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Warranty Disputes Highlight the Importance of Tracking Nonwarranty Labor in the Same Manner that the Manufacturer Requires for Warranty Labor

In our Franchise & Dealer Law Report article published on October 5, 2021, we outlined the statutory process that dealers should follow to receive the maximum reimbursement from manufacturers for warranty labor and parts. Since then, a number of disputes between dealers and manufacturers have arisen that revolve around one key issue: diagnostic time. It is critical that dealers make sure their technicians record the amount of actual time it takes them to diagnose each repair, in addition to the actual time it takes to complete each repair. 

Manufacturers are taking a hard look at the warranty reimbursement submissions dealers make pursuant to Wis. Stat. § 218.0125. That statute allows dealers to request reimbursement for labor performed for warranty repairs at a rate that equals the dealer’s effective nonwarranty labor rate. The calculation of that rate is based on 100 sequential repair orders submitted by the dealer. Although the formula is cut and dry, manufacturers have started scrutinizing each repair order and making their own adjustments where they see holes in the dealer’s submission. One gaping hole has been the lack of diagnostic time accounted for. 

A dealer’s warranty reimbursement rate could suffer if a technician does not record the time they took to diagnose a warranty repair because the manufacturer is likely to add the maximum amount of diagnostic time it would pay for each qualifying repair order which, in turn, lowers the dealer’s effective nonwarranty labor rate based on the statutory formula. Although a dealer can argue that a manufacturer’s upward adjustments to maximum diagnostic time violate the statute’s mandate that the total labor charged must be divided by the hours the manufacturer would allow for the repairs under its time allowances (which is usually the actual diagnostic time — not the maximum), a dispute can be avoided altogether if technicians punch in before beginning the diagnosis and punch out when it is complete. And because time other than that spent diagnosing issues can similarly impact the reimbursement calculation, we recommend that dealers advise technicians to record their time on nonwarranty repairs in the same manner that the manufacturer requires them to record their time on warranty repairs.

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.

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