It’s the Law! – Auto Manufacturers Are Required to Reimburse Dealers For Warranty Parts and Labor
In July 2012, Massachusetts became the latest state to pass a warranty parts law requiring automotive manufacturers to reimburse dealers retail rates for warranty labor and parts. Currently, there are 17 states, including Massachusetts that have warranty parts provisions that include a defined method of calculation (100 repair order analysis). In addition to these 17 states, there are 15 other states that have warranty laws that require retail reimbursement of warranty parts, but do not provide a specific methodology to substantiate a dealer’s retail rate. In the absence of a defined calculation method, several manufacturers, (e.g.: Ford, General Motors, Chrysler, Kia, etc.) required its franchised dealers to adhere to its National Warranty Reimbursement Policy.
This signifies a big victory for the automobile dealerships in Massachusetts. Most automotive manufacturers reimburse dealers for warranty parts at a rate of cost, plus 40% which differs from the average dealer who marks up retail parts at cost, plus 70% to 90%. The impact it will have on the dealership’s bottom line will vary based on the mark-up percentage of retail parts and the volume of warranty part sales they generate. On average, it should add thousands of dollars of gross profit per month for a dealership.
Over the past few years, O’Connor & Drew, P.C. has assisted hundreds of dealers in various states, including Massachusetts, in obtaining retail rate reimbursement for warranty parts under the old law. This includes, but is not limited to, Honda, Acura, General Motors, Ford, Chrysler, Subaru, Nissan, Hyundai, BMW, Volvo, Mazda, Audi, Land Rover and Jaguar. Because of our extensive experience and knowledge on this issue, we have a solid understanding of the process and the parts that each automotive manufacturer will accept as qualifying.
Dealers should submit for a rate increase as soon as possible in order to start capitalizing on the additional revenue. If you would like additional information and the easy steps you can take, please call Frank O’Brien, CPA, CIA, CFE at (617) 471-1120.