How Flat Rate works and why I don’t believe it’s good for the Subaru owner or any car owner for that matter.
In today’s auto repair industry there is a pay system that has been around since the dealers broke the Auto Mechanics Union in the late 1970’s. It’s called the “Flat Rate pay system”. Pay used to be based on hourly wages back in the day of the union shop. Once the union was broken major changes ensued. The auto dealers were free to come up with numerous ways of boosting their profits which included coming up with a new, more profitable pay structure for their technicians called “Flat Rate” pay.
Based on the immediate profit increase a dealer realized by changing to flat rate, word spread and most dealers switched to this new system. There were some hold outs and the independents took their time but eventually most followed. It incentivized technician productivity which meant more profit for the company. It rewarded those that could work fast and produce more work so long as the work was there. If the shop was slow, the dealer didn’t loose money paying for labor that was standing around. Also, a dealer no longer had to pay overtime with this system.
In the past, if a mechanic worked 8 hours he was paid for 8 hours of work no matter how much or how little he accomplished in a day. His individual pay per hour was based on his years of experience, ability, training, proficiency etc.
The new system now based a technicians pay on how many “flat rate” hours he could produce in a day.
A book of suggested repair times called a “flat rate guide” or “labor guide” is a book that has every conceivable repair listed and the time it should take an “average” mechanic to complete the job. Every single item on your Subaru has a repair time associated with it. There are numerous publications that provide these flat rate guides, and many shops have their own in-house flat rate guide.
Here’s an example of how it would work with a front brake job on a Subaru. The brake job has a suggested time of 2.2 flat rate hours. You (the customer) are charged 2.2 hours labor at the shop’s labor rate. When the technician completes the job he is paid 2.2 hours at his own labor rate. Here’s the kicker, he gets paid 2.2 hours whether it takes him only 1 hour to do the job or 3 hours to do the job. As you can imagine, there is now incentive for him to get the job done as fast as possible so they can move on to their next job. If he did 8 Subaru brake jobs in a day here’s how it breaks down:
8 brake jobs x 2.2 hours = 17.6 hrs.
That’s right, the technician gets paid for 17.6 hours times his individual pay (which can range from $15-30 per hour or more). I’ve worked with technicians that could bill 15-20 hours or more in a single day.
On the flip side, if there is a difficult job that takes longer than the flat rate book suggests, the technician is still only paid the flat rate amount.
Example: A water pump replacement on a Subaru pays 4 hours. Let’s say the technician had trouble with some rusty bolts, trouble burping the cooling system etc. The job actually took him 6 hours to do. Guess who looses? You’re right, not the dealer. The dealer will only have to pay the technician 4 hours to do that job. Another thing to keep in mind is that with this system the dealer ONLY pays the technician flat rate pay if he produces work. If it’s a slow work day the technician stands around waiting for a job, it doesn’t cost the dealer any labor time until he’s given a car to work on.
Now… here’s how I believe flat rate can have a negative effect on repair quality and morale in a company. Quality: In an effort to produce more work in less time, technicians create “short cuts” which may save time but sacrifice quality. Some of the short cuts are truly acceptable innovative ways of doing the job faster. Some unfortunately are leaving out items that would have benefited your Subaru in the long run just so they can get the job done quicker and move on to the next one. Morale: Instead of operating as a team that whose goal is to produce the best quality work, the technicians become individuals that are somewhat pitted against each other to see who can get the most work done. Quality technicians that take their time to make sure the job is done right to the best of their ability are often out-earned by “Flat Raters” or technicians whose main goal is quantity, not quality. This creates resentment. I’ve seen top producing “Flat Raters” get a light hand slap in a from a service manager in a situation that would have been termination for another employee.
After all this rambling I still believe that there are plenty of technicians that are flat rate but still have the pride and integrity to do the job right no matter what carrot is dangled in front of them. I tip my hat to them. On the other hand, I’ve seen firsthand what greed can do to an otherwise honest person when they are faced with the same situation.
As for Smart Service, we’re not flat rate. We could be but we would rather have the peace of mind knowing that our staff makes their decisions based on what’s best for you and your Subaru, not how many billable hours of labor they can produce in a day. It also allows us to be unified with one goal, to provide you the customer with the best Subaru care, and customer service while we provide the best possible working environment for our team.
p.s. another subject… most dealerships pay their service advisors based on commission. Ours are salary!
MikeJanuary 7, 2010
I agree with your comments on flat rate. When I took my Subie in to the local dealer (you are too far away unfortunately!) they changed the valve cover gaskets. None of the valve covers were cleaned while they were off! A quality tech would have cleaned the removed cover in a parts washer before reinstalling it. That would eat into this Flat Rate pay I guess.
I wish there was a quality independent Subaru service center in my area. I have to do my own work to get quality.
Thanks for a Great Blog and info.
Mike in N KY
Jason in FLJanuary 7, 2010
I disagree with your analysis of flat rate vs hourly. What I do know is that we have both hourly and flatrate techs at our dealership. It is the choice of the technician. I have class A technicians on both hourly and flat rate.
What I have found at year end is that all of the flat rate tech have nearly double the income as the hourly techs. I had four tech earn over 100,000 for the year. That is good money in this area considering there are very few constrution or manufacting jobs in the area.
