AUTOMOTIVE STATUTORY WARRANTY COMPENSATION
A Brief Overview…
As a franchised dealer, you should be familiar with statutory automotive retail warranty parts and labor increases. If not, you need to be. To be clear, a dealer should not confuse warranty parts and labor increases with the submission of warranty claims. They are two different creatures with vastly different processes. In today’s challenging financial times, every penny counts. A dealer who does not make annual statutory submissions, will not receive optimal reimbursement from a manufacturer for all warranty parts and labor work performed in his or her service department. In short, the penny stays in the manufacturer’s pocket and never finds its way into yours. Every dealership is entitled to receive fair and reasonable compensation. Why not yours?
A Look Back…
What is reasonable compensation you may ask? Granted, manufacturers and dealers have differing views on what reasonable compensation is. Historically, manufacturers determined what reasonable compensation was for warranty work performed by dealers and dealers had no recourse to challenge this determination by the factory. Typically, these increases were miniscule and inadequate, ranging from 2 to 3 percent per year and varied greatly between manufacturers. Such minor increases did not account for a dealer’s geographic location and the cost of doing business within its market area. As a result, dealers were finding out that the small annual increases were not adequately compensating them for warranty parts and labor work performed. In short, a dealer’s retail market rate was not in reasonable proportion to its warranty rate. Dealers were losing money on warranty work, and it needed to stop.
Where We Are Today…
Over time and working together, state automobile associations, dealerships and legislators drafted and enacted state by state legislation to address fair and reasonable warranty parts and labor compensation. Today, there are 48 states that have enacted legislation to protect a dealer’s entitlement to reasonable compensation for warranty parts and labor services. Most of this legislation establishes a clear methodology, calculation, and process for both the dealer and the factory to adhere to in order to determine fair and reasonable warranty compensation.
Typically, this process consists of reviewing hundreds (and sometimes thousands) of customer paid repair orders from within 180 days from the date of submission to extract 100 qualified repair orders from non-qualified repair orders in order to be utilized in the calculation of a parts markup or labor rate. (Some states may also provide an alternate option allowing a dealer to submit under a ninety-day period.) A qualified repair is any repair that a retail customer would pay for that would be paid by the manufacturer if under warranty (i.e., a radiator). Non-qualified repairs are those that would not be covered under a factory warranty such as oil change or damage caused by road hazards. Once the qualified repair orders have been ascertained, the line items are calculated in accordance with each statute’s method and reduced to a spreadsheet for submission to the factory for review and response. A manufacturer can approve or deny a dealer’s submission. If a manufacturer issues a denial of the submitted for markup or rate, a dealer can file a legal rebuttal with the manufacturer in accordance with the statutory procedures.
If a dealer and a manufacturer cannot agree on what is fair and reasonable compensation, the statutes provide guidance for dispute resolution ranging from mediation, an administrative hearing within a state’s department of motor vehicles or filing a civil action against the manufacturer. These remedies differ vastly from state to state.
How Can Your Dealership Be Reasonably Compensated For Warranty Work Performed?
The byproduct of enacting this highly beneficial form of legislation has resulted in a highly technical, almost surgical submission process. Strict adherence by the dealer when preparing a parts or labor submission is absolutely necessary or a dealer’s submission can be rightfully rejected by a manufacturer. It is no defense that an error was a mere ‘technicality’ or ask for a ‘do over’. In some states, a dealer may have to wait an entire year to resubmit and try again. Failure is not an option with the amount of money at stake for a dealership. A successful submission can result in an increased profit for the dealer in excess of thousands (if not hundreds of thousands) of dollars in newfound, annual revenue. As a result of this high-stake process, a statutory submission is not a task that should be handled in house by a dealer or non-lawyer. The hands on, line by line, review process of thousands of repair orders created over a 180-day period can tie up dealership employees, result in fatal mistakes due to unfamiliar nuances within the statutory and factory processes and overall frustrate a dealer’s attempt at filing a proper submission.
Make The Call…
As you can see, the statutory submission process is more akin to a legal process rather than following rules set out by the manufacturer. As a result, you should employ legal counsel that is familiar with this highly technical statutory submission process. Legal counsel that understands the nuances of your state statute, the internal and technical submission procedures for each manufacturer (especially during COVID-19) and who maintains positive working relationships with both manufacturers and manufacturer counsel on a daily basis. Our analysts are highly trained fixed-operative consultants who have extensive automotive industry experience and are familiar with repair orders, factory warranties and the statutory submission process. The legal team is skilled with statutory and legislative analysis, submission preparation, review and subsequent negotiation of retail warranty rates and markups. In the event that a dealer wishes to file a legal action to protest a denied markup or rate, we understand each form of dispute resolution and ultimately work to a successful settlement in the client’s favor.
Request a free consultation and a quick review of your current repair orders in order to provide an estimate as to any retail warranty parts and labor increase your dealership may be eligible to receive under your state’s law. Our services are flat fee based, per submission. We do not take a percentage of any increase that is rewarded. Give us a call today. Go after those pennies and turn them into banked dollars.
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