GM Dealer Alert – Option C Warranty Reimbursement Program Re-Enrollment

On November 1, 2019, General Motors sent a Memorandum to dealers who are in their third year of the Option C Warranty Reimbursement Program. Attached to the Memorandum is a form allowing dealers to re-enroll in the Option C Warranty Reimbursement Program for an additional three-year period. Before completing the re-enrollment form, it is very important that dealers understand their warranty reimbursement rights under State law in comparison to the terms of the Option C program.

As GM’s November 1, 2019, Memorandum states, Option C is a three year agreement under which the dealership receives no less than a 2.5% automatic increase each year in its warranty labor rate in exchange for an agreement that the dealership will be reimbursed for parts used in warranty repairs at the base markup of 40%.

In most States, a motor vehicle manufacturer is required to reimburse dealers for both labor and parts used in warranty work at rates equivalent to the rate charged by the dealership in performing like non-warranty repair work. The reimbursement rate for labor and parts utilized in warranty work is established by the dealer pursuant to a formula provided in statute and submitted to the manufacturer for approval.  A dealer is permitted to seek an increase in its labor rate and/or parts markup periodically, most commonly once each calendar year.

Before re-enrolling in the Option C program, it would be prudent for the General Motors dealer to compare the total amount of the labor rate reimbursement over three years assuming a 2.5% increase each year plus the parts reimbursement at a markup of 40% with the total amount of the labor rate reimbursement over three years assuming payment at your retail rate each year plus a parts reimbursement at a markup rate equal to your retail markup on parts each year for three years.

In conducting this analysis, dealers may find that receiving reimbursement for labor and parts at the retail rate calculated is materially greater than what they would be paid under the Option C program.  Dealers should understand that GM must reimburse them for warranty work in an amount equal to their labor and parts retail rates as provided in the motor vehicle franchise laws regardless of any offer by GM to reimburse dealers for warranty work at a different rate/markup, including the reimbursement offered under the Option C program.