NEWSLETTER Ford Dealers Alliance by jennyyingdi



401 Continental Plaza, Hackensack, N.J. 07601            (201) 342-4542   FAX (201) 342-3997             May 2005

                                                               SEVERAL STATES
                             NEAR CONCLUSION OF LEGAL BATTLE ON
                            WARRANTY PARTS REIMBURSEMENT ISSUE

If it seems that we, as Ford dealers,    some dealers, it has meant a ten or   As a result, the dealers filed a
are perpetually involved in some         more year battle.                     lawsuit, Acadia Motors, Inc. v. Ford
battle to force manufacturers to         Fortunately, we have made some        Motor Company in the U.S. District
reimburse dealers fairly for             progress. Three states are nearing    Court for the District of Maine
warranty work performed, it is           a conclusion.                         claiming that the surcharge was
because we have been in the                                                    illegal. The dealers prevailed. The
                                         The Maine Warranty Case
forefront of this battle for almost                                            Court determined that although
four decades.                            In 1993, Darling’s Bangor Ford was    Ford was entitled to recover its
                                         the first dealer in the state to      “increased costs of doing business”
To state that our manufacturer has       request warranty reimbursement        in Maine, it could only do so by
resisted our efforts every step of the   at his prevailing retail rate; a rightincreasing the wholesale sticker
way would certainly be an                afforded by franchise law.            price and not by imposing a
understatement. To state that Ford       Although Ford increased its           surcharge on the dealer.
and Lincoln-Mercury dealers have         reimbursement, it simultaneously
shown tremendous courage and             announced the imposition of a $160 Ford Motor Company appealed
fortitude in fighting this battle for    “warranty parity surcharge” on the decision, and, unfortunately,
all dealers would be accurate. For       cars and trucks “sold” in the state. the U.S. Court of Appeals for the
   2                                                                                         May 2005

First Circuit affirmed a portion    recoup it “additional costs of         provision in order to be able to
of the District Court’s decision    doing business in the state” and       continue surcharging the dealers
that the warranty statute does      because the statute itself is silent   in the state. The motion was
not     prohibit     Ford  from     with respect to Ford’s ability to      denied by the Court and the
recovering its costs of comp-       impose a surcharge, the Court          surcharges ceased.
liance, but it vacated that         would accept a surcharge as a
                                                                         In addition, the Complaint
portion of the decision that        means for Ford to recoup
                                                                         challenged the composition of the
required Ford to do so by           its costs.
                                                                         Motor Vehicle Board, alleging the
raising the wholesale sticker
                                    Update                               structure of the board as
price. Ford did not immediately
                                                                         unconstitutional and that manu-
reinstate the surcharge.            Ford and Lincoln-Mercury
                                                                         facturers will be unable to receive
                                    dealers responded to the loss by
In 1999, Ford informed the                                               a fair and impartial hearing
                                    amending the Maine franchise
dealers that it would again                                              because three seats of the seven-
                                    law. The statute was strengthened
impose a “warranty parity                                                member Board are reserved for
                                    by adding the following provision
surcharge” of $150 per vehicle                                           dealers.
                                    to the existing franchise law
with the expectation that it
                                    pertaining to warranty parts and On January 25, 2005, U.S.
would soon increase the
                                    labor reimbursement at retail District Judge John Woodcock,Jr.,
surcharge to $250. The sur-
                                    levels, “A franchisor may not rejected the argument. He
charge was ultimately in-
                                    otherwise recover its costs for states, “Solely because three
creased to a staggering $500.
                                    reimbursing a franchisee for parts members are dealers does not
In August 1999, the Maine           and labor pursuant to this section.” necessarily render the board
dealers again filed a lawsuit                                            composition unconstitutional.”
                                    In addition to amending its
against Ford Motor Company in                                            Judge Woodcock dismissed the
                                    franchise law, Maine established
Maine Superior Court claiming                                            suit by the Alliance of Automobile
                                    a Motor Vehicle Franchise Board
that the surcharge collected on                                          Manufacturers and upheld the
                                    for the purpose of enforcing
the part’s statement violated                                            “no recovery” [no surcharge]
                                    the provisions.
Maine franchise law. Upon                                                portion of the statute, as well.
Ford’s request, the Superior        On September 4, 2003, the Dealers in the State of Maine
Court entered a partial summ-       Alliance of Automobile Manu- are currently reimbursed for
ary judgment concluding that        facturers filed with the U.S. both warranty labor and parts
the surcharge did not violate the   District Court for the District at retail levels. Manufacturers
Maine statute. The dealers          of Maine a Complaint against have ceased collecting sur-
appealed to the Maine Supreme       Maine’s Secretary of State and the charges.
Judicial Court.                     Attorney General seeking a
                                                                         The AAM has appealed the
                                    declaration that the new statutory
On June 25, 2002, a decision was                                         decision in the First Circuit
                                    provision is unconstitutional.
rendered by the Court. The                                               Court. A decision is expected
                                    Along with the Complaint, the
decision was a bit confusing,                                            by the end of this year.
                                    manufacturers moved for a
but, in essence, it stated that
                                    Preliminary Injunction against
because both prior court
                                    the enforcement of the new The New York Warranty Case
decisions held that Ford could
   3                                                                                             May 2005

