What is the legality of a warranty reimbursement Rate claim? A Retail warranty reimbursement claim is valid only if the dealer performs the work in accordance with the manufacturer’s warranty policy. The warranty is meant to cover the labor and parts cost of the repair, not the full cost of the vehicle. In other words, the dealer can only charge the labor rate. The manufacturer may determine the parts markup or minimum compensation for warranty repair work. It is also legal to claim a reimbursement rate on warranty work.
Labor rate for warranty work
Submitting a request for an increase in the labor rate for warranty work is a complicated process. To establish your warranty labor rate, you must submit at least 100 customer pay repair orders within the past 90 days. The rate you establish must reflect the retail rate paid by other dealers for the same work. Routine maintenance repairs are excluded from the calculation. Your effective labor rate takes effect 30 days after you submit your request. The manufacturer may object to the rate you submit. After approval, you may request a rate increase once a year.
In most cases, manufacturers reimburse dealers for warranty repairs. The dealers then charge their retail customers the posted hourly labor rate. However, a recent decision from the Virginia Court of Appeals has overturned this standard practice. Now, the standard industry practice is not the same as a contract between manufacturer and dealer. Dealers cannot charge more than the retail rate for warranty work. If you want to get a fair rate, you must pay your labor rate at retail.
Parts markup for warranty repair work
In New York, the Franchised Motor Vehicle Dealer Act requires manufacturers to reimburse dealers for warranty repair work performed on their vehicles. The law defines “reasonable compensation” as the dealer’s cost plus an average markup determined by aggregating the markups of a hundred consecutive nonwarranty service repair orders. This markup is then declared the dealer reimbursement rate. But what is a reasonable markup?
In the early 1990s, dealerships were not allowed to charge more than 40 percent of the standard manufacturer parts markup for warranty repair work. To get a fair rate, hundreds of dealers in New York contacted us. We pressed manufacturers to give fair rates, and in the late 1990s, we obtained seven-figure retroactive settlements for hundreds of dealers. The lawsuits forced manufacturers to negotiate new legislation that allows dealers to charge a reasonable markup for warranty repair work.
Minimum compensation for warranty repair work
The manufacturer of your car will generally reimburse you for the labor and parts needed to fix your warranty-covered vehicle. However, the warranty repair work itself may not be free. In that case, the car dealership may offer to perform the work for a minimal fee, which is also known as “minimum compensation.”
Legality of warranty reimbursement claims
Whether a warranty reimbursement claim will be approved depends on state law and the terms of the dealership’s warranty program. The law in some states makes warranty claims a lot easier to file than others. A Midwest dealership should seek out assistance from a warranty firm to ensure they can properly file for reimbursement. The benefits of maximizing Warranty Parts Reimbursement are obvious: it will be convenient and profitable for the dealership, and it will also increase customer satisfaction.
For example, the franchisor cannot disapprove a claim based on extrapolating from a sample of claims. The sample must be sufficiently random to determine if the claim is reasonable. Further, the franchisor must provide a written disapproval notice to the franchisee within 30 days after the audit. A franchisee may protest the disapproval within six months of receipt. If a franchisee chooses to file a legal case, he must prove that the disapproval was based on statistical data.
