After a similar bill was vetoed in 2018, California lawmakers have again passed dealer franchise legislation that would in part adjust the reimbursement rate the retailers receive from automakers for warranty and recall service work.
With the legislation, backed by the California New Car Dealers Association, going to the governor's desk for the second time in two years, auto dealers say they hope their effort won't end in a veto this time.
The California State Assembly last week adopted the state Senate's changes to AB 179, a final procedural step before the bill moves to Gov. Gavin Newsom's desk. Newsom's office did not immediately respond to a request seeking comment on whether the governor, who took office in January, intends to sign it.
Newsom, a Democrat, has until Oct. 13 to sign the bill before the California Legislature recesses until January.
The legislation deals with, among other things, the rate that automakers reimburse franchised dealerships for parts and labor on warranty and recall repairs.
Currently, state law sets warranty reimbursements generally on what's considered reasonable. The bill, if enacted, would set the reimbursement that manufacturers must pay dealerships for parts and labor on warranty and recall work at "rates equal to the franchisee's retail labor rate and retail parts rate," according to the bill. Dealers would calculate those rates based on a formula spelled out in the legislation, using data from past retail repair jobs.
It's similar in language to a bill that passed last year, but was vetoed by then-Gov. Jerry Brown. A new bill was introduced in January by Assemblywoman Eloise Reyes, D-San Bernardino, who also introduced the bill last year.
The bill also addresses other dealer franchise-related issues, including preventing automakers from requiring dealers to upgrade their facilities within 10 years of the last improvement, and allowing dealers to challenge automakers' performance standards before California's New Motor Vehicle Board.
Brian Maas, president of the California New Car Dealers Association, said the warranty portion of the bill is modeled after changes other states have made.
Reimbursements can vary based on the dealer and the automaker, but Maas said California franchised dealers in general could be receiving 40 percent less from automakers on warranty jobs vs. what retail customers would pay.
"That puts incredible financial pressure on a dealer, and arguably is a disincentive for technicians to want to do warranty work," Maas told Automotive News. "Dealers should get for warranty work what they get for retail work. And the purpose of the formula is to make it fair to both the manufacturer and the dealer as to how that rate is set."
The Alliance of Automobile Manufacturers and the Association of Global Automakers, trade groups that represent automakers, opposed the bill. Maas said changes to the warranty reimbursement language were made in this year's bill after negotiations between new-car dealers and automakers.
The Alliance says that although talks led to an improved bill from last year, it remains opposed.
Among the reasons, it wrote in a June letter to Reyes, the bill's sponsor, is that "the bill changes this proven method of reimbursement by allowing dealers to self-select warranty claims to be used as the cost basis of all future warranty compensation. In addition, the proposed prohibition on cost recovery surcharges would ensure that individual dealers cannot be held accountable for their independent pricing decisions, resulting in reduced competition and higher prices for all consumers."
Brown, a Democrat who was term-limited out of office, called the proposed reimbursement formula in the bill he vetoed a year ago "complex," and he cautioned about potential unintended effects.
"Under current law, manufacturers are required to reimburse dealers for warranty and recall repairs at a 'reasonable' rate negotiated between the two parties," Brown wrote in his veto letter. "This framework appears to be working reasonably well and I see no reason to adopt the rather complicated formula authorized in this bill — with perhaps unintended consequences."
Maas said this year's legislation changed the formula as it relates to how a dealer's time was calculated on a repair job.
