General Motors dealers in New Jersey have accepted higher invoice prices on new vehicles in exchange for an increase in the warranty parts markup.
The New Jersey Coalition of AutomotivF Retailers, which is the state dealer association, and members of the GM dealer council struck a deal with GM to pay New Jersey dealers cost plus 60 percent on warranty parts. GM pays cost plus 40 percent in the rest of the country.
But the deal has a catch. Dealers who get the higher markup agree to pay surcharges on new vehicles as high as $200 per vehicle. They also forfeit their chance to use a new state law to petition GM for a higher warranty parts markup.
A NEW LAW
In March, New Jersey adopted a law that makes it easier for dealers to calculate their retail parts markup. New Jersey is one of 21 states that requires manufacturers to pay dealers the same markup on warranty parts the dealers charge their retail service customers for parts used in nonwarranty repairs.
The typical nonwarranty parts markup is 70 percent, according to the New Jersey Coalition of Automotive Retailers.
When the law took effect, dealers began asking for a higher warranty parts markup and some manufacturers went on the defensive. DaimlerChrysler threatened to raise invoice prices on new vehicles and GM did raise invoice prices. In October, GM slapped surcharges of $75 to $400 on each new vehicle sold in New Jersey.
The New Jersey Coalition of Automotive Retailers sued DaimlerChrysler over the issue. It was able to reach an agreement with GM. The agreement includes:
A cost plus 60 percent markup Dec. 1 to dealers who accepted the terms of the agreement
Substantially lower new-vehicle surcharges
Refunds of new-vehicle surcharges GM imposed in October and November
'This (the compromise) works for a majority of GM dealers in this state,' said Jim Appleton, president of the New Jersey Coalition of Automotive Retailers.
GM did not make its officials available to discuss the agreement.
Appleton says the agreement will help reduce GM's warranty expenses. After New Jersey's new rule on warranty markups took effect, dealers 'applied for higher markups in droves,' Appleton said.
OTHER STATES MAY FOLLOW
Appleton believes other state dealer associations could push for similar changes to their state warranty laws.
New Jersey's new law allows dealers to calculate their retail markup by taking the average markup on 100 consecutive retail service customer repair orders. The simpler calculation allows many dealers to file bigger claims on warranty parts. Dealers often mark up the parts used in normal repairs at a higher rate than what the factories are willing to pay them.
'We had the right to get paid our retail markup in the (New Jersey) law for years, but the manufacturers ignored it,' said Bob Maguire, owner of Bob Maguire Chevrolet Inc. in Bordentown, N.J., and a National Automobile Dealers Association director.
In the past, Maguire explained, there was no standard way to calculate a dealer's retail parts markup and that made it harder for dealers to prove to factories their claims on warranty parts should be higher.