2018 -- S 2754

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LC005318

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2018

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A N   A C T

RELATING TO MOTOR AND OTHER VEHICLES -- REGULATION OF BUSINESS

PRACTICES AMONG MOTOR VEHICLE MANUFACTURERS, DISTRIBUTORS, AND

DEALERS

     Introduced By: Senators McCaffrey, and Ciccone

     Date Introduced: March 27, 2018

     Referred To: Senate Judiciary

     It is enacted by the General Assembly as follows:

     SECTION 1. Section 31-5.1-6 of the General Laws in Chapter 31-5.1 entitled

"Regulation of Business Practices Among Motor Vehicle Manufacturers, Distributors, and

Dealers" is hereby amended to read as follows:

     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 subsection (b) 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) of this section. Compensation for labor used

in warranty service shall be fair and reasonable, as determined by methods described in

subsection (c) of this section.

     (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 which contain warranty-like parts, or sixty (60) consecutive

days of non-warranty customer-paid service repair orders which 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 such

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 such 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 such presumption by

reasonably substantiating that such 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 such declared rate. If the

declared rate is rebutted, the manufacturer or distributor shall propose an adjustment of the

average labor rate based on such 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

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distributor. If such 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 such 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.

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     (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 such defects and compensate

dealers for repairs necessitated by such recall.

     (b)(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

(3)(ii) of this section, 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.

     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO MOTOR AND OTHER VEHICLES -- REGULATION OF BUSINESS

PRACTICES AMONG MOTOR VEHICLE MANUFACTURERS, DISTRIBUTORS, AND

DEALERS

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     This act would establish standardized methods and appeals procedures for the calculation

of fair and reasonable compensation for parts and labor used in warranty services.

     This act would take effect upon passage.

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