Understanding State Warranty Reimbursement Laws Is Key to Receiving Greater Compensation from Manufacturers for Labor and Parts
Paul R. Norman , Sarah J. Horner | 10.05.21
Under Wisconsin law, a motor vehicle manufacturer must “reasonably compensate a dealer who performs work to rectify the product or warranty defects of the manufacturer.” See Wis. Stat. § 218.0125(3m)(a). The law is designed to require a manufacturer to pay the dealer the same amount for a warranty repair (or recall, or other manufacturer-requested repair), as the dealer would receive for a comparable nonwarranty (customer-paid) repair. However, a dealer is entitled to comparable warranty compensation only if it makes a formal request for it under the statute, something that many franchised dealers in Wisconsin have not done. This article briefly describes how dealers can use the Wisconsin warranty reimbursement statute to their advantage by seeking higher warranty labor rates and parts markups under that statute.
In Wisconsin, dealers may request a manufacturer to reimburse it for labor at an “effective nonwarranty labor retail rate.” That rate is calculated by dividing a dealer’s total retail repair charges in a representative sample of the dealers’ comparable nonwarranty repairs by the manufacturer’s time allowances for those repairs. In most cases, this formula yields a far greater rate than dividing the dealer’s nonwarranty labor charges by the hours that the dealer actually billed in the nonwarranty repairs, which is the formula that most manufacturers use in setting a dealer’s warranty labor rate in cases where a dealer doesn’t request the statutory rate. This is because the manufacturer’s time allowances often allow less time for a particular repair than the time the dealer uses to bill nonwarranty customers. Therefore, by dividing repair charges by manufacturer time allowances, the Wisconsin statutory calculation allows dealers to receive greater reimbursement for warranty work than most dealer agreements would.
For example, if a dealer billed a nonwarranty customer $100 for 2 hours on a nonwarranty repair that has a manufacturer time allowance of only 1 hour, Wisconsin’s statutory calculation would require the dealer’s nonwarranty labor rate for the repair to be $100 ($100 charge / 1 hour time allowance), whereas the manufacturer would calculate the dealer’s nonwarranty labor rate at $50 ($100 / 2 hours) under its normal warranty policies and procedures and then pay the dealer just $50 ($50 x 1 hour time allowance) for the repair.
Dealers can request the higher warranty labor rate under the Wisconsin statute by following these three steps:
- Select either 100 sequential repair orders for qualifying nonwarranty repairs made within the last 180 days, or all repair orders for qualifying nonwarranty repairs performed in a 90-day period within the last 180 days, whichever is less. (Note: A “qualifying nonwarranty repair” is one that would be covered by the manufacturer’s warranty if the vehicle being repaired were covered by that warranty. Routine maintenance, for example, is not a “qualifying nonwarranty repair.”)
- Based on the selected repair orders, calculate the “claimed effective nonwarranty labor rate” by dividing the total customer labor charges in those repair orders by the total number of hours that the manufacturer would allow for the subject repairs, if the repairs had been made under the manufacturer’s warranty. Remember to include any diagnostic time for which the manufacturer will pay. (Note: Some manufacturers will pay for diagnostic or other time based on the actual time it took the technician to perform the diagnosis or other function, up to a maximum amount. Because of this, it is important that technicians record their actual time on nonwarranty repairs in the same way that they record time on warranty repairs).
- Submit a written notice to the manufacturer stating the claimed “effective nonwarranty labor rate” along with a spreadsheet showing the calculation of that rate and copies of the selected repair orders on which the calculation is based. (Note: Because what constitutes a “qualifying nonwarranty repair” is sometimes subject to interpretation, where the calculation is based on 100 sequential qualifying nonwarranty repairs, the submission should include all of the repair orders (including warranty and nonwarranty repairs not deemed to be qualifying) within the range of qualifying nonwarranty repairs used in the calculation, plus additional qualifying nonwarranty repairs preceding (but not dated more than 180 days prior to the submission) and/or following that range, to ensure that the manufacturer has been provided with 100 sequential qualifying nonwarranty repair orders, even if it deems some used in the dealer’s calculation to not meet the “qualifying nonwarranty repair” definition.
If this sounds too daunting or time-consuming for service department staff to undertake, dealers can retain experienced third-party vendors to select the appropriate repair orders and calculate the “effective nonwarranty labor rate” for the dealer.
Once the manufacturer receives a submission, it has 30 days to review it and determine whether it agrees or disagrees with the “effective nonwarranty labor rate” calculation. If the manufacturer disagrees, it must notify the dealer within the 30-day period and state the reasons why it disagrees. Either way, the manufacturer must begin paying dealer at the “effective nonwarranty labor rate” that it determines is substantiated by the dealer’s submission by the end of the 30-day period. If it fails to do so, or the dealer disputes the manufacturer’s determination, the dealer may request mediation, bring a legal action for damages and an injunction, or petition the Division of Hearings and Appeals to determine and require the manufacturer to pay the appropriate rate.
Similarly, dealers can request compensation for markup on parts used in warranty service. A dealer’s statutory-required parts markup is determined by dividing the total charges for parts in the selected repair orders by the total dealer cost for those parts. Aside from this calculation, the process for obtaining an increase in a dealer’s warranty parts markup is the same as the process for obtaining the statutory warranty labor rate outlined above. Requests for warranty labor rates and parts markup may be made in the same or separate submissions.
Motor vehicle dealers are entitled to compensation from manufacturers for labor and parts used in performing free service work under their manufacturer’s warranty. A dealer can receive higher warranty labor rates and parts markups if the dealer submits a formal request through the statutory procedure, rather than following the manufacturer’s formula. Attorneys and third-party vendors can assist dealers with this complicated process to receive the compensation for warranty work that they deserve.
The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.