There’s a fight brewing over Volkswagen warranties in Illinois. Automotive News reports that a year-old act requiring, at the very least, equal pay for warranty and regular jobs has allegedly forced VW to pay dealerships approximately $10 million in additional warranty reimbursement.
Put simply, car manufacturers don’t normally pay as much for warranty work as a customer with an out-of-warranty car would pay for repairs, and Illinois attempted to put a stop to that with a piece of legislation called the Multiplier Act which came into effect in 2022. We’ll delve more into this later, but those are the basics.
As a result of having to pay more money to dealerships because of this legislation, Volkswagen of America is suing several state officials with the goal of having the Multiplier Act declared unconstitutional. The automaker makes some pretty crazy claims in its lawsuit, such as the following:
Simply put, the Multiplier Act is crony capitalism at work: redistributive legislation that takes hundreds of millions of dollars from some (but not all) motor vehicle manufacturers and, for no public purpose, deposits that money directly into the pockets of politically favored Illinois dealers
Yikes. It’s almost as if the person who wrote that has never spent time in a dealership. Here’s how things actually work in most states.
Basically, factory warranties work like this: when you get something fixed at your local dealership or shop under the warranty, the automaker is the one footing the bill, not you. But automakers hate paying out for warranty work, so warranty labor jobs are usually rated at fewer hours compared to regular jobs coming in the door. This can directly impact technician earnings, as technicians at flat-rate shops get paid less for jobs with fewer book hours.
Let’s use the hypothetical example of an unspecified job that’s normally billed at 10 hours. Under warranty rates, a manufacturer could pay for just eight or nine of those hours, regardless of how long it actually takes a technician to complete the repair. In addition, warranty labor rates are sometimes lower than the labor rates that normal customers pay. In this arrangement, the franchisee gets shafted, the technicians get shafted, but the automaker saves a lot of money.
For the record, I’m a fan of paying technicians hourly rather than flat-rate. It can incentivize care and precision, make up for time lost due to rust, and help put food on technicians’ tables if a shop is ever slow. The downside is those really fast technicians who can beat flat rates lose out on some earnings, but the safety net afforded by hourly pay is generally worth it. Anyway, mini-rant over; let’s get back to the subject at hand.
Illinois’ Multiplier Act forces automakers to pay as much per warranty repair as the average person walking in off the street has to pay on an out-of-warranty car, which brings more money down the food chain and gives technician unions a new bargaining chip.
Mind you, the legislation isn’t perfect. Under state law, dealers aren’t required to pass the extra money on to technicians, and direct-to-consumer manufacturer-owned repair facilities are exempt as the legislation only amends franchise law. However, good technicians are hard to find, and non-union technicians at dealers that don’t receive a pay bump thanks to this legislation can certainly jump ship for a dealer that passes on a share of the cash.
Perhaps the craziest part of this whole saga is that the Multiplier Act has its pros for just about everyone regardless of partisan affiliation. Requiring manufacturers to pay at least retail labor rates and hours for warranty work boosts income for local dealers, can put more money into workers’ pockets under union agreements and closes a door through which global mega-corporations could rip off both the dealers taking on the risk of running a franchise and the workers earning an honest blue-collar paycheck. Supporting this notion, Automotive News reports that the bill was backed by both franchisee and union lobbyists and passed into law with bipartisan support.
It’s worth noting that Volkswagen of America is the only automaker to file suit over this legislation—not a good look by any means. In a time when cost-of-living is high, another bargaining chip for workers sounds like a good idea, so the Multiplier Act ought to stay in place.
(Photo credits: Volkswagen, Audi)
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So does this mean manufacturers can use dealer service coupons now too?
This ignores CAC – customer acquisition cost. The mfgr is supplying a steady stream of business to the dealer in terms of warranty work. The dealer effectively as a zero CAC for that work. No bad debt/credit risk, and possibly more favorable terms. No cc processing fees. And the mfgr is a high volume customer for that dealer – likely higher than any local fleets or other businesses that expect and negotiate some kind of volume pricing discount.
