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MEMBER ALERT

January 5, 2010

Information Bulletin - Warranty Parts

The purpose of this bulletin is to cover two areas related to warranty repairs. The first is setting forth New Hampshire’s law that requires manufacturers to pay a retail rate for parts used in warranty repairs. The second is the new provision in the Dealer Bill of Rights that should prevent a manufacturer from manipulating warranty reimbursement during recalls.

Obtaining a Retail Price for Warranty Parts

A common complaint made by dealers is that they do not receive adequate compensation from the manufacturer for parts used in warranty repairs. Dealer associations in many states have attempted to pass legislation requiring manufacturers to reimburse the dealer for parts used in warranty repairs at the dealer’s retail rate. Some states have been successful in passing such legislation, and some have not. Some states have passed such legislation only to have a manufacturer attempt to recoup the additional expense through other charges to the dealer.

The purpose of this bulletin is to advise NHADA members that New Hampshire law currently provides retail rate protection for franchised dealers. The statute that requires reimbursement for parts at retail rate is not in the dealer statute but is located in the state’s version of the Uniform Commercial Code. RSA 382-A:2-329 states:

“Every manufacturer who makes an express warranty pursuant to a consumer sale and designates a representative within this state to provide warranty service shall be liable to such service representative in the amount equal to that which is normally and reasonably charged by the representative for like service and repairs rendered to retail consumers who are not entitled to warranty protection. This equality of normal and reasonable charges shall apply both to labor and parts. It shall be a rebuttable presumption affecting the burden of producing evidence that the normal and reasonable cost of service or repair is an amount equal to that which is charged by said service representative for like services or repairs rendered to service or repair customers who are not entitled to warranty protection. The manufacturer may not waive such liability.”

Dealers in New Hampshire are starting to request that their manufacturer comply with the above statute. Attached to this bulletin is a draft letter (pdf) that was used in part by one of our members to begin the process of obtaining retail rate for parts used in warranty repairs. Based on the feedback from that one dealer, you may save yourself some time and effort up front by inquiring of the manufacturer what is their approved means of determining the retail rate. If you do not receive an adequate response, feel free to use the enclosed draft correspondence as a starting point. Please note that this will likely be a time consuming process for you and/or your service manager.

Though New Hampshire has a somewhat specific law, I don’t want to encourage false hopes. Based on what I have seen occur in other states several things may happen in response to a request for the retail rate for warranty parts.

1. A threatened surcharge on your parts account or on the sticker of any new vehicle you receive. The surcharge would directly recoup the costs of the additional reimbursement you are demanding. New Hampshire law does not specifically prohibit such a surcharge; however, it may be violation of the above UCC law (“manufacturer may not waive such liability”) or may violate a provision of the Dealer Bill of Rights.^[1]
2. Factory refuses to pay because dealer failed to show what is normally and reasonably charged to retail customers. Factory will drag dealer through an increasingly difficult and burdensome process at the end of which it will still claim that the dealer still failed to show what is normally and reasonably charged. NH’s law is better than many other states in this respect because of the above rebuttable presumption language. As you can see in the attached example letter, we suggest a certain formula that was borrowed from other states in which the manufacturer is paying retail for parts. 
3. Factory simply ignores the request or threatens other means of retribution. For example they may threaten to manipulate your allocation mix or indicate that a series of warranty or incentive audits are in the pipeline. In response to such threats you should be aware of what other protections you have in the Dealer Bill of Rights.

Reimbursement for Parts During Recalls or Service Campaigns

With the passage of SB153 in 2009, NHADA amended the Dealer Bill of Rights to prevent a common, but unfair, practice by manufacturers wherein they manipulated the cost of parts during a recall or service campaign. This would result in a dealer receiving reimbursement that was less than the wholesale price of the part or significantly less than what would normally be paid.

The DBR (RSA 357-C:5,II(b)(3)) now provides:

• The wholesale price on which a dealer’s markup reimbursement is based for any parts used in a recall or service campaign shall not be less than the highest wholesale price listed in the manufacturer’s or distributor’s wholesale price catalogue within 6 months prior to the start of the recall or service campaign.
• If the manufacturer or distributor does not have a wholesale price catalogue, or the part is not listed, the wholesale price on which a dealer’s markup reimbursement is based shall be the average price charged to dealers of similar line makes in the state for the past 6 months prior to the start of the recall or service campaign.
• In no event shall a dealer receive less than the dealer’s actual cost for that part, plus the markup as calculated pursuant to this new RSA provision.

If you have any questions regarding these issues, please contact me at 603-224-2369, or by e-mail.

Sincerely,

Peter J. McNamara

[1] It shall be deemed an unfair method of competition and unfair and deceptive practice for any manufacturer to
“(e) Offer to sell or to sell any new motor vehicle at a lower actual price than the actual price offered to any other motor vehicle dealer for the same model vehicle similarly equipped or utilize any device including, but not limited to, sales promotion plans or programs which result in a lesser actual price. . . “ RSA 357-C:3,III (e)
“(f) Offer, sell, or lease any new motor vehicle to any person, except a distributor, at a lower actual price than the actual price offered and charged a motor vehicle dealer for the same model vehicle similarly equipped or utilize any device which results in such lesser actual price;”