In 2001, lawsuits were filed in the   terms of the settlement have been      The surcharge, Ford explained,
U.S. District Court against the Big   sealed, plaintiff’s lawyer Leonard     was necessary as a means to
3 as a result of a court decision     Bellavia, has stated the settlement    recoup its “additional cost of
involving Ralph Oldsmobile, Inc.      includes a payment to the              doing business in the State of
v. General Motors Corp. The case      dealerships to compensate them         New Jersey” as a result of the
alleged that GM violated the law      for the shortfall in warranty          increase of warranty parts
by failing to pay the dealer for      parts reimbursement.                   reimbursement to its dealers to
warranty parts at retail rates and    (DaimlerChrysler’s suggested           retail levels. Ford and Lincoln-
prices customarily charged in a       retail price for parts is a dealer’s   Mercury dealers, who applied
dealer’s community. The Court         cost plus 67 percent.) It is our       for the increase, had been
denied GM’s request to dismiss        understanding that both sides are      receiving retail reimbursement
the case, shifting the burden of      pleased with the settlement,           on warranty parts beginning
proof from the dealer to              although it is important to note the   in 1998.
the manufacturer.                     settlement will benefit only those
                                                                             The premise of the lawsuit is
                                      Chrysler dealers who are part of
Manufacturers have routinely                                                 relatively simple. Ford warranties
                                      the lawsuit.
argued that due to the dealers’                                              the vehicle it manufacturers
failure to request reimbursement      Neither Ford Motor Company nor         against manufacturing defects.
for warranty parts at the             GM has yet approached the              The cost of warranty coverage is
prevailing market rate, the dealer    dealers with a settlement proposal.    collected by Ford in its wholesale
is prohibited from seeking            Again, it is important to note that    price to dealers, as well as the
reimbursement at higher rates at a    because the lawsuit filed is not a     Manufacturer’s Suggested Retail
later time. The Court rejected this   class action, any court decision or    Price (MSRP). In other words,
argument stating that any such        settlement is likely to benefit only   warranties, issued by Ford, run
requirement on the part of the        those dealers who are part of          directly from Ford to the
dealers was not specifically set      the lawsuit.                           purchasers of the motor vehicles.
forth in the statute. Accordingly,
                                      New Jersey Warranty Case               The Ford dealer is required to
the Court found that the
                                                                             make repairs, replacements and
statute permits this parti-       In September 2002, the Ford
                                                                             adjustments on any vehicle
cular dealership to go back       Motor Company was served
                                                                             under Ford warranty. In recent
six years and recover the         with a lawsuit filed in the U.S.
                                                                             years, Ford has acknowledged
difference between what it        District Court for the District of
                                                                             its obligation to compensate the
should have been paid despite     New Jersey representing fifty-
                                                                             dealer for labor on warranty
the fact that the dealer never    seven New Jersey Ford and
                                                                             service at approximately each
previously objected to the        Lincoln-Mercury dealers. The
                                                                             dealer’s individual prevailing
reimbursement rate.               twelve-count lawsuit challenges
                                                                             retail (customer-paid) labor rate.
                                  Ford’s defiance of New Jersey
Update                                                                       By contrast, however, Ford hist-
                                  franchise law by its June 1, 2002,
                                                                             orically did not pay its dealers
DaimlerChrysler Corporation imposition of a $125 surcharge
                                                                             the full retail rate for parts
and twenty-seven Chrysler per retail vehicle. The surcharge
                                                                             used in warranty. Instead,
dealers have recently settled the has subsequently been in-
                                                                             Ford deeply “discounted” the
federal lawsuit. Although the creased to $157.
     4                                                                                           May 2005

