46.2-1571 - Warranty and sales incentive obligations.
§ 46.2-1571. Warranty and sales incentive obligations.
A. Each motor vehicle manufacturer, factory branch, distributor, ordistributor branch shall (i) specify in writing to each of its motor vehicledealers licensed in the Commonwealth the dealer's obligations forpreparation, delivery, and warranty service on its products and (ii)compensate the dealer for warranty parts, service and diagnostic workrequired of the dealer by the manufacturer or distributor as follows:
1. Compensation of a dealer for warranty parts, service and diagnostic workshall not be less than the amounts charged by the dealer for themanufacturer's or distributor's original parts, service and diagnostic workto retail customers for nonwarranty service, parts and diagnostic workinstalled or performed in the dealer's service department unless the amountsare not reasonable. Warranty parts compensation shall be stated as apercentage of markup, which shall be an agreed reasonable approximation ofretail markup and which shall be uniformly applied to all of themanufacturer's or distributor's parts unless otherwise provided for in thissection. If the dealer and manufacturer or distributor cannot agree on thewarranty parts compensation markup to be paid to the dealer, the markup shallbe determined by an average of the dealer's retail markup on all of themanufacturer's or distributor's parts as described in subdivisions 2 and 3 ofthis subsection.
2. For purposes of determining warranty parts and service compensation paidto a dealer by the manufacturer or distributor, menu-priced parts orservices, group discounts, special event discounts, and special eventpromotions shall not be considered in determining amounts charged by thedealer to retail customers. For purposes of determining labor compensationfor warranty body shop repairs paid to a dealer by the manufacturer ordistributor, internal and insurance-paid repairs shall not be considered indetermining amounts charged by the dealer to retail customers.
3. Increases in dealer warranty parts and service compensation and diagnosticwork compensation, pursuant to this section, shall be requested by the dealerin writing, shall be based on 100 consecutive repair orders or all repairorders over a ninety-day period, whichever occurs first and, in the case ofparts, shall be stated as a percentage of markup which shall be uniformlyapplied to all the manufacturer's or distributor's parts.
4. In the case of warranty parts compensation, the provisions of thissubsection shall be effective only for model year 1992 and succeeding modelyears.
5. If a manufacturer or distributor furnishes a part to a dealer at no costfor use by the dealer in performing work for which the manufacturer ordistributor is required to compensate the dealer under this section, themanufacturer or distributor shall compensate the dealer for the part in thesame manner as warranty parts compensation, less the wholesale costs, forsuch part as listed in the manufacturer's current price schedules. Amanufacturer or distributor may pay the dealer a reasonable handling feeinstead of the compensation otherwise required by this subsection for specialhigh-performance complete engine assemblies in limited production motorvehicles which constitute less than five percent of model productionfurnished to the dealer at no cost, if the manufacturer or distributorexcludes such special high-performance complete engine assemblies indetermining whether the amounts requested by the dealer for warrantycompensation are consistent with the amounts that the dealer charges itsother retail service customers for parts used by the dealer to performsimilar work.
6. In the case of service work, manufacturer original parts or partsotherwise specified by the manufacturer or distributor, and parts provided bya dealer either pursuant to an adjustment program as defined in § 59.1-207.34or as otherwise requested by the manufacturer or distributor, the dealershall be compensated in the same manner as for warranty service or parts.
This section does not apply to compensation for parts such as components,systems, fixtures, appliances, furnishings, accessories, and features thatare designed, used, and maintained primarily for nonvehicular, residentialpurposes. Warranty and sales incentive audits of dealer records may beconducted by the manufacturer, factory branch, distributor, or distributorbranch on a reasonable basis, and dealer claims for warranty or salesincentive compensation shall not be denied except for good cause, such asperformance of nonwarranty repairs, lack of material documentation, fraud, ormisrepresentation. A dealer's failure to comply with the specificrequirements of the manufacturer or distributor for processing the claimshall not constitute grounds for the denial of the claim or reduction of theamount of compensation to the dealer as long as reasonable documentation orother evidence has been presented to substantiate the claim. Themanufacturer, factory branch, distributor, or distributor branch shall notdeny a claim or reduce the amount of compensation to the dealer for warrantyrepairs to resolve a condition discovered by the dealer during the course ofa separate repair requested by the customer. Claims for dealer compensationshall be paid within thirty days of dealer submission or within thirty daysof the end of an incentive program or rejected in writing for stated reasons.The manufacturer, factory branch, distributor, or distributor branch shallreserve the right to reasonable periodic audits to determine the validity ofall such paid claims for dealer compensation. Any chargebacