Proposed New Jersey Bill Causes Standoff Between Dealers And Automakers

A bill in New Jersey is under fire from automakers. This legislation would impose greater penalties on automakers that violate contracts with dealers. Automakers are upset. They feel that this bill would increase their cost of vehicle manufacturing in New Jersey. They also said they would pass that increase onto the consumer. Meanwhile, dealers would like automakers to honor their contracts.

In a release the Association of Global Automakers declared, “If passed into law, Assembly Bill 2035 and its Senate companion – Senate Bill 927 – would create the most onerous, anti-consumer, anti-business auto franchise regulations in the country.” The quote ends by noting that this quote came from the North American heads of BMW, Jaguar, Land Rover, Ferrari, Maserati, Mercedes-Benz, Subaru and Volvo Cars.

If the bill passed as written, automakers would have three times the penalties if they violate agreements with dealers. Those agreements include compensation for recall repair work. For more on this topic, we turned to the Director of Fixed Ops at DrivingSales, Denim Simpkins. Simpkins, a fixed ops veteran and industry insider said there are four reasons why dealers may not get paid back exactly what they put in for recall repair work. According to Simpkins, these factors influence the balance paid to dealers for warranty repair work.

1 – DOLLAR AMOUNT PAID FOR WARRANTY LABOR

OEMs and dealers have established a warranty labor rate. Automakers determine their reimbursement rate by averaging out 100 consecutive repair orders. If the dealer posts that their “door rate” or “retail rate” is $100 (for example) their average typically comes out to about 10% to 15% LESS.”

2 – THE AMOUNT OF TIME TO BE PAID TO COMPLETE THE JOB

Warranty repairs have a “labor time” to complete the job and this labor time is substantially less than the “book time” used for estimating retail repairs. In most cases the book time comes from the estimated warranty time times 1.5.

3 – THE AMOUNT PAID FOR THE PART

The standard parts markup for retail sales is cost times 1.7. So a part that costs the dealer $100 would be sold for $170 to the retail. A typical parts mark up for warranty repairs is cost times 1.4. Something to keep in mind is that the dealer can go through the same process used to increase the labor can be done for parts and most dealers have capitalized on this and now are getting “retail” for the warranty parts.

4 – FEAR OF THE FACTORY AUDIT

Dealers are going to be audited. The OEM is looking for money and most dealers processes are not very compliant as it states to the warranty and policy manual. So when they review some of your RO’s you will be debited for any lack of compliance in most cases it’s for the entire repair.

What do you make of this bill in New Jersey? Is there a problem with automakers not fully reimbursing dealers for recall repairs? Finally, are there other OEM-dealer issues that need to be worked out only in and through this NJ Legislation?