amount it would pay dealers for      won by Liberty Lincoln-               Update
parts. By means of this en-          Mercury, Ford was forced to
                                                                           In April 2005, both sides having
forced “discount,” Ford has          obey the law by reimbursing its
                                                                           satisfied all interrogatory, discovery
shifted to the dealer a              dealers for parts at retail levels;
                                                                           and deposition requirements, a
substantial portion of the cost of   Ford’s subsequent imposition of a
                                                                           Motion for Partial Summary
repairs or replacement parts for     surcharge negates the warranty
                                                                           Judgment was filed with the U.S.
manufacturing defects.               provision under franchise law.
                                                                           District Court for the District of
Under New Jersey franchise           By reimbursing dealers for
                                                                           New Jersey, and the Court granted
law, manufacturers are required      parts at retail level and
                                                                           the motion. Final briefs were
to reimburse their dealers for       consequently taking it back
                                                                           submitted and the dealers are
parts used in warranty at a          with a surcharge, Ford makes a
                                                                           currently awaiting Judge William
dealer’s    retail   rate.    For    mockery of the retail reim-
                                                                           Bassler’s decision.
approximately three years, and       bursement requirements. It is
only after a long legal battle       unlawful!

                        Ford Motor Company
                        Must Get Out of Our Way

There is no doubt the cost of        programs instituted by Ford           Concurrently, many programs
performing warranty work has         Motor Company have cut into           have caused an increase in our
increased tremendously over the      our profits in the service            expenses, such as:
years. Although we do not state      department. Several programs
                                                                           • Technician         certification
that all factory requirements        have included reductions in:
lack merit, i.e., technical
                                  • Labor time standards;                  • The cost of operating
certification, we do state, in
                                  • Restricted warranty repair               Fordstar Value Package and
many instances, the require-
                                    allowances, such as handling             Maintenance;
ments have far exceeded any
                                    fees in the case of assemblies;        • Equipment         requirements
semblance of reasonability.
                                  • Parts discounts;                         such as New Generation Star
Processes have become so
                                  • Parts pricing initiatives that           Tester, which replaced SBDS,
overly complicated and overly
                                    have reduced gross margins               and CPD [Computerized
burdensome that many of us
                                    and negatively impacted our              Parts Display];
probably would be unable to
                                    parts wholesale business;              • Tool requirements, including
survive a factory audit comp-
                                  • Parts pricing reductions, as             special investments in tools
letely unscathed – and it is not
                                    in the case of recalls;                  limited to the use in the case of
by accident but by design.
                                  • Out of warranty allowances;              a specific recall
In   addition,   many    of   the • Loaner car programs
  5                                                                                            May 2005

Ford must come to the              fers the consequences.       Ford    reimburse dealers for warranty
realization that without our       needs to stop interfering in our     parts at retail levels. In short, Ford
ability to be profitable in the    method of making a living. At        has to GET OUT OF OUR WAY,
service department, it is not      the very least, Ford needs to        and allow us to be the effective
only the dealer, but also the      obey the law in at least 30 states   entrepreneurs we are capable of
consumer who ultimately suf-       that require manufacturers to        being.

      Changes in Ford Policies that could cost you BIG DOLLARS $$$
   Mistakes made when performing engine and transmission replacements
                        will cause big headaches!

                                                 Parts and Service Departments MUST review.

