Warranty parity legislation spreads to Colorado

In a harbinger of what may be a growing power struggle between franchised dealers and automakers, a bipartisan group of Colorado lawmakers Friday introduced legislation that would force automakers to reimburse dealers for warranty work at the higher rates those dealers charge to retail customers.

The Colorado legislation mostly mirrors an Illinois law passed in 2021 that raised the reimbursement rates dealers can charge their factories for covered warranty repairs. That law went into effect in January 2022. In December, Volkswagen Group of America filed a federal suit against the state, claiming the law had cost it over $10 million in additional reimbursements to its network of 28 VW and 12 Audi stores in Illinois in just its first year. There are an additional 664 franchised dealerships in the state, according to the Illinois Automobile Dealers Association.

The Colorado bill would amend the state's existing franchise law, which currently prevents automakers from establishing "unreasonable labor flat rates" for warranty repairs, to mandate that manufacturers "must pay the retail labor rate multiplied by the applicable time allowances prescribed in the labor time guide used by the dealer."

The bill would also impose a limit on automakers' ability to challenge dealership rates for warranty parts and labor "when the rates are substantially different than the charges of other similarly situated line-make dealers."

Tim Jackson, head of the Colorado Automobile Dealers Association, told Automotive News on Friday that the legislation was needed in part because of the high cost of living in metropolitan Denver, which he said was driving already-scarce technicians away to smaller, less expensive cities.

"The promise of warranty reimbursement at retail is to gain parity on customer pay," Jackson said, adding that while there is no provision mandating that a dealership pass the additional reimbursement on to technicians, "from a practical standpoint, they do have to pass it through just to stay competitive and retain their technicians."

Jackson said Colorado has 269 franchised dealerships. He added that "several other states" are pursuing similar legislation. If parity provisions spread wider, they could potentially shift millions of dollars a year from automakers to franchised dealers, given VW's Illinois experience.