Warranty Retail Rate Reimbursement:To Surcharge or Not to Surcharge, That is the Question

by McNees Wallace & Nurick LLC

Pennsylvania’s dealer franchise protection law, the Board of Vehicles Act (Act), was recently amended effective December 31, 2013. Through the diligent efforts of PAA, the amendments to the Act include:

  • Reducing the manufacturer warranty repair and sales incentive audit chargeback time frame from 24 months to 9 months;
  • Allowing a dealer engaged in building a new facility, or remodeling  or upgrading a current facility, to use substantially similar goods and services through a dealer’s selected vendor; and
  • Providing a new, optional process for a dealer to submit for, and receive, reimbursement at the dealer’s retail rate for warranty parts and labor.

This third item, retail rate reimbursement for parts and labor, has been an issue of contention for years with many dealers. Dealers have argued that retail, non-warranty customers have been subsidizing the manufacturer’s less than market reimbursement rates for warranty repair parts and labor. Some manufacturers have not provided appropriate parts and labor cost pay increases to dealers over the years. As a result, dealers have been looking for a way to secure market rate warranty parts and labor repair reimbursement from manufacturers. This new provision has been utilized in numerous other states, such as New Jersey, Virginia and  Illinois. The provision found at Section 9(a)(2)-(3) of the Act, provides Pennsylvania dealers the opportunity to secure retail rate reimbursement for parts and labor costs for warranty repair work being performed on behalf of manufacturers.


Previous Reimbursement Rate for Labor and Parts

Previously, the Act required a manufacturer to “reasonably compensate” a dealer for warranty or other service work performed on behalf  of the manufacturer. This would include reasonable compensation for diagnostic work, service and repair work, parts, and labor. While the concept of reasonable compensation for labor rate reimbursement was  further defined under the Act, and was tied in with retail labor rates being charged, it was due for revision. On the other hand, the warranty parts reimbursement calculation or formula was not defined in a very clear manner, and needed to be revised to give dealers an ability to ensure an appropriate warranty parts rate of reimbursement.


Optional Retail Reimbursement Rate Process Created

Dealers were looking for the parts and labor reimbursement provisions to be clarified, improved and strengthened, as had been done in other states, to permit a dealer to use a new, optional process to receive an increased retail rate of reimbursement for warranty parts and labor.  While very detailed in execution, in short, in order for a dealer to receive a rate increase, a dealer will need to submit 100 non-warranty repair orders to determine the appropriate reimbursement rate to be provided for  parts and labor. There are numerous exceptions to the calculation process to remove manufacturer subsidized parts for recalls, and special or promotional discounts, parts sold at wholesale, items not having individual part numbers, etc. However, a dealer may only submit for a retail rate reimbursement increase for parts and labor once each calendar year. Each dealership will need to determine if the detailed submission process for the retail rate of reimbursement for warranty parts and labor is worth the effort and cost involved. Warranty processing vendors and CPA firms are assisting with the detailed filing process. There may be other impacts that might result, such as a vehicle invoice surcharge, as discussed below.


No Statewide Surcharge of Dealers Who are Not Receiving Retail Rate

While the Act’s new provision allows a dealer to request a retail rate of reimbursement increase, the new provision also allows for a manufacturer to offset and charge a surcharge, if a dealer receives the retail cost for warranty parts and a labor rate increase. However, the Act’s new provisions do prevent a manufacturer from surcharging a dealer that does not apply for, or does not receive the retail parts and labor rate increase. While in other states manufacturers have imposed surcharges, dealers in other states have indicated most have been minor in comparison to the retail rate benefits received. In some states, some surcharges initially imposed, have since been dropped. Other dealers have surcharges imposed in some states by a manufacturer, but that same manufacturer is not surcharging in other states. While other manufacturers are not surcharging at all. So it is uncertain how the surcharge issue will affect dealers in Pennsylvania (and if charged, how much). However, some dealers in Pennsylvania have already been threatened with surcharges, if a dealer requests a retail rate of reimbursement for warranty parts and labor.


Manufacturers Threaten Dealers to Not Request Increase

These latest Act revisions provide a dealer an optional process to receive retail rate of reimbursement for warranty parts and labor, as is found in numerous other states. As unbelievable as it seems, there have been numerous dealer reports of various manufacturers  leveling implied threats of retribution (besides surcharges) against a dealer, who submits an increase request through the retail rate reimbursement  process. However, the Act’s other long standing provisions regarding inappropriate manufacturer activity, also restrict a manufacturer from threatening (or actual) conduct to be imposed against a dealer for taking advantage of any of a dealer’s rights under the Act. This includes seeking a retail rate parts and labor reimbursement increase. Any improper threats (or actions) can be reported to the dealer licensing board to be handled as a complaint against a manufacturer, which is also licensed by the board.


To Surcharge or Not to Surcharge

With this additional, new provision found at Section 9(a)(2)-(3) of the Act, which became effective on December 31, 2013, Pennsylvania dealers have the opportunity to secure retail level reimbursement for parts and labor costs for warranty repair work being performed on behalf of manufacturers. However, each dealership will need to determine based on its own review, if the detailed submission process for the retail rate of reimbursement for warranty parts and labor is beneficial versus the effort involved. Finally, whether a manufacturer is to surcharge or not to surcharge, is also a primary question.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McNees Wallace & Nurick LLC | Attorney Advertising

Written by:

McNees Wallace & Nurick LLC

McNees Wallace & Nurick LLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.