                                               not available (out of        coverage effective for repairs
                                               stock) then a new            paid after June 1, 2005.
                                               assembly can be          •   36/36 warranty will no longer
                                               used.         Proper         apply to above situations.
                                               documentation is         •   Extended coverage only
                                               required along with          applies to OTC (over-the-
                                               regional approval.           counter) sales and customer
                                               •     Only     diesel        paid repairs.
                                               certified technicians    •   Labor claimed for OTC
                                               may work on any              failures should be in a lump
Replacement of 6.0L and 7.3L
diesel engines (under the new        engine related repair under            sum dollar amount under
vehicle warranty).                   warranty.                              miscellaneous SVCLBR (see
                                  • Refer     to     letter   dated         letter dated 4/23/2004).
• There will be no more free         May 27, 2005                       •   Handling allowance applies
   assemblies.                                                              at net pricing on all engines
• New OE diesel engines (6007 New 12/12 warranty coverage                   and transmissions.
   base part number) are eligible for remanufactured trans-             •   New transmission and engine
   only within 12/12 under the missions and engines.                        assemblies purchased directly
   new vehicle warranty.          • Any repairs paid by Ford                from Ford may only be used
• Beyond 12/12 only re-              under warranty, AWA,                   within 12/12 without prior
   manufactured (6006 or 6009        Customer         Satisfaction          approval from your Ford
   base part number) are to be       Programs or Field Service              Representative.
   used.                             Actions will only have a           •   All Level 2 dealers are
• If remanufactured assembly is      12/12 service part warranty            required to obtain approval
  6                                                                                            May 2005

  from the Hot-Line for engines    Report (362-126). Let our twenty
  and transmission assemblies’     plus years of ethical and compre-     FORD DEALERS ALLIANCE
  replaced under the new           hensive warranty experience aid              OFFICERS
  vehicle warranty.                your dealership on warranty
                                                                        AND EXECUTIVE COMMITTEE
• ESP approval is required for     audits and/or reviews. SDS
  assemblies that exceed your      would like to currently offer your            Edwin J. Mullane,
  repair approval amount.          dealership a 50 claim mini-          President and Founder (1969-2000)
• Refer to letter dated May        audit at the discounted price of       John B. Darling, Vice President
  27, 2005.                        $150 to Ford Dealers Alliance         Lawrence T. Fette, Vice President
                                       members – regularly $395.             Peter B. Griffin, Treasurer
                                       We will help find dollars         Timothy J. Guinee, Vice President
                                       lost in the warranty               Charles R. Rampone, Secretary
                                       submission process. At the       Robert X. Robertazzi, Vice President
                                       same time we can give you
                                       a piece of mind that your                    DIRECTORS
                                       dealership’s administration               Wallace E. Camp
                                       procedures will not put                 Joseph E. Carley, Jr.
                                       your franchise in jeopardy.               John C. Carmody
                                       Take advantage of this                  David R. Cartwright
                                       analysis to ensure that your               Charles Chalom
                                       dealership “meets Fords                 Robert M. Chambers
Level 1 dealers – Although you expectations”.                                 Rudolph M. Chiorazzo
are not required to call in for
                                   Here at SDS, we process warranty             John T. Grappone
prior approval on these
                                   claims,    cleanup      receivable             Robert B. Green
assembly replacements, you
                                   concerns, conduct in-house                       Allen J. Hall
will still be required to call in
                                   warranty audits and provide                  Richard J. Homan
for prior approval on ESP
                                   warranty processing/submission                  Lee M. Horner
repairs that exceed your limit.
                                   training. We are happy to assist             James F. Kennedy
Summers Dealer Services, Inc. you in any or all of your                           John M. Kingery
(SDS) is the warranty specialist warranty needs. Feel free to                  Dwight W. McGuirk
for the FDA. As FDA members contact us at (800) 361-1449 or                        Terry L. Morris
we offer to you, at no charge, the (989) 348-9755.                                  Frank Nappa
opportunity to contact us so we                                                 E. Thomas Otis, Jr.
can answer any of your warranty                                                  Mark X. Paladino
related questions. These could                                                  Richard D. Wagner
include concerns with the
Warranty Counseling Process or                                                         STAFF
we can just help you to better                                            A. Michell Van Vorst – Editor
understand the Warranty Trend                                            A 1700 Dealer Member Association

To top