Your own used-car warranty can boost goodwill with customers

Why not offer your own in-house warranty on used vehicles? That's what CPA Craig Nelson asks.

He points out that the cost and requirements for protecting used cars and trucks is not prohibitive and the dealer generates "greater customer confidence for standing behind the products being sold."

The in-house product allows dealers to use the term dealer-certified in advertising and on price signs posted on the units in their lots, adding credibility over warranty programs offered by outsiders and even manufacturers, he says.

Mr. Nelson, who is employed at Virchow, Krause & Co., Madison, WI, suggests that warranties be for at least three months or 3,000 miles, with the cost reflected in a higher price for the vehicle rather than listed separately on the invoice.

Other points spelled out by Mr. Nelson are as follows:

* Set up a reserve for future warranty sales and expense it to the cost of the warranty.

* Unless a small deductible is asked, assure customers that no added payments will be assessed for repairs.

* No sales tax due on the repair work since warranty income was recorded in the initial sale.

Under an in-house warranty, service departments are reimbursed by giving them credit for work performed and charging the warranty reserve.

The reserve account, says Mr. Nelson, should be reviewed quarterly or annually, based on the experience rate of the program.

Since future expenses on contingent liabilities can't be deducted for income tax purposes, Mr. Nelson says a tax-only adjustment must be made for the in-house warranty that reverses the annual charge in the amount of warranty reserve.

"The advantage of in-house warranties vs. those of outsider insurers or manufacturers programs are worth considering as a customer goodwill booster and for profits retention purposes," he declares.