A manufacturer may decide to change its product line or warranty services, and will need to terminate the dealer’s agreement. If this occurs, the manufacturer must give the dealer at least 30 days’ notice, otherwise the Warranty Reimbursement Rate will automatically expire. This can be an unavoidable situation for many manufacturers. To avoid this, the dealer should carefully review the warranty reimbursement policy to determine what the dealership’s rights are. However, there are other options for the dealer.
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Repair orders
The rate at which warranty manufacturers reimburse dealers for work done on their vehicles is determined by prevailing wage rates in the dealer’s area. Beginning January 1, 2022, the same effective labor rate applies to warranty repair orders as it does to customer-pay repairs. Warranty labor time includes diagnostic time spent on a vehicle with the manufacturer’s technical service hotline. While this time is not covered by the warranty, it is covered by other insurance policies.
To determine the correct rate, a new motor vehicle dealer must first determine the retail cost of warranty-like parts. To do so, the dealer must submit 100 sequential nonwarranty customer-paid service repair orders covering repairs made 180 days before the submission. After analyzing the repair orders, the dealer must calculate the average markup, which is typically the percentage of cost. In addition, the dealer must provide documentation supporting the calculation methodology used.
Markup
The opportunity to increase the gross profit margin on your warranty parts and labor is huge for dealers of all sizes. This is because, as a dealership, you are entitled to receive fair reimbursement for your warranty parts and labor. With proper submission, you can easily double your current Retail Warranty Reimbursement revenue. If you attack this process in a professional and timely manner, you could save thousands of dollars per year. Regardless of your size, dealers can double or even triple their current warranty reimbursement revenue.
Under existing law, most line make dealerships must agree to a UWRA with the manufacturer to receive a percentage of the warranty reimbursement rate. This is called the cost recovery surcharge. If the dealer does not agree to a UWRA, the manufacturer can impose an invoice price surcharge on new vehicles to recover the cost. This surcharge can be a significant source of profit for a dealership. By working with an experienced legal team, dealerships can enhance their bottom line by submitting comprehensive applications to the manufacturers.
GM’s reimbursement rate
A complaint filed by Beck, a New York auto mechanic, against GM’s policy on warranty reimbursement has resulted in an administrative ruling. Beck alleged that GM violated VTL SS 465, by including transmissions in the calculation, and therefore lowered the reimbursement rate. An administrative law judge ruled in November 2018 that GM’s reimbursement rate should be determined by adding the markup percentages of all qualifying repair orders and dividing them by 100.
Dealers can use a consultant to help them maximize their reimbursement rates. These consultants analyze repair orders from customers who pay for their own repairs to determine average retail rates. GM will likely appeal the ruling. Dealers should prepare for this outcome. The attorney general’s office is expected to rule on the matter in September or later this year. In the meantime, dealers should prepare to increase their reimbursement rates. A dealer’s warranty rate is a significant part of their bottom line.
GM’s policy
The Court considers the evidence presented by GM as to the potential cost of its policy on warranty reimbursement rate. It then responds to a dispute over the proper rate for warranty work. While GM may be required to reimburse its dealers at retail rates, it cannot impose different markups and rates on repair labor and parts. Therefore, a higher rate is necessary. In order to ensure that warranty payments go to the right repair shops, GM needs to reimburse its dealers at retail rates.
The standard warranty reimbursement rate that GM pays its dealers is 40 percent of the total cost of parts for warranty repairs. Pennsylvania dealers may elect to be reimbursed at a higher rate if they choose. Section 9(a)(2) of the Act addresses the procedure for establishing the dealer’s retail rate. Dealers may opt for the higher reimbursement rate if it reduces their repair costs. This policy encourages dealers to keep track of their costs and make necessary repairs.
Other manufacturers’ rates
In the early 1990s, dealers in New York were not permitted to receive more than 40 percent of the markup on warranty parts. In response, hundreds of dealers retained our firm to demand more reasonable rates. In the late 1990s, our firm successfully defended hundreds of dealers, obtaining seven-figure retroactive settlements. We also advocated for the passage of legislation in several states to make dealer reimbursement at retail mandatory.
Before seeking an adjustment in the reimbursement rate, dealers should understand how their current warranty reimbursement program works. Some are contractually bound to a certain reimbursement schedule, or even several years. Trying to change the rates may trigger adverse provisions in the dealership’s warranty agreement. Conversely, some dealerships may have the option of terminating their agreement with no penalty if they choose to do so. To protect yourself, you should do your homework before committing to any warranty agreement.
California dealer statute
Last year, Gov. Jerry Brown vetoed Assembly Bill 2107, a dealer protection bill that contained 10 provisions. The governor cited unspecified complications. On Saturday, however, Governor Gavin Newsom signed the bill. The law will affect 68 franchised dealers in California and affect warranty work, facility upgrades ordered by manufacturers, and compliance with the California Consumer Privacy Act. The California New Car Dealers Association lobbied hard for the new law, which restricts the use of factory-ordered facility upgrades for less than 10 years.
The California dealer statute and warranty reimbursement rate are a set of rules governing the relationship between suppliers and authorized dealers. The most common regulatory component is warranty reimbursement. Typically, these regulations mandate that suppliers reimburse authorized dealers for labor and parts used for warranty repair. Manufacturers must also pay the dealer a markup on parts purchased through a dealer, including “no cost” parts. Some states have also prohibited manufacturers from giving away free parts in exchange for warranty repairs. Some of these rules are expanding, requiring suppliers to pay for recall and “stop-sale” repairs. Moreover, some laws require suppliers to reimburse dealers for pre-delivery inspections.