Warranty Reimbursement at Retail Developments & Trends
By: Jason T. Allen
Warranty reimbursement at retail has been a topic of legislative action and litigation for many years. By now, the vast majority of dealers are aware of their right to be reimbursed at retail for labor and/or parts used in warranty repairs, and manufacturers have generally accepted that most state laws require retail reimbursement for those items. So, instead of fighting with dealers (or dealer associations) in court over whether the laws are valid, many manufacturers have implemented policies that are used to thwart a dealer’s right to obtain full retail reimbursement. Developments and trends in this area are discussed below.
First, some manufacturers have implemented policies for submission of retail reimbursement requests that are then used as a basis to deny or reduce a dealer’s requested retail rate. Examples of such policies include:
- The method of submission (electronic or hard copy);
- The contents of the submission (such as the format of repair orders and inclusion of corresponding spreadsheets from the DMS system);
- The types of work that are considered routine maintenance; and
- The calculation of a “reasonable” market rate.
It is certainly fair to establish a streamlined way to process a submission, or to have certain ground rules for how each manufacturer treats certain work that is not specifically defined in the state statute (such as routine maintenance). However, manufacturers cannot implement a policy to circumvent the state statute and reduce (or deny) otherwise valid retail rate requests. Unfortunately, this commonly occurs.
This is most commonly seen in two situations. The first is when a manufacturer uses its policy to adjust a dealer’s calculated rate downward based on a “market rate” comparison. The go-to tactic here is to compare a dealer’s retail rate to the warranty reimbursement rates of other dealers and then claim the retail rate is “unreasonable” compared to the market. This is often done in the face of a state statute that requires comparison to the “retail rate” of other dealers, and to no surprise, reduces the reimbursement rate.
The second scenario is when a manufacturer uses its policy to reclassify work that should be excluded from the calculation into a job that must be included in the calculation. This is done so that a dealer is forced to include low paying (non-warranty like) work in the calculation, which drives the rate down. In this scenario, we have even seen a manufacturer claim that certain work should be included in a rate calculation when their own warranty materials explicitly state that such work is not covered under warranty.
Finally, some manufacturers have also carved out the types of work that they will pay at retail. The most common examples of this include recall, goodwill and factory extended warranty work. In each of those scenarios, the dealer is required to perform the work (that is identical to warranty work) but is not being reimbursed at its full retail rate.
Manufacturer policies that are unilaterally imposed and used to reduce (or deny) a rate request can be unlawful. Dealers are encouraged to continue to utilize their statutory right to retail reimbursement, but also to be wary of unilateral manufacturer attempts to lower retail rates. Dealers that have experienced such tactics are encouraged to contact experienced franchise counsel to determine their rights to enforce the law, and in particular, obtain their full retail rate.