I agree that it is more job quality is more important than job speed. Quality is what builds reputations. And if our dealership doesn’t do the job right the first time we will be fixing it again for free. If one tech did poor quailty work he would be written up. If it occured serveral times he would be terminated. Weather he was flat rate or not. The flat rate tech doesn’t want to fix the same vehicle a second time for free. So it is in his best interest to do the job correctly the first time.
As for cleaning off the valve covers, that is just a matter of expecations from the service manager. If QC knows that they are expected to look clean, it would have been done before it left the shop. I blame that on the service manager for not communucating the proper expectations.
Mike CorbinJanuary 7, 2010
Thanks for the response. I guess we’ll agree to disagree.
HiJanuary 7, 2010
I worked at a dealership and completely agree. Techs are often left exhausted at the end of the day, OR they don’t bring home the money, OR they sit there all day doing nothing. It’s a very draining way to work, whether you make more than hourly or not… it takes it toll unequally. You are either BUSTING your ass or waiting around hoping that you can pay your bills…. especially how the auto industry has been the past few years. If the system is set up for jobs that don’t pay enough for thorough work…. that is where it hurts the most, especially when the techs get yelled at for shipping the car out even after they spent more time on it then they got paid for.
Mike CorbinJanuary 7, 2010
I agree wholheartedly. Point well made.
Mike CarrollJanuary 7, 2010
Hi Mike I totally agree with what you have to say with regards to flat rate vs. hourly. I have now been in the industry for over 14 years now and have been on both sides of the fence. Sadly, I have seen too many shortcuts from flatraters that have caused damage and been actually threatened myself from bosses to be fired for not being efficient enough. Currently I work for a great employer that strongly believes in quality and my co-workers and myself are paid hourly. Thank you for being the honest person that you are and for the training you gave me.
Mike CorbinJanuary 7, 2010
Great to hear from you. I’m glad to hear you’re doing well.
Keep in touch,
Independent Subaru Expert
DONALD j. Wambach SENIOR MASTER TECH,SUBARU, TOYOTA, JAGUAR,January 7, 2010
FLAT RATE TECHS: NO ONE HAS MENTIONED THE FACT THAT THIRTY YEARS AGO LABOR RATE FOR REPAIRING AN AUTO WAS AROUND 35.00 AND HOUR. MECHANICS GOT 50% OF THE LABOR CHARGED TO THE CUSTOMER IN THOSE THIRTY YEARS LABOR RATE HAS INCREASED TO 85-OVER A 100 DOLLARS AN HOUR . MEANWHILE OUR PAY THE MECHANIC WAS REDUCED TO 45% THEN 33% NOW IT HOVERS AROUND 21.76 % PER FLAT RATE HOUR. THAT COMES OUT TO BEING PAID 1980 WAGES, FLAT RATE OR NOT. NO ONE HAS DECREASED THE COST OF LIVING OR THE TOOLS WE NEED TO BUY AND MAINTAIN. OVER 50,000 WORTH.SO WE HAVE BEEN REDUCED BUSTING OUR BUTS, FOR THE DEALERSHIP, AT 1980 WAGES, YEA FLAT RATE DOES”NT DO ANY ONE ANY GOOD EXCEPT THE OWNERS OF THE SHOP. IT IS A SHAME THAT TECHS TODAY CANNOT GET PAID A JUSTIFIABLE FINANCIAL REWARD FOR A JOB WELL DONE. YOU WILL NEVER GET A TECH TO SLOW DOWN AND TAKE HIS TIME ON ANY JOB AS LONG AS HE IS FLAT RATE AT 1980 WAGES. DUH
Mike CorbinJanuary 7, 2010
Well said Donald.
That is one of the deciding factors of why I went into business for myself. The spread of what is billed to a customer vs what is paid to the mechanic was obviously becoming worse for the technician as the years went by and the dealers tried to keep more for themselves.
It was always funny when they would raise the labor rate by $2 or $3 per hour because their other operational expenses were increasing but they would not pass any along to their technicians. They always could put a spin on it that justified why they did it. I was at a dealer that went up over $12 per hour to the customer over a 2 year span but the pay to the technicians was never increased. The whole group of technicians decided one morning to just sit on their tool boxes and not work at all until they were given something. Needless to say, when management got wind of this they made a last minute move that bumped everyone by a buck or two per FR hour. Too bad it had to come to that but it was great to see what could happen when a group of guys that weren’t union decided enough was enough.
nickJanuary 7, 2010
You forgot to mention that if there are come backs the tech does not get paid to fix the problem. Thats why a good tech fixes the problem or tries to do it right the first time.
Mike CorbinJanuary 7, 2010
Good point Nick. I’m not sure what state you are in but in the state of Washington an dealer(or independent) is required to pay a technician for his labor on a comeback at minimum wage instead of at their current hourly rate. They also cannot make the technician pay for the part. I do agree though that a quality technician will fix it right the first time no matter how he is paid. I have just seen so many “Flat Raters” over the years that would fly through their work cutting so many corners that they made so many hours and even with a higher than normal comeback ratio they still out earned the quality techs. Just the nature of the system I guess.
profitable forex eaJanuary 7, 2010
Thanks for this!