The automotive industry is undergoing a significant shift in how warranty labor is reimbursed. Recent legislation in several states, including New York and Alaska, mandates that manufacturers compensate dealerships based on “reasonable” labor times, often derived from third-party guides used for customer-pay repairs. This change impacts how Automotive Labor Times are calculated and reimbursed, affecting both dealerships and manufacturers.
The Evolution of Automotive Labor Time Guides
Traditionally, Original Equipment Manufacturers (OEMs) have relied on their own flat-rate time guides to determine warranty labor reimbursement. These guides outline the estimated time required for a specific repair by a trained technician using specialized equipment. OEMs conduct rigorous time studies to establish these flat rates, incorporating time for each repair step, plus allowances for administrative tasks. However, critics argue that these times can sometimes underestimate the actual labor involved.
In contrast, third-party labor time guides are developed by independent companies that analyze OEM repair procedures and estimate repair times for independent mechanics who may not have factory training or specialized tools. These guides often reflect the realities faced by independent repair shops and may allocate more time for certain procedures. The discrepancy between OEM and third-party automotive labor times has been a source of contention within the industry.
New York and Alaska Lead the Charge in 2024
New York’s amended Vehicle and Traffic Law now explicitly defines “reasonable compensation” for warranty service, allowing dealerships to claim reimbursement based on “reasonable labor time allowances” from third-party guides used for customer-pay repairs. This amendment, effective September 4, 2024, stipulates that dealerships must actively utilize the chosen third-party guide for customer repairs and that both the guide’s usage and individual time allowances must be “reasonable.”
Alaska followed suit with a similar amendment to its dealer statute, requiring warranty labor time reimbursement to align with time allowances in independent labor time guides. Effective October 27, 2024, this amendment also prohibits manufacturers from recouping increased warranty costs by imposing additional charges on dealerships. These legislative changes reflect a growing trend towards greater transparency and fairness in calculating automotive labor times.
A Growing National Trend in Automotive Labor Time Reimbursement
New York and Alaska join a growing number of states, including Minnesota, Montana, and Illinois, that have implemented similar provisions. Minnesota’s amended statute mandates that warranty labor compensation must match the dealer’s non-warranty labor rate multiplied by their chosen time guide. Montana allows dealers to choose between OEM or third-party guides for warranty reimbursement. Illinois requires using the OEM guide multiplied by 1.5 if no agreed-upon time guide exists for a specific repair. These state-level legislative actions are reshaping the landscape of automotive labor time calculations and challenging the traditional reliance on OEM-defined times.
The Impact of Third-Party Automotive Labor Times
The shift towards incorporating third-party automotive labor times in warranty reimbursement has significant implications for the industry. It empowers dealerships with greater control over labor cost recovery and potentially leads to fairer compensation for warranty work. Manufacturers, on the other hand, face potential increases in warranty expenses. This evolving legal framework surrounding automotive labor times necessitates careful consideration by all stakeholders to ensure equitable and sustainable practices within the automotive repair industry. As more states potentially adopt similar legislation, the national conversation surrounding automotive labor times will continue to evolve.
