§ 4086. Warranty and predelivery obligations to new motor vehicle dealers
(a) Each new motor vehicle manufacturer shall specify in writing to each of its new motor
vehicle dealers licensed in this State the dealer’s obligations for predelivery preparation
and warranty service on its products, shall compensate the new motor vehicle dealer
for such service required of the dealer by the manufacturer, and shall provide the
dealer the schedule of compensation to be paid the dealer for parts, work, and service
in connection therewith, and the time allowance for the performance of the work and
service.
(b) A schedule of compensation shall not fail to include reasonable compensation for diagnostic
work as well as for repair service and labor. Time allowances for the diagnosis and
performance of predelivery and warranty service shall be reasonable and adequate for
the work to be performed. The hourly rate paid to a new motor vehicle dealer shall
not be less than the rate charged by the dealer to customers for nonwarranty service
and repairs. Each manufacturer shall compensate each of its dealers for parts used
to fulfill warranty, predelivery, and recall obligations of repair and servicing at
amounts not less than the retail amounts customarily charged by the dealer to its
retail customers for like parts for nonwarranty work. The amounts established by a
dealer to its retail customers for labor and like parts for nonwarranty work are deemed
to be fair and reasonable compensation; provided, however, a manufacturer may rebut
such a presumption by showing that such amount so established is unfair and unreasonable
in light of the practices of at least four other franchised motor vehicle dealers
in the vicinity offering the same line-make or a similar competitive line-make. A
manufacturer may not otherwise recover all or any portion of its costs for compensating
its motor vehicle dealers licensed in this State for warranty parts and service either
by reduction in the amount due to the dealer or by separate charge, surcharge, or
other imposition.
(c) For purposes of this section, the “retail amounts customarily charged” by the franchisee
for parts may be established by submitting to the manufacturer 100 sequential nonwarranty
customer-paid service repair orders or 60 days of nonwarranty customer-paid service
repair orders, whichever is less in terms of total cost, covering repairs made no
more than 180 days before the submission and declaring the average percentage markup.
The average percentage markup so declared is the retail amount, which goes into effect
30 days following the declaration, subject to audit of the submitted repair orders
by the manufacturer and adjustment of the average percentage markup based on that
audit. Only retail sales not involving warranty repairs, not involving state inspection,
not involving routine maintenance such as changing the oil and oil filter, and not
involving accessories may be considered in calculating the average percentage markup.
A manufacturer may not require a new motor vehicle dealer to establish the average
percentage markup by an unduly burdensome or time-consuming method or by requiring
information that is unduly burdensome or time-consuming to provide, including part-by-part
or transaction-by-transaction calculations. A new motor vehicle dealer may not change
the average percentage markup more than two times in one calendar year. Further, the
manufacturer shall reimburse the new motor vehicle dealer for any labor performed
at the retail rate customarily charged by that franchisee for the same labor when
not performed in satisfaction of a warranty, provided the franchisee’s rate for labor
not performed in satisfaction of a warranty is routinely posted in a place conspicuous
to its service customer.
(d) It is a violation of this section for any new motor vehicle manufacturer to fail to
perform any warranty obligations or to fail to include in written notices of factory
recalls to new motor vehicle owners and dealers the expected date by which necessary
parts and equipment will be available to dealers for the correction of such defects,
or to fail to compensate any of the new motor vehicle dealers in this State for repairs
effected by a recall.
(e) All claims made by new motor vehicle dealers pursuant to this section for labor and
parts shall be paid within 45 days following their approval; provided, however, that
the manufacturer retains the right to audit the claims and to charge back the dealer
for fraudulent claims for a period of two years following payment. All claims shall
be either approved or disapproved within 45 days after their receipt on forms and
in the manner specified by the manufacturer, and any claim not specifically disapproved
in writing within 45 days after the receipt shall be construed to be approved and
payment must follow within 45 days. No claim that has been approved and paid may be
charged back to the dealer unless it can be shown that the claim was false or fraudulent,
that the repairs were not made properly or were unnecessary to correct the defective
condition, or that the dealer failed to reasonably substantiate the claim either in
accordance with the manufacturer’s reasonable written procedures or by other reasonable
means.
(f) A manufacturer shall retain the right to audit warranty claims for a period of one
year after the date on which the claim is paid.
(g) A manufacturer shall retain the right to audit all incentive and reimbursement programs
and charge back any amounts paid on claims that are false or unsubstantiated for a
period of 18 months from the date on which the claim is paid or one year from the
end of a program that gave rise to the payment, whichever is later.
(h) Any chargeback resulting from any audit shall not be made until a final order is issued
by the Transportation Board if a protest to the proposed chargeback is filed within
30 days of the notification of the final amount claimed by the manufacturer, to be
due after exhausting any procedure established by the manufacturer to contest the
chargeback, other than arbitration. The manufacturer has the burden of proof in any
proceeding filed at the Board under this section.
(i) It is unlawful for a franchisor, manufacturer, factory branch, distributor branch,
or subsidiary to own, operate, or control, either directly or indirectly, a motor
vehicle warranty or service facility located in the State except:
(1) on an emergency or interim basis;
(2) if no qualified applicant has applied for appointment as a dealer in a market previously
served by a new motor vehicle dealer of that manufacturer’s line-make; or
(3) if the manufacturer is a non-franchised zero-emission vehicle manufacturer that directly
owns, operates, and controls the warranty or service facility. (Added 1981, No. 157 (Adj. Sess.), § 1, eff. April 14, 1982; amended 1989, No. 217 (Adj. Sess.); 2009, No. 57, § 1, eff. June 1, 2009; 2021, No. 63, § 3, eff. June 7, 2021.)