The Expanding Trend of Third-Party Time Guide Warranty Reimbursement
By: Micah A. Andrews
For decades manufacturers have successfully limited their labor warranty reimbursement cost paid to dealers by mandating the use of their own published factory time guides. For every manufacturer, these guides dictate the amount of time that a dealer is permitted to seek reimbursement for when performing a specific repair.
However, as all dealers who have evaluated their repair practices closely have discovered — warranty labor time allowances often fail to reflect the realities of modern repair work and provide for time allowances much lower than historical published repair times created by companies unaffiliated with the OEM. While these publications – collectively referred to as “Third-Party Time Guides” – are still popularly used by dealerships for the performance of customer repair work, the OEM’s published labor time allowances are mandated for warranty work regardless of whether those time allowances accurately reflect the time required to complete the repair in a dealership service department.
This reality presents a frustrating problem for dealerships still using third-party time guides (or multiples) for customer work. Even where the dealership’s reimbursement rate can be established through a statutory rate submission process (and the OEM agrees to pay it – which is increasingly rare), many statutory calculation procedures allow the dealership to be reimbursed at the average rate it charges customers for labor. Naturally, when this average labor rate is applied to the stifled labor time allowance under the OEM’s guide – the dealership receives less compensation than the dealership would have received for the exact same repair performed for a non-warranty customer. The result; even where the dealership is being reimbursed at the same “average labor rate”, the dealership still receives less for performing the same repair under a warranty compared to customer repairs, because the time allowance is lower for warranty.
Increasingly, however, state legislatures across the country are aiming to fix this problem by allowing dealers to seek warranty reimbursement based upon third-party labor time guides commonly utilized in customer-pay repairs. This legislative trend has accelerated significantly over the past few years. States including Minnesota, Montana, Illinois, Alaska, New York, and New Jersey have now enacted statutory protections permitting dealers to utilize independent labor time guides — or similar alternative formulas tied to those guides — when calculating warranty reimbursement claims.
Minnesota’s amendments, which took effect in 2023, were among the most significant changes nationwide. The law now provides that warranty labor compensation must equal the dealer’s effective retail labor rate multiplied by the same labor time guide used for the dealer’s customer-pay repair orders. Montana similarly allows dealers to elect whether warranty reimbursement will be based upon the OEM guide or the dealer’s chosen third-party guide. Illinois took a different approach, adopting legislation that applies a 1.5 multiplier to OEM labor times when no agreed upon time guide exists.
Most recently, New York, New Jersey, and Alaska enacted new statutory provisions further expanding dealer protections in this area. New York’s amendment now requires manufacturers to compensate dealers based upon the labor time allowances contained in third-party guides utilized by the dealership for customer-pay repairs. Alaska likewise amended its statute to prohibit manufacturers from utilizing warranty time allowances lower than those contained in independent labor time guides. Additional states continue considering similar proposals and advanced bills, making it clear and encouraging that this legislative movement is not slowing down.
Not surprisingly, OEMs have opposed these developments. Regardless of where one falls in the larger debate, dealers should recognize that these legislative developments create significant opportunities to support the financial profitability of their service operations. Dealers located where it is statutorily permitted should ensure they have implemented procedures and pursued reimbursement based on third-party time guides as specified by their respective statute.
Understanding these evolving reimbursement frameworks has become increasingly important to fixed operations profitability and should be evaluated by all dealerships. Questions regarding warranty reimbursement submissions, third-party labor time guide requirements, or state-specific dealer protections should be directed to your experienced dealer lawyer.