Dealers win round over factories in warranty-fee fight
A state court in Illinois has sided with dealers in a dispute with automakers over warranty repair payments, disallowing a practice that had left dealers feeling nickeled-and-dimed.
In the Nov. 27 ruling, the Circuit Court of Cook County rejected Nissan's practice of charging fees on new-car invoices to offset state-mandated reimbursements to dealers for warranty repairs.
Dealers had sued to stop the fees, which started five years ago at $245 per Infiniti vehicle and $100 per Nissan vehicle, according to a lawyer representing dealers.
Although the Illinois court banned such fees, courts elsewhere have upheld them. The legal battles have done little to resolve a long-standing dispute over how much automakers should pay dealers for warranty repairs.
The fees have sowed ill will at a time of razor-thin margins, says Ira Levin, a lawyer at Burke, Warren, MacKay & Serritella in Chicago. He represented two Infiniti dealerships, Fields Infiniti Glencoe in Glencoe, Ill., and Fields Infiniti of Lake County in Libertyville, Ill., in the Illinois case.
"New-car profits are very small right now," Levin said, "but the factories expect dealers to build beautiful new buildings and put coffee bars in their showrooms to make customers feel fuzzy, and all kinds of other things. How do you get there? You've got to have profits."
Dealers have long complained that low payments for warranty jobs made repair shops unprofitable and discouraged dealers from doing the work. In states such as Illinois and New Jersey, dealers went to the state legislatures for help.
"When you have a huge amount of discount work coming into the shop, that's great for keeping your technicians working, but you're losing money," says Jim Appleton, president of the New Jersey Coalition of Automotive Retailers.
Thirty-six states require automakers to reimburse dealers at retail prices for parts used in warranty repairs, the National Automobile Dealers Association says. And in 13 of those states, franchise laws forbid automakers from using surcharges to make up for the payments to dealers.
The fees can add up; Nissan recently told the Illinois court it has charged $3.3 million in warranty fees to the state's Nissan and Infiniti dealers over the past 24 months.
Automakers say the state laws raise costs by encouraging dealers to seek out warranty jobs or to charge inflated repair prices.
Charging fees is the fairest way "to avoid passing these additional state-specific costs to dealers and customers in other states," a Nissan spokesman wrote in an e-mail. He said the company will appeal the Illinois ruling.
Other automakers have sued and prevailed. In April, a federal appeals court in Philadelphia ruled that Ford Motor Co. may charge New Jersey dealers a fee for every car purchased, despite a state law requiring that the dealers be repaid at retail prices for parts used in warranty repairs.
And in September, a federal district court in Florida ruled that a similar lawsuit by the Alliance of Automobile Manufacturers had merit and could go to trial.
"We were in a situation where dealers could impose any warranty cost they wanted on customers, and send the bill to automakers," the alliance, a lobbying group that represents most major automakers, said in a statement.
You can reach Gabe Nelson at email@example.com.