Volkswagen Group of America has filed suit in federal court in Illinois in the hopes of rolling back a change to state franchise laws that requires automakers to reimburse dealers for warranty work at the same rate a retail customer pays, which the automaker said cost it over $10 million last year.
The suit, filed last month in U.S. District Court for the Northern District of Illinois, takes issue with the Multiplier Act, a change in the state's Motor Vehicle Franchise Act that was signed into law in 2021. The Multiplier Act removed the traditional time guide warranty compensation formula and mandates instead that automakers pay the same amount for a covered repair as a retail customer would. The change in warranty flat rate time reimbursements equates to a 50 percent increase per service operation, the suit said.
The new warranty reimbursement provision went into effect Jan. 1, 2022, and the German automaker contends in its suit that from that date through the end of November, it had been forced to pay nearly $10 million more to its 28 VW and 12 Audi stores in the state for warranty work.
"Simply put, the Multiplier Act is crony capitalism at work: redistributive legislation that takes hundreds of millions of dollars from some (but not all) motor vehicle manufacturers and, for no public purpose, deposits that money directly into the pockets of politically favored Illinois dealers," the suit said.
It names several state officials as defendants, as well as members of the Illinois Motor Vehicle Review Board, and asks the courts to declare the Multiplier Act unconstitutional on several grounds, including that it only applies to legacy automakers with franchised dealers.
The Multiplier Act — also called the Warranty Reimbursement Act — was championed in the legislature by a combination of franchised dealers and organized labor, ostensibly to promote technician pay, and was passed on a bipartisan basis.
VW is the only automaker to challenge the constitutionality of the Illinois statute. Neighboring Wisconsin passed a similar provision into its state franchise laws more than a decade ago.
"All work deserves fair compensation, and I'm proud that the bill I'm signing today ensures automobile mechanics are compensated fairly for the critical skilled labor they provide," Illinois Gov. JB Pritzker said in a written statement when he signed the act into law in July 2021.
Auto dealers in Illinois aren't required to pass along the additional reimbursements to technicians. However, labor agreements with unions representing technicians in metro Chicago now include provisions that pass the additional reimbursements through to workers, said one dealer representative who spoke on condition of anonymity.
The person said dealers who didn't pass through the additional reimbursements risked losing their technicians to dealerships that did. However, in its suit, VW called out the lack of clarity, saying that the law "does not require dealers to increase technician pay one cent. Nor does it address technicians employed by manufacturers that sell directly to consumers."
A spokesman for VW Group of America said the automaker would have no additional comment beyond the suit.
"We're happy the bill went through and the governor signed it," said Joe McMahon, executive director of the Illinois Automobile Dealers Association. "We think their efforts in federal court to remove this legislation are kind of frivolous. All we said during the legislative process was that we wanted dealerships and technicians to be compensated fairly, and our members agreed."