I hope you enjoy the interview with WarrCloud Founder & CEO Jim Roche. It’s a true pleasure having the opportunity to work with talented entrepreneurs like Jim.
ABOUT WARRCLOUD
WarrCloud was one of Automotive Ventures' earliest investments.
WarrCloud is the automotive industry’s first automated warranty processing platform, offering a proprietary SaaS Solution that reduces costs & improves efficiencies for automotive OEM warranty claims processing.
WarrCloud provides turn-key warranty administration services to auto dealerships powered by technology that connects their otherwise fragmented systems, centralizes and socializes critical warranty tribal knowledge, and automates a growing majority of claims.
WarrCloud offers a complete outsourced solution that is proven to:
• Reduce costs by more than 50%
• Provide a scalable solution
• Increase warranty revenue by 8%
• Improve cash flow: Claims are processed within 24 hours
This month, I take the opportunity to sit down with Jim Roche, the founder of WarrCloud. Jim and I had a chance to work together more than 10 years ago back at Cox Automotive, and Automotive Ventures had an opportunity to be Jim's first institutional investor at WarrCloud.
INTERVIEW WITH JIM ROCHE
Steve: Jim, thanks for joining us this month. It’s great catching up. First off, what’s your perspective on the current state of the industry?
Jim: It’s great to be here, Steve.
The retail automotive industry is experiencing tremendous upheaval across all profit centers, which has created unprecedented pressure on dealer management to sustain profitability levels going forward. In the next 3 years, OEM warranty will become an increasingly important factor in dealership operations.
Steve: How do you think this is going to play out?
Jim: Consider the following trends and expected impacts.
NEW VEHICLES
As inventory availability continues to rise it will drive increased sales volume which reintroduces margin compression. Cox Automotive recently reported that YoY vehicle sales were up 15%, with new vehicle inventory levels up 75% over the same time last year. A slowdown is expected in the second half of the year as “pent-up demand has likely now been fulfilled.”
USED VEHICLES
Per Cox Automotive on 8/7/2023, used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) decreased 1.6% in July from June. The Manheim Used Vehicle Value Index (MUVVI) declined to 211.7, down 11.6% from a year ago.
F&I (FINANCE & INSURANCE)
Interest rates have increased substantially in the last 12 months, which has driven up consumer monthly payments, which has a dampening effect on F&I sales.
SERVICE
Fixed operations have historically been the dealership’s largest profit driver, accounting for over 50% of overall dealership profits. However, with approximately 150 new EV models coming to market in the next 3 years, and with EVs forecast to require 35%–50% less “Customer Pay” service due to fewer moving parts, fixed operations is confronting a significant challenge to its revenue and profit contributions.
Steve: Thanks for sharing this perspective, Jim. How do you think these changes are going to affect OEM warranty work?
Jim: Warranty work is forecasted to increase over 20% in the next 3 years, based on 2factors: millions more new vehicle sales will place millions more warranty-covered vehicles on the roads, plus recent analysis shows that initial12-month warranty costs for EVs run 300% higher than their internal combustion engine (ICE) counterparts.
The take-away is that the dealer’s largest profit center now has a built-in growth engine, driven by OEM warranty. This is a silver lining in the otherwise murky future profit scenarios.
Steve: We have several dealers who are subscribers to the Intel Report. What can they do to benefit from these changes?
Jim: Profit pressure in the dealer’s business will drive dealership managers to seek profit optimization across all profit centers. Low-hanging fruit can usually be found in previously unexamined areas. Such is the case with OEM warranty.
Typically considered an “auto-pilot” part of the service business, OEM warranty and related claims processing activities have not been optimized for decades.Today, warranty claims processing is one of the few areas of dealership operations untouched by technology-driven automation. Largely manual look-up and data-entry processes still drive claims processing, and these inefficient methods consume on average 12% of the gross profits from warranty revenue. This is a huge expense driven by inefficiency. Add to that the expectation that employee compensation levels are expected to continue to increase and the opportunity comes into focus.
