Antitrust Law Daily GM’s warranty cost recovery surcharge did not violate state law
Tuesday, September 25, 2018

GM’s warranty cost recovery surcharge did not violate state law

By J. Preston Carter, J.D., LL.M.

General Motors’s proposed warranty cost recovery surcharge on new vehicles invoiced to its Wisconsin dealers who elect warranty work reimbursement rates under the warranty work reimbursement provisions of the Wisconsin auto dealer law, rather than under GM’s Service Policies and Procedures (P&P) Manual, did not violate the plain language of the Wisconsin statute, held the federal district court in Milwaukee, Wisconsin. Therefore, the court denied the dealers’ motion for summary judgment on counts seeking a permanent injunction and declaratory judgment, and it granted GM’s motion for summary judgment. The court’s order allows the dealers to file an amended complaint (Don Johnson Hayward Motors Inc. v. General Motors LLC, September 24, 2018, Pepper, P.).

Under its Sales and Service Agreement with General Motors, automotive dealerships are authorized to sell and service GM vehicles. Under this agreement, dealers buy newly manufactured vehicles from GM at a price set forth in an invoice. Each dealer buys parts, provides labor, and performs the service on GM vehicles under GM’s new motor vehicle warranties. Dealers are obligated to use only genuine GM parts and accessories in performing warranty repairs.

GM sent letters to its dealers announcing its proposal to apply a $219 charge to each new motor vehicle invoiced to any Wisconsin dealer who has elected to receive a retail parts reimbursement for warranty work in accordance with the Wisconsin statute in lieu of GM’s standard reimbursement rate, and a $389 charge to each new motor vehicle invoiced to any dealer who has elected to receive the retail parts and labor reimbursement. The 13 dealers in this suit claimed that the effect of this policy will increase the cost to each Wisconsin GM dealer solely because that dealer has elected to be reimbursed for warranty work in accordance with the Wisconsin statute, constituting a breach of contract and violation of the Wisconsin statute.

Wis. Stat. 218.0125 allows dealers to request that GM reimburse them for parts and labor according to a statutory formula. The dealers asserted that "[t]he sole issue currently presented by this case is whether the Wisconsin legislature intended to permit manufacturers to recover some or all of the increased amounts they are required to pay dealers electing to be compensated for warranty work under Wis. Stat. § 218.0125 by selectively surcharging those same dealers[.]" The dealers characterized the issue as a "simple question of statutory construction," and argued that the answer to their question is that the legislature did not intend for manufacturers to recover the compensation through a surcharge.

GM contended that the "sole issue before the Court is whether Wisconsin law affirmatively precludes [the defendant] from increasing the prices of vehicles it sells to Wisconsin dealers that have demanded enhanced statutory warranty reimbursement in order to offset the additional warranty expense associated with those vehicles."

Looking to the language of the law, the court said the statute requires manufacturers to pay qualifying dealers "reasonable compensation" for performing repairs that are the manufacturer’s responsibility, and it precisely and specifically defines "reasonable compensation." The dealers argued that if a manufacturer can surcharge qualifying and requesting dealers to recoup the cost of the "reasonable compensation," those dealers won’t receive the "reasonable compensation" provided by the plain meaning of the statute. GM said that it is tying the price increase to the number of vehicles a dealer purchases rather than to the amount of its warranty activity and that dealers can control how many GM vehicle they buy and the retail prices they charge to customers.

According to the court, the question comes down to, will the proposed price increase, based on the number of new vehicles a dealer buys, effectively reduce the "reasonable compensation" received by the dealers who request it? For those dealers who, in the face of the proposed price increase, accept the defendant’s offer to revert to the contract rate, the answer is no. Reverting to the contract price would be their prerogative. The statute does not require a dealer to seek compensation—whether to do so is the dealer’s choice. Also, for those dealers who continue to seek statutory compensation, the court believes that the answer also is no. Although the increased cost would impact the dealer’s bottom line, the court conceded, requiring the dealer to charge a higher retail price or cut costs, "it is a stretch to say that this kind of indirect impact mandates the conclusion that the cost recovery program denies dealers the ‘reasonable compensation’ required by the plain language of the statute."

The court concluded by stating that "There may be something problematic with the defendant’s plan to increase wholesale car prices only for those dealerships that receive compensation under §218.0125." The court added that it would not predict how it would rule on any other challenge to the proposed plan. However, the issue before it was whether the plan violates Wis. Stat. 218.0125, and it held that it does not.

This case is No. 2:16-cv-01350-PP.

Attorneys: Gary L. Antoniewicz (Boardman & Clark LLP) for Don Johnson Hayward Motors Inc., Gross Motors Inc. and Gross Chevrolet-Buick-GMC Inc. Katherine Moskop (Seyfarth Shaw LLP) for General Motors LLC.

Companies: Don Johnson Hayward Motors Inc.; Gross Motors Inc.; Gross Chevrolet-Buick-GMC Inc.; General Motors LLC

MainStory: TopStory FranchisingDistribution WisconsinNews

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