I don’t know what the dollar spread is between the same job for warranty and retail, after accounting for rate and hour differences, but expecting it to be equal is screwing over the mfgr. I would expect the mfgr to pay 20-30% less than me as a retail customer.
Why is government involved in a pricing matter at all? Consumers aren’t being hurt appreciably – except that retail customers pay more. This might be justified because older cars are harder (dirtier and rustier) to work on, as another commenter mentioned. But dealer service pricing is also influenced by competition from independent shops. For example, dealers charge more for intricate jobs like replacing valvetrain tensioners, but oil changes and tire rotations are routinely discounted.
On the other hand, why is the government involved with dealer technician pay as long as it’s over the minimum wage? If warranty work is so egregious, wouldn’t we hear from a technician’s union, lobby or social media group?
I suspect this Multiplier Act was more the doing of a dealership lobby than any sort of concern for technician’s welfare.
By reputation, VW reimburses its dealers so poorly for warranty work that dealers will use any excuse not to do it. New car owners end up not getting the warranty work they should be entitled to.
Hopefully those owners realize that and never buy a VAG product again.
That is going to suck for the dealers and technicians. You know who writes the labor guide? The MFG. So instead of the warranty time being the time it takes to do the job and the customer pay time being X% more, they’ll both be at the shorter warranty time.
How would that even work? Dealership would be screwing themselves any time they did the work.
Oof this one brings back memories. For a tech to do warranty work they must be trained and pass certain certifications. There’s usually an online course that is combined with an in person course, which the dealer has to pay for to send the tech out to the training. That being said, as stated in the article, warranty work pays less. You get less hours to do the same job under warranty. So, the older techs would refuse to go to training because in essence you would be losing time at work to get trained to do work that you would get paid less to do. This means that newer techs that were trained on all the latest models, engines, trans, etc. get all the warranty work because they were the only ones certified to do it. Having equal pay for warranty would encourage techs to certify, dealers to pay for the training, and for techs to actually feel like doing the warranty work.
Sounds to me like manufacturers need to make cars more simple to work on and to design them to be more reliable so they pay less in warranty.
This is VW we’re talking about here.
One of the other interesting issues here is that warranties are a liability on a car manufacturer’s balance sheet. (Eg they have to estimate the totally cost of their outstanding warranties and carry it). I wonder how much of a lot this would represent in balance sheet changes, even apart from the actual costs they incur.
Could you need not this from a different angle and say that it’s the customers with out-of-warranty repair jobs that get shafted? It’s an eight- or nine-hour job, but the end-customer gets billed for ten, because, fuck-you, that’s why. And at a higher rate, too.
When I worked in the automotive service industry years ago it was explained to me this way: Warranty pays as though you’ve done the repair before, several times over in fact, and that you don’t have to contend with things like rust. Customer pays as though you’ve never done the job before and are “figuring it out” and because its likely a bit of an older vehicle, its likely to have rusted fasteners and such. From what I recall the multiplier was usually something like 1.3-1.5x warranty time. So if warranty paid 1 hour, customer pay would be 1.3 to 1.5 hours. Sometimes the technician would be upfront with me as an advisor and say “hey, this thing is pretty rusty, better include this new bolt in the price and an extra half hour. Let the customer know. If that bolt comes out easy it’ll drop half an hour and that $5 control arm bolt in cost”
I have direct knowledge of how that aftermarket labor time sausage gets made. It’s true that warranty time is a basis for it, but you can’t just multiply by x. Sometimes the factory doesn’t provide a time for a particular operation. Sometimes they are just wrong. The people, mostly guys, that create the published flat rate times usually have real world experience, although that becomes an issue after they’ve worked at the desk for a while. Real world tech marches on, but their hands on knowledge doesn’t
If we didnt have an Alldata time for a repair we would use that multiplier.
What if the book rate is 10 hours but it takes the technician 12 hours to fix it? Then the technician and dealer get shafted.
The point behind book rate for a job is that every customer gets charged for the same amount of time to fix the same problem, regardless of how slow or fast the technician is. Novice technicians might take longer than the book rate because they’re unfamiliar with the job. Skilled technicians might be able to do the job in significantly less time due to experience, clever thinking and investing in specialized tools.