Dealers are winning the warranty war
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Those breakthroughs include two favorable federal court rulings and a large out-of-court settlement involving Chrysler group dealerships in New York state.
Dealers say factories routinely shortchange them on warranty reimbursements, primarily on the warranty parts markup - the cost of the parts, plus a fixed-percentage profit. A study this year by the NCM consulting company concluded that the average dealership loses $118,000 a year on warranty repairs because of inadequate markups.
Dealerships' parts markup for retail work averages 67 percent, the study said. But automakers typically pay dealerships a 40 percent markup for warranty work.
Dealers initially took their battle with automakers to state legislatures. The National Automobile Dealers Association reports that 27 states have laws requiring factories to reimburse dealerships for warranty parts at retail rates. Forty states require dealerships to get the same labor rates for warranty work that they charge customers for retail repair work.
But dealers had trouble getting the state laws enforced. And car companies often slapped surcharges on new-vehicle invoice prices to recover the higher warranty payments.
In the early 1990s, for example, dealerships in New Jersey and Maine sued Ford Motor Co. to force the automaker to pay retail rates for warranty parts. Dealer trade associations in those states joined the litigation.
Ford agreed to pay dealerships its average suggested retail markups for parts but then placed surcharges on sticker prices.
In 2001, 27 Chrysler group dealerships in New York sued DaimlerChrysler Corp., alleging the company underpaid them for warranty parts. Last year, DaimlerChrysler reached an out-of-court settlement to compensate the dealerships. The company has not introduced offsetting surcharges.
"They would have to impose the surcharge statewide," says the dealerships' lawyer, Leonard Bellavia, of Mineola, N.Y. "That might inspire dealers content to sit on the sidelines on warranty reimbursements to actually throw their hat in the ring."
Last year, the U.S. Court of Appeals in Boston upheld a Maine law that prohibits automakers from recovering higher warranty reimbursements with new-vehicle surcharges. In May, the U.S. Supreme Court declined to hear a challenge to that ruling.
In a separate case this year in New Jersey, a federal court agreed with dealers that such surcharges are illegal. Jim Appleton, president of the New Jersey Coalition of Automotive Retailers, the state's trade association for dealers, says the surcharges amounted to "a shell game."
You may e-mail Donna Harris at dharris@crain.com
