In a policy change, Toyota Motor Sales U.S.A. Inc. is reimbursing its dealers at list price for parts they use in warranty-covered service.
The policy took effect Oct. 1. Toyota previously paid dealers a warranty parts markup of cost plus 45 percent. List price averages cost plus 67 percent, says Roger Racer, parts manager of Larry H. Miller Toyota in suburban Salt Lake City.
Most states require automakers to repay dealerships for warranty parts and labor at the same rates those dealerships charge retail customers. But dealers say they often have trouble getting the laws enforced. Ford Motor Co. and Chrysler LLC have fought higher warranty payments in court.
Jim Lentz, executive vice president of Toyota Motor Sales, says the company increased its warranty payments in response to changes in state laws. Florida is among several states, Lentz says, that recently established legal parity between warranty reimbursements and customer-pay rates.
"The dominoes started to fall" with passage of the Florida law, Lentz told Automotive News. "We made the decision to reimburse all our dealers at MSRP."
Toyota can afford the new policy, Lentz says, because "our warranty costs are less" than those of other automakers.
On a warranty part that costs dealers $100, Racer says, Toyota now pays dealers about $167 instead of $145. For high-ticket items such as transmissions, he adds, the factory markup already was close to list price.
Toyota last raised its warranty parts markup in 1993, dealers say. At that time it boosted the reimbursement rate from cost plus 30 percent to cost plus 45 percent.
Toyota dealers say they appreciate the policy change.
"It will help a great deal," says Bill Voorhees, parts manager of Brent Brown Toyota in Provo, Utah.
Len Hunter, general manager of Butler Toyota in Indianapolis, says the warranty increase "will have an impact on profitability."
He adds: "Toyota has always been very fair with dealers." c