Key Points
- Fair compensation for warranty and recall work: The new act requires manufacturers to reimburse dealers at prevailing rates for labor and parts in warranty and recall work, calculated based on the dealer’s actual customer-paid repair orders.
- Enhanced chargeback protections: Chargebacks are automatically stayed when challenged within 30 days, manufacturers bear the burden of proof and administrative errors cannot be grounds for denial.
- Immediate action required before April 1, 2026: Dealers should begin compiling documentation, calculating retail rates and preparing rate declarations now to maximize reimbursements when the law takes effect.
New Jersey franchised auto dealers stand to gain significant increases in warranty and recall reimbursements under a sweeping new law that takes effect April 1, 2026. The Motor Vehicle Open Recall Notice and Fair Compensation Act mandates retail-rate compensation and strengthens protections against manufacturer chargebacks. The law represents a sweeping overhaul of the relationship between motor vehicle manufacturers and franchised dealers.
The Act significantly strengthens dealer protections and includes the following:
- Mandates retail‑rate reimbursement for warranty, recall and service‑plan work.
- Establishes new compensation for stop‑sale and do‑not‑drive recall delays.
- Tightens chargeback and audit procedures.
- Imposes strict limits on parts‑pricing practices.
- Adds EV‑specific reimbursement rules.
- Expands standing for dealer associations.
- Introduces enhanced consumer recall notifications.
Collectively, these changes shift economic leverage toward dealers, impose substantial compliance obligations on manufacturers, and require both parties to update operational and contractual frameworks ahead of the effective date.
Dealers should be aware of, and begin preparing for, a number of operational, financial and compliance obligations prior to April 1, 2026 to ensure they are positioned to take full advantage of the new law.
Key Provisions of the Act
Fair Compensation for Warranty and Recall Work
The Act significantly changes how manufacturers must compensate franchisees for labor and parts in warranty and recall work. Motor vehicle franchisors are now required to reimburse franchisees at the "prevailing retail price" for labor services and parts supplied in satisfaction of any warranty, extended warranty, maintenance plan, service-related plan, or recall.
Labor
For labor reimbursement, the prevailing retail price is calculated as the average hourly labor rate charged to retail customers. A franchisee may establish its average labor rate by submitting to the franchisor 100 sequential customer-paid service repair orders or 90 days of customer-paid service repair orders, whichever is less, covering repairs made no more than 180 days before submission. The declared rate becomes effective 30 days following the declaration, subject only to an audit of the sample submitted.
Labor “prevailing retail price” = average hourly labor rate charged to retail customers.
Parts
For parts markup, the franchisee may establish its average percentage parts markup by submitting 100 sequential customer-paid service repair orders or 90 days of such orders, whichever is less, and declaring the average percentage markup. The franchisor's audit authority is limited to the sample submitted, and any proposed adjustment must be based solely on that sample.
Parts “prevailing retail price” = dealer’s cost for the part (including shipping and related charges) multiplied by (1.0 + the dealer’s average percentage parts markup) for parts purchased from the franchisor and sold at retail.
To establish these rates for labor and pants in warranty and recall work, a dealer may submit 100 sequential customer-paid service repair orders or 90 days of customer-paid repair orders (whichever is less), covering repairs made within the prior 180 days.
The law carefully specifies what must be excluded from the rate and allowance calculations, including:
- Wholesale repairs.
- Routine maintenance (e.g., standard brake/bulb/fluid/filter/battery/belt replacements not associated with a repair).
- Collision- and road hazard-related work.
- Insurance carrier work.
- Vehicle reconditioning, accessories.
- Government and certain service contract provider work.
- Repairs involving aftermarket parts (for specific calculations).
- Tire work.
- Repairs performed on vehicles owned by the dealer or its employees.
These exclusions are critical for dealers when preparing submissions.
Retail Labor Time Allowance
Beyond rate setting, the Act permits dealers to replace the OEM’s time guide for franchisor-paid repairs with a statutorily derived average retail labor time allowance.
