Lawmakers in Colorado introduced a bill on January 27, 2023 that would regulate reimbursement practices for automaker warranties. If passed, the ensuing law would require car manufacturers to reimburse dealerships for labor performed under warranty at the same rate that customers pay. The bill is similar to a law that went into effect in Illinois in January 2022.
New Bill Would Likely Increase Compensation for Repairs Under Warranty
Current Colorado law requires automakers to provide timely compensation to car dealers for warranty repairs if charges are “reasonably consistent” with the law. Senate Bill 23-078 (SB23-078) removes the “reasonably consistent” stipulation and instead requires manufacturers to reimburse dealerships even if there is a dispute about the charges. However, any billing related to warranty work must still comply with state laws.
Tim Jackson, head of the Colorado Automobile Dealers Association (CADA), told Automoblog that he and his organization support the bill, and see it as a necessary adjustment to align current warranty work billings with current price trends.
“Let’s say that the rate a customer pays at a dealership has, because of inflation and market forces, has gone from $130 an hour to $150 an hour,” he explained. “The factory reimbursement rate is still stuck between, say, $120 and $125 an hour.”
According to CarMD, the average labor rate in Colorado in 2020 was $149.43 per hour. That makes Colorado the third most expensive state in the country for auto repair labor. Jackson said that the higher rates for private customers compared to warranty labor rates can discourage technicians from doing warranty repairs.
“The labor rate [for warranty work] is going to be $130 an hour, but if I work on that one, the labor rate is going to be $150 an hour,” Jackson said. “The tech is paid commensurate with the customer pay, whether that customer is an independent customer or the factory under warranty. They will see that the ‘factory under warranty [work]’ is going to pay them less. So, it disincentivizes them from doing those [repairs].”
Colorado Warranty Bill Would Also Address Labor Time Estimates
Another aspect of the bill is the estimated labor times that reimbursements are based on. Dealerships currently bill warranty labor hours based on estimates from manufacturers. Jackson said that these estimates can sometimes be much shorter than the actual hours needed to perform warranty work like recalls.
“The factory sets those times, or time expectations, if you will,” he said. “But they’re incentivized to set them low.”
Jackson provided an example from a local Colorado car dealership. In one instance, a major automaker (who Jackson would not name) had an open recall that required replacing engine mounts.
He specified that the factory estimate for the labor time on this particular job was 2.7 hours. Since the dealership felt this was not enough time to finish the job, they decided to put their most experienced mechanic on it to see how quickly they could complete the recall work. Jackson shared that even after streamlining the process, the mechanic took 3.3 hours to finish the job.
“The best tech in the building – a 30-year veteran – can take on the same project and not get it done in less than 3.3 [hours],” he concluded. “The 2.7 estimate is not high enough. And if it’s not high enough, somebody’s getting shorted on the money coming through because they’re not able to handle as many repairs.”
If the new bill passes, those estimates could come from third-party organizations instead of manufacturers. Jackson stated that this would be a more fair way of reimbursing service centers for their time.
“What we’re looking for are more independent manuals that literally judge the time it takes to do a project and look at literally billions of projects,” he said. “So they’re very scientifically justified, if you will.”
Warranty Legislation Has Support as a Jobs Bill
When Illinois Governor JB Pritzker signed the bill SB23-078 is based on into law, he lauded the legislation as a win for workers and employers in the state.
“When we prioritize middle-class families by making sure they’re paid fairly, we build a stronger state,” said Pritzker in 2021. “All work deserves fair compensation, and I’m proud that the bill I’m signing today ensures automobile mechanics are compensated fairly for the critical skilled labor they provide.”
When speaking to Automoblog, Jackson also cited employment issues as one of the major reasons he and CADA support SB23-078. He said that with the cost of living in cities like Denver rising quickly, experienced technicians may be looking to move to less expensive places if pay doesn’t keep up.
“A service tech can say, ‘If I worked in this smaller market … maybe Oklahoma City, maybe Tulsa, maybe Kansas City, maybe Wichita, Kansas, or something like that, I may not have as much income because their hourly rate may be a little lower. But, I’ll have a much lower cost of living,’” said Jackson. “It costs 40% or 60% less to buy a home in Wichita, Kansas City, or Oklahoma City than in downtown Denver.”
Will the Colorado Warranty Bill Become Law?
According to the Colorado General Assembly website, SB23-078 is currently “under consideration.” This means that members of the Colorado House and Senate have introduced the bill but have not decided to take a vote on it yet.
With deliberation on the bill in its early stages, predicting how the General Assembly will vote – or even if they will – is an educated guess at best. However, the bill is sponsored by members of both major parties, including Sen. Rhonda Fields (D), Sen. Kevin Van Winkle (R), Rep. Iman Jodeh (D), and Rep. Mike Lynch (R).
This bipartisan support is a positive sign for Jackson and others who support turning SB23-078 into law. If lawmakers do decide to put the bill to a vote, it isn’t likely to be until the Colorado General Assembly nears the end of its first legislative session of 2023 in late April.