United States: States Adopt Changes To Warranty Reimbursement Laws In First Half Of 2021

State legislatures were busy in the first half of 2021, with no fewer than six (and likely seven) states adopting changes to statutory obligations imposed on manufacturers with respect to reimbursing dealers for performing warranty repairs, irrespective of any prior contractual arrangement between the parties. These amendments address a variety of issues, including the way in which dealers can establish their retail charges and the time for which dealers can charge in connection with warranty repairs. The summaries below identify the most significant changes in law but are not intended to be a comprehensive description of all amendments.

Arkansas. Changes to the Arkansas dealer statute effective July 30, 2021 will require that OEMs compensate dealers for warranty repairs at a rate that is not less than the rates charged to nonwarranty customers, "provided the rate is reasonable." Ark. Code Ann. § 23-112-313(c)(3). In determining what is reasonable, "the principal factor to be considered is the labor rate per hour or parts rate that is charged by the motor vehicle dealer to the motor vehicle dealer's retail customers, exclusive of routine maintenance performed on a vehicle." Id., § 23-112-313(c)(2). Dealers must submit a written request if they seek compensation under the statute and compute the average parts markup and labor rate using 100 sequential customer pay repair orders, or all of the dealer's customer pay repair orders within a 90 days period, whichever is less, for services provided within the prior 180 day period, excluding certain routine repairs. Id., § 23-112-313(c)(4). If an OEM determines that a dealer's requested labor rate or parts markup is "substantially higher or lower than" the dealer's current warranty reimbursement rate, the OEM may request additional repair order documentation for the 45-day period prior to or following the period encompassed by the dealer's initial submission.

Illinois. A bill amending the Illinois dealer statute (815 ILCS 710/6) was sent to the governor for signature on June 28, 2021. If signed, the amended statute would require manufacturers to "pay each dealer no less than the amount the retail customer pays for the same services with regard to rate and time." Notably, in the event a time guide has not been agreed to for warranty repairs, the "manufacturer's time guide shall be used, multiplied by 1.5." Dealers will also be entitled to compensation for diagnostic time and the time a technician spends communicating with a technical assistance center or other manufacturer resource center. And, manufacturers shall be prohibited from imposing "any form of recovery fees or surcharges" against a dealer for warranty payments. The bill also deleted 815 ILCS 710/6(g), which allowed manufacturers and a majority of Illinois franchisees of the same line-make to enter into written contracts concerning a uniform warranty reimbursement policy and a uniform parts reimbursement rate.

Iowa. Iowa amended its dealer statute with an effective date of July 1, 2021 to require that manufacturers provide to dealers a list of time allowances for warranty services, and further requiring that "[t]ime allowances for the performance of warranty services, including diagnostic services, shall be reasonable and adequate for the services to be performed." Iowa Code § 322A.5(2)(c).

Mississippi. Effective July 1, 2021, the Mississippi dealer statute has been amended to add a new section that provides a detailed process for dealers to establish their retail labor and parts rates. Miss. Code Ann. § 63-17-86. Under this new section, dealers can establish their retail average percentage markup for parts or labor rate no more than once per 12-month period by submitting to the manufacturer 100 sequential customer pay repair orders, or all of the dealer's customer pay repair orders within a 90 days period, whichever is less, for services provided within the prior 180 day period, excluding certain routine repairs. Id., §§ 63-17-86(1), (3). The statute provides a process for the OEM to request additional information supporting the rate requested by the dealer, and to rebut the presumed reasonableness of a dealer's requested rate by "reasonably substantiating that such submission is materially incomplete, materially inaccurate or is materially unreasonable," and dealers can submit a protest of an OEM's rejection of a proposed rate to the Mississippi Motor Vehicle Commission. Id., §§ 63-17-86(5), (6). The statute also has been amended to require that time allowances for warranty work "shall be reasonable and adequate for such work to be performed using the actual time required by a qualified technician of ordinary skill to perform such work." Id., § 63-17-85(j).

Montana. The Montana dealer statute, effective April 29, 2021, requires that OEMs reimburse dealers for warranty repair labor "using the franchisor's labor time guide or the labor time guide used by the dealer for labor furnished other than pursuant to warranty, at the dealer's election . . . ." Mont. Code Ann. § 61-4-213(1)(a) (emphasis added). The Montana statute, however, does not provide any guidance regarding how to verify that the dealer is consistently using a third-party labor time guide for nonwarranty repairs or how to process warranty claims using such third-party times.

South Carolina. Effective August 4, 2021, amendments to the South Carolina dealer statute will require OEMs to pay dealers "reasonable compensation" for warranty repairs, i.e. the retail rates charged by dealers to nonwarranty customers provided those amounts are not unreasonable. Dealers may establish their retail average percentage markup for parts or its labor rate no more than once in any 12-month period by submitting to the manufacturer 100 sequential customer pay repair orders, or all of the dealer's customer pay repair orders within a 90 days period, whichever is less, for services provided within the prior 180 day period, excluding certain routine repairs. S.C. Code Ann. § 56-15-60(C)(4). South Carolina's amended statute also prohibits OEMs from recovering any portion of their costs for compensating dealers for recalls or warranty parts and service, either by reduction in the amount due to the dealer, or by separate charge, surcharge, or other imposition. S.C. Code Ann. § 56-15-60(C)(A).

Tennessee. An amendment to the Tennessee dealer statute effective as of July 1, 2021 will allow dealers to establish their average percentage markup for parts in warranty repairs no more than once per year using 100 sequential customer pay repair orders, or all of the dealer's customer pay repair orders within a 90 days period, whichever is less, for services provided within the prior 180 day period, excluding certain routine repairs. Tenn. Code Ann. § 55-17-121(d)(2)(C). If an OEM determines that a dealer's requested parts markup is "substantially higher or lower than" the dealer's current warranty reimbursement rate, the OEM may request additional repair order documentation for the 30-day period prior to or following the period encompassed by the dealer's initial submission. Tenn. Code Ann. § 55-17-121(d)(2)(C).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.