DaimlerChrysler and its dealers in 21 states are in a stare down over warranty-parts markups.
The automaker has threatened to raise the dealer invoice on new vehicles if the retailers request higher markups on warranty parts as they are allowed to do in 21 states.
Some dealers are seething.
The company sent a letter to Chrysler, Plymouth, Dodge and Jeep dealers warning against asking for a bigger parts markup. DaimlerChrysler currently pays cost plus 40 percent on warranty parts.
It is part of an industrywide effort by dealers to be reimbursed by their factories for warranty parts at the same markup rate they can get from retail customers.
'There are 21 states that have passed legislation which mandates higher profit margins for parts used in warranty repairs performed by franchised dealers. This legislation significantly increases our cost of doing business in these states,' wrote John MacDonald, senior vice president of sales and service for DaimlerChrysler, in a June 1 letter.
'While state dealer associations and legislators have the right to propose and pass new legislation, we have the right to protect and preserve our balance sheet,' he said.
MILLIONS AT STAKE
Dealers have griped for years about stingy warranty reimbursements. In 1992, the National Automobile Dealers Association had asked manufacturers to boost the markup to cost plus 60 percent, the average price dealers charge retail customers. In response, most automakers upped the markup from cost plus 30 percent to cost plus 40 percent, the current average. It would cost the factories millions of dollars more to reimburse dealers at retail rates.
Though state legislatures have passed bills requiring factories to pay retail markups on warranty parts, the laws often have little impact; fears of surcharges have kept dealers from taking advantage of the statutes.
The latest flap began in March when a change to the New Jersey franchise law took effect, making it easier for New Jersey dealers to calculate their retail parts markup. Dealers must figure an average markup from a survey of 100 nonwarranty repair orders.
The New Jersey law requires automakers to pay a warranty parts markup equivalent to the dealer's retail markup. Because there was no standard formula to calculate a dealer's retail parts markup, the argument for a higher warranty markup has been a tough case.
In response to the change in the New Jersey law, a DaimlerChrysler dealer built a case for a higher warranty parts markup. As a result, MacDonald sent a warning letter to all dealers and threatened New Jersey dealers with a $400 surcharge on new vehicles. The New Jersey surcharge, slated to take effect July 1, was withdrawn when the dealer dropped his request for a higher parts markup, according to company correspondence.
The New Jersey Coalition of Automotive Retailers, the association that represents New Jersey's new-car dealers, wrote to MacDonald June 4, asking DaimlerChrysler to stop intimidating dealers with surcharges. The association warned that a U.S. District Court in New Jersey declared these surcharges illegal in a case against Ford Motor Co.
But spokesman Rick Deneau said DaimlerChrysler's attorneys are familiar with the Ford case. Said Deneau: 'We still feel comfortable with this action (threatening surcharges).'