Most state statutes contain a requirement that the manufacturer must reimburse the dealer for warranty parts and labor at the dealer’s retail rate. Manufacturers have largely complied with those requirements for the last several years. However, recently Ford and GM have taken different paths to try to upend the dealer’s receipt of retail reimbursement. GM’s plan of attack is to try to lower the dealer’s rate after the fact, while Ford has recently refused to acknowledge rate requests altogether. Regardless of the timing (whether prior to or after the request), these tactics appear to violate state franchise laws, and some are currently under challenge.
GM’s plan of attack has been to send a notice of retail rate audit to a dealer that has recently requested and received retail reimbursement for warranty parts and/or labor under state law. GM’s demand letter states that the dealer must provide a number of repair orders by a date certain in order to validate the dealer’s retail rate. The problem with GM’s request is two-fold. First, the dealer’s rate has already been verified by the mechanism specified in the state law, and accepted by GM, or else the dealer’s retail rate would not be in place. Second, in many state statutes, there is no provision allowing the manufacturer to come in after the fact and try to re-set the rate after the dealer has followed the initial process set out in statute. GM’s request is a blatant attempt to lower the dealer’s lawfully set rate after the fact, and in many states is not permitted by law.
Ford’s plan of attack is to ignore, or outright deny, submissions (labor in particular) at the front end. Ford has recently ignored or denied numerous labor rate submissions under state law. Ford’s claim is that the dealer’s request is “unreasonable” compared to other dealers nearby. However, in supporting its position, Ford compares the dealer’s retail rate to other dealers’ warranty reimbursement rate, which is set by Ford. Ford is comparing apples to oranges in an effort to justify the denial of a retail rate request.
State franchise laws provide protections to dealers that have made requests, and received retail reimbursement pursuant to their request. In particular, many states provide the dealer the right to protest a denial, and then the manufacturer has the burden to prove why its actions are permitted. Dealers are encouraged to contact experienced franchise counsel in the event they are experiencing factory pushback with a warranty submission.