroic, but many shop owners are expressing dismay at what they say is inadequate reimbursement being offered by the manufacturers for this huge and important effort.

One manufacturer has offered to reimburse dealers either $5 or $15 per repair, depending on the fork model ($5 for replacing skewer with washers, and $15 for fork or fork leg replacement). Many dealers are saying their hard costs are much higher than that, and that the recall is a significant financial burden as they venture forth to solve a problem they did not cause.

The overall financial impact on an individual dealer goes way beyond the time a recalled bike spends in the workstand, they point out. One Texas dealer estimated it takes about 45 minutes of dedicated shop time to process and repair a recalled bike needing the simpler "washer/skewer" repair, and maybe 70 minutes for fork or fork leg replacement.

Even if the time estimate is a little high or a little low, the fact remains that each recall repair includes a huge amount of administrative work of informing bike owners of the recall, receiving and stocking the repair parts, locating and copying the original sales receipt with serial number, logging into the manufacturer's back-end web site, uploading the sales receipt with serial number, checking the bike in and out during a busy time, completing the warranty claim, and completing the repair. This work could take more time or less time depending on the manufacturer filing requirements and the sophistication of dealer computer systems.

For a washer/skewer repair, if the store receives $5, and if the above time estimate is accurate or nearly so, this calculates to an alarming hourly rate of $3.75 (45 minutes of work for $5). For a fork or fork leg replacement, the store receives $15, an hourly rate of about $13.65 (calculated for 70 estimated minutes of work). In an era where retail shop labor rates often exceed $60 per hour, and many stores struggle to make a profit at that rate given the costs of a running a modern service department, the reimbursement would seem to be far below the break-even point.

One California dealer commented, "I think the $15 credit for dealing with the fork recall is near-criminal and we can make a case for something more substantial. I'll bet we can demonstrate that, even in the most-favorable environments, a mechanic needs to clear $50/hour to break even."

A dealer in the South noted that this continues a sad industry history of recalls hitting bicycle dealers where it hurts, as they are forced to work for pennies to resolve product design or manufacturing problems they did not create.

One of the more moderate dealers commented simply, "They are shifting too much of the burden to us," he noted, "and I think we should talk about fairness here."

So what's the impact to the dealer network of the involved brands based on the numbers?

Some math: We know there are 125,000 bicycles recalled. We can estimate that about 2,000 dealers sold those bicycles during the recall period, and carry bikes from the two brands involved. That means each store, on average, will be asked to repair an average of 62.5 bicycles. They will earn $312 in reimbursement for doing so (QR/washer repair only). Fork or leg replacement will take more time, and bring in a little more money, but still not cover the dealer's legitimate costs.

What would be fairer compensation? Dealers on the NBDA online forum offered many different ways of looking at it, including the need to include legitimate shop overhead costs. After all, no repair can be completed without lights, tools, staff, rent, and other costs that allow a dealer to exist.

So if $5 and $15 aren't enough, what is? If the 45-minute repair is billed at a minimum $14 per hour ($12/hr. salary plus payroll taxes), the hard cost is $10.50, not counting the legitimate share of overhead. If the longer repair requires the same 45 minutes for paperwork, and 30 minutes of repair time at a $60 per hour labor rate, that total would be $40.50, again not counting overhead.

The good news is that the cycling public has access to timely and necessary repairs from professional network of brick-and-mortar stores near them (take THAT, Amazon). The bad news is that their rescuers won't be adequately compensated for their time and effort. In the auto industry, warranty work is said to be a profit center for dealers because of fair reimbursement from manufacturers. In the bike industry, it apparently doesn't work that way.

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