Dealership compensation for warranty repairs increases Jan. 1, when the calculation of reimbursement rates for most repairs will be at retail and not merely "reasonable" in a manufacturer’s view.

Illinois Gov. J.B. Pritzker on July 30 signed legislation that changes how manufacturer pay is calculated on warranty work. Manufacturers failed to reverse the move during the General Assembly’s fall session, although they did manage to trim payouts on engines and transmissions to 30% of what the franchisee paid.

All other compensation shall be no less than the amount charged to a retail customer for the same parts and service. Dealers can calculate labor times by using agreed upon guides or by 1.5 times the manufacturer’s time guide.

The coming changes were reviewed in a Dec. 7 webinar hosted by the Illinois Automobile Dealers Association and presented by law firm Bellavia Blatt’s Keith Gitman, an attorney, and Ken Lohr, the firm’s director of retail warranty reimbursement. Dynatron Software will host a similar webinar Dec. 15 for CATA members.

In addition to establishing an equitable compensation scheme for warranty work, the new law prevents manufacturers from imposing cost recovery fees or surcharges to overcome the legislation’s effect. For manufacturers, it preserves their right to approve or disapprove dealership claims, and it ensures manufacturers have a way to charge back any false or unsubstantiated claims they paid.

"The manufacturer looks for reasons to reject you. Perfection is the name of the game" in compensation filings, said Lohr. He added that using a third-party vendor to calculate parts and labor rates can help dealers maximize their reimbursement claims.

The new law requires that the booked time allowances for the diagnosis and performance of warranty work be no less than what is charged to retail customers for the same work, that manufacturers pay dealerships the same effective labor rate as the dealership receives for customer-pay repairs, and that manufacturers reimburse dealerships for any parts (except engines and transmissions) provided in satisfaction of a warranty at the prevailing retail price charged by the dealership when sold to retail customers. 

 

Mechanics Local 701, whose members include area technicians, worked with the CATA and other groups to advance the legislation. Supporters say it will bring a fairness to the payment process that could attract new technicians to dealerships.

New on labor: manufacturer compensation for labor must include any time spent on calls to technician assistance centers for diagnosis guidance. For accurate time calculations, Lohr said technicians should clock out of repair work, punch in separately for the time talking, and then punch back in to resume repair work.

In advance of Jan. 1, some manufacturers approached their franchisees about locking them in to uniform warranty reimbursement agreements that pay less than retail. Gitman said that state statutes trump any agreement, so even dealers who signed a uniform agreement can establish the labor time guides they will use.