§ 31-5.1-6. Warranty agreement. (a) Every manufacturer shall properly fulfill any warranty agreement and adequately and fairly compensate each of its motor vehicle dealers for labor and parts. In no event shall that compensation fail to include reasonable compensation for diagnostic work, as well as repair service and labor. All claims made by motor vehicle dealers for labor and parts shall be paid in accord with the provisions of this section. Any delay in payment after approval or disapproval that is caused by conditions beyond the reasonable control of the manufacturer shall not constitute a violation of this section. Reimbursement for warranty repairs or diagnostic work shall be at the dealer retail rate in effect at the time the warranty repair or diagnostic work is performed. Compensation for parts used in warranty service shall be fair and reasonable, as determined by methods described in subsection (b). Compensation for labor used in warranty service shall be fair and reasonable, as determined by methods described in subsection (c).

(b) The retail rate customarily charged by the dealer for parts shall be established by the dealer submitting to the manufacturer or distributor one hundred (100) sequential non-warranty customer-paid service repair orders that contain warranty-like parts, or sixty (60) consecutive days of non-warranty customer-paid service repair orders that contain warranty-like parts, whichever is less, covering repairs made no more than one hundred eighty (180) days before the submission and declaring the average percentage markup. The average of the markup rates shall be presumed to be fair and reasonable, however, a manufacturer or distributor may, not later than thirty (30) days after submission, rebut that presumption by reasonably substantiating that the rate is unfair and unreasonable in light of the practices of all other franchised motor vehicle dealers in the vicinity offering the same line-make vehicles. The retail rate shall go into effect thirty (30) days following the declaration, subject to audit of the submitted repair orders by the franchisor and a rebuttal of the declared rate as described above. If the declared rate is rebutted, the manufacturer or distributor shall propose an adjustment of the average percentage markup based on that rebuttal not later than thirty (30) days after submission. If the dealer does not agree with the proposed average percentage markup, the dealer may file a protest with the department not later than thirty (30) days after receipt of that proposal by the manufacturer or distributor. If the protest is filed, the department shall inform the manufacturer or distributor that a timely protest has been filed and that a hearing will be held on the protest. In any hearing held pursuant to this subsection, the manufacturer or distributor shall have the burden of proving that the rate declared by the dealer was unfair and unreasonable as described in this subsection and that the proposed adjustment of the average percentage markup is fair and reasonable pursuant to the provisions of this subsection.

(c) The retail rate customarily charged by the dealer for labor may be established by submitting to the manufacturer or distributor all non-warranty customer-paid service repair orders covering repairs made during the month prior to the submission and dividing the amount of the dealer's total labor sales by the number of total labor hours that generated those sales. The average labor rate shall be presumed to be fair and reasonable, provided a manufacturer or distributor may, not later than thirty (30) days after submission, rebut the presumption by reasonably substantiating that the rate is unfair and unreasonable in light of the practices of all other franchised motor vehicle dealers in the vicinity offering the same line-make vehicles. The average labor rate shall go into effect thirty (30) days following the declaration, subject to audit of the submitted repair orders by the franchisor and a rebuttal of the declared rate. If the declared rate is rebutted, the manufacturer or distributor shall propose an adjustment of the average labor rate based on the rebuttal not later than thirty (30) days after submission. If the dealer does not agree with the proposed average labor rate, the dealer may file a protest with the department not later than thirty (30) days after receipt of that proposal by the manufacturer or distributor. If a protest is filed, the department shall inform the manufacturer or distributor that a timely protest has been filed and that a hearing will be held on the protest. In any hearing held pursuant to this subsection, the manufacturer or distributor shall have the burden of proving that the rate declared by the dealer was unfair and unreasonable as described in this subsection and that the proposed adjustment of the average labor rate is fair and reasonable pursuant to the provisions of this subsection.

(d) In calculating the retail rate customarily charged by the dealer for parts and labor, the following work shall not be included in the calculation:

(1) Repairs for manufacturer or distributor special events, specials, or promotional discounts for retail customer repairs;

(2) Parts sold at wholesale;

(3) Engine assemblies and transmission assemblies;

(4) Routine maintenance not covered under any retail customer warranty, such as fluids, filters, and belts not provided in the course of repairs;

(5) Nuts, bolts, fasteners, and similar items that do not have an individual part number;

(6) Tires; and

(7) Vehicle reconditioning.

(e) If a manufacturer or distributor furnishes a part or component to a dealer at no cost, to use in performing repairs under a recall, campaign service action, or warranty repair, the manufacturer or distributor shall compensate the dealer for the part or component in the same manner as warranty parts compensation under this section by compensating the dealer the average markup on the cost for the part or component as listed in the manufacturer's or distributor's price schedule less the cost for the part or component.

(f) A manufacturer or distributor may not require a dealer to establish the retail rate customarily charged by the dealer for parts and labor by an unduly burdensome or time-consuming method or by requiring information that is unduly burdensome or time consuming to provide, including, but not limited to, part-by-part or transaction-by-transaction calculations. A dealer may not declare an average percentage markup or average labor rate more than twice in one calendar year.

(g) A manufacturer or distributor may not otherwise recover its costs from dealers within this state, including an increase in the wholesale price of a vehicle or surcharge imposed on a dealer solely intended to recover the cost of reimbursing a dealer for parts and labor pursuant to this section, provided a manufacturer or distributor shall not be prohibited from increasing prices for vehicles or parts in the normal course of business.

(h) Each manufacturer or distributor shall perform all warranty obligations, include in written notices of factory recalls to owners and dealers the expected date by which necessary parts and equipment will be available to dealers for the correction of the defects, and compensate dealers for repairs necessitated by such recall.

(i) A claim filed under this section by a dealer with a manufacturer or distributor shall be:

(1) In the manner and form prescribed by the manufacturer or distributor; and

(2)(i) Approved or disapproved within (30) days of receipt.

(ii) A claim not approved or disapproved within thirty (30) days of receipt shall be deemed approved.

(iii) Payment of, or credit issued on, a claim filed under this section shall be made within thirty (30) days of approval.

(3)(i) If a claim filed under this section is shown by the manufacturer or distributor to be false or unsubstantiated, the manufacturer or distributor may charge back the claim within twelve (12) months from the date the claim was paid or credit issued.

(ii) A manufacturer or distributor shall not charge back a claim based solely on a motor vehicle dealer's incidental failure to comply with a specific claim processing requirement, such as a clerical error or other administrative technicality that does not put into question the legitimacy of the claim after the motor vehicle dealer properly resubmits the claim in accordance with the manufacturer's or distributor's submission guidelines.

(iii) A dealer shall have no less than sixty (60) days from the date of notification by a manufacturer or distributor of a charge back to the dealer to resubmit a claim for payment or compensation if the claim was denied for a dealer's incidental failure as set forth in subsection (i)(3)(ii), whether the chargeback was a direct or an indirect transaction.

(iv) This subdivision does not limit the right of a manufacturer or distributor to charge back for any claim that is proven to be fraudulent.

History of Section. (P.L. 1974, ch. 292, § 1; P.L. 1981, ch. 346, § 1; P.L. 1982, ch. 448, § 1; P.L. 1995, ch. 339, § 1; P.L. 2014, ch. 353, § 1; P.L. 2014, ch. 397, § 1; P.L. 2018, ch. 127, § 1; P.L. 2018, ch. 266, § 1.)