Steve: For a dealer focused on reducing expenses and increasing cashflow, how should they be looking at warranty claims processing?
Jim: Automating and outsourcing warranty claims processing can reduce the associated expenses by more than 50%, while also driving a host of other benefits, including additional warranty revenue generated by claiming every legitimate expense allowed under the OEM warranty P&P, filing claims within 24 hours to improve cash flow, and improving the OEM metrics associated with warranty claims processing, such as time to submit and first-time success rate.
Steve: Are you comfortable sharing how much progress you’ve made with the business?
Jim: The results so far are very encouraging: last month WarrCloud sold its 400th dealer customer and our ARR will pass $10 million. Perhaps more importantly, our dealers saw a 12.4% increase in warranty revenue in 2022 while simultaneously reducing their warranty processing costs by 60%, so we are proving to be a very serious value proposition and game changer for automotive dealers.
Steve: What should dealers be prioritizing right now?
Jim: Our story is a great reminder to dealers to challenge the status quo and re-examine existing operations in search of new revenue and profit opportunities. There are new companies emerging every day that optimize even mundane areas of dealership operations. The future is on top of us and investing in new technologies to create and maintain your competitive edge is essential.
Steve: As you reflect back on your entrepreneurial journey, are there any “aha” moments that have really struck you?
Jim: In my first book I wrote that I’ve visited probably 2,000 dealerships over the years. And if you open enough doors, eventually you find some little closet with stacks of paper going up to the ceiling. Well, that's the warranty administrator's office. And it was an astute service leader friend who said tome, “You know, dummy, that's not a stack of paper. That's a stack of uncashed checks.” And I kind of went, “Ah!” Because as an entrepreneur, the catalyst for me has always been just to find a problem that needs to be solved and see if we can apply technology to it.
Steve: For those entrepreneurs reading this month’s report, can you share an interesting experience from a recent fund raise?
Jim: Sure. I was talking to a gentleman who was very successful, very sophisticated, and really understands the automotive space. We had gone through a couple of discussions about WarrCloud, and he said, “You know, I get it. You know what you do? Plumbing.”
And I said, “Well, thanks. That's not the sexy description that we're looking for.But to some degree, yeah, warranty claims processing is plumbing.”
And he said, “No, no, no, don’t take it the wrong way. If you're the only plumber in the country, you can make a lot of money.” And he wound up investing with us.
There was a lesson in that for me, you know, it's not always the sexiest story that gets it. At the end of the day, people want their problems solved and there is always opportunity in that.
Steve: You had a choice when you raised money, and we’re honored that you chose Automotive Ventures. Why did you choose us?
Jim: Primarily because you come from the industry. You have a very detailed knowledge of all aspects of the automotive ecosystem. That resonates strongly with me and that also is very helpful to me as an entrepreneur because you need to find ways to help and move up the ladder fast, and in every way that you can.
My experience with Automotive Ventures has been excellent.You guys are smart, you're helpful, and you're always available.
The first company I was involved with was VC-backed and was very successful. That investor said, “You know, you will find that when times are good, we're a good partner. And when times are hard, we're a great partner.” And I've never forgotten that. And that's always what I look for.
Times haven't been that hard for WarrCloud, knock on wood, but I know that Automotive Ventures is the kind of organization that is always there.
Steve: Well, thanks, Jim. And the feeling is absolutely mutual. We really appreciate you and the team and we’re very excited to be on this journey alongside you. We greatly appreciate everything that you're doing with WarrCloud for the dealers out there. So, thank you for your time. You're very generous and I look forward to our next conversation together.
Jim: Steve, thank you. It was great to spend some time. This was a lot of fun and I look forward to seeing you at the next WarrCloud board meeting.
WRAPPING UP
WarrCloud was one of the first investments in Automotive Ventures’ Mobility Fund I and has proven to also be one of our best performers.
To find out more about the company you can visit their website at www.WarrCloud.com.