Dealers may compute a multiplier by:
- Taking the total hours billed in the 100 sequential (or 90-day) customer-paid repair sample.
- Dividing by the total hours that would have been allowed for those same repairs under the franchisor’s labor time guide.
That multiplier is applied to the franchisor’s time guide to create the dealer’s average retail labor time allowance for manufacturer-paid repairs.
As with rates:
- The new allowance is effective 30 days after declaration, subject only to sample-based audit.
- Any proposed adjustment must rely solely on that sample.
For business planning, this mechanism can materially increase reimbursable hours on franchisor-paid work — aligning them more closely with what retail customers already pay.
Chargeback Protections
The Act strengthens procedural protections for franchisees facing chargebacks. If a franchisee or its representative institutes an administrative or judicial action challenging a chargeback within 30 days of receiving final notice, the total proposed chargeback amounts are stayed without bond until final judgment. Franchisors bear the burden of proof that the franchisee did not make a good faith effort to comply with reasonable written procedures, did not actually perform the work, or that the claim was materially false or fraudulent. Claims cannot be denied or charged back due to administrative or scrivener's errors. The Act also explicitly prohibits franchisors from reducing compensation through chargebacks, removal from incentive programs or reduction in incentive amounts because the franchisee submitted a claim for recall or warranty reimbursement.
Parts and Labor Pricing Protections
The Act prohibits franchisors from unilaterally reducing or manipulating the price of parts required for warranty or recall work in a manner that unfairly reduces franchisee compensation. This includes changes to parts pricing within 60 days preceding a recall announcement, anytime after a recall or after a warranty claim has arisen. Franchisors also may not create new part numbers for the same part used in warranty or recall repair as a means to reduce compensation.
Standing for Trade Associations
The Act grants standing to corporations or associations primarily owned by or comprised of motor vehicle franchisees to bring actions in court on behalf of any franchisee or group of franchisees for violations of the Franchise Practices Act. This provision allows organizations such as the New Jersey Coalition of Automotive Retailers (NJ CAR) to pursue enforcement actions on behalf of member dealerships, strengthening industrywide accountability and providing an additional avenue for challenging manufacturer violations.
Recommended Action Items for Dealerships
To capitalize on these new protections and ensure compliance, dealerships should consider the following steps:
1. Compile Required Documentation Now. Begin immediately assembling 100 sequential customer-paid service repair orders or 90 days of such orders for labor rates, parts markup and labor time allowances. These records must cover repairs made no more than 180 days before submission, so dealers should start collecting qualifying repair orders now to be ready for the April 1, 2026 effective date.
2. Calculate Your Retail Rates. Compare your current manufacturer reimbursement rates to the retail rates you charge customers. Calculate your average retail labor rate, average percentage parts markup, and average retail labor time allowance using the statutory methodology. Be mindful that certain categories are excluded, including routine maintenance, wholesale repairs and collision repairs.
3. Submit Rate Declarations Promptly After April 1, 2026. Declared rates become effective 30 days following submission, so dealers should submit rate declarations to manufacturers as soon as the Act takes effect to begin receiving higher reimbursement rates.
4. Train Staff on Chargeback Protections. Ensure service department management understands the new chargeback protections, including the automatic stay of chargebacks when challenged within 30 days and the franchisor's burden of proof. Staff should know that administrative errors cannot be grounds for chargebacks.
5. Document Parts Pricing. Maintain records of parts pricing to identify any manufacturer manipulation of prices around recall announcements or warranty claims. The Act prohibits price reductions within 60 days of a recall or after a warranty claim arises.
Conclusion
The Motor Vehicle Open Recall Notice and Fair Compensation Act creates significant opportunities for New Jersey dealerships to increase warranty and recall reimbursement revenue. Dealers who act now to compile documentation and calculate retail rates will be positioned to submit rate declarations immediately upon the April 1, 2026 effective date. We are available to assist with reviewing your current reimbursement structures, calculating retail rates, preparing rate declarations and advising on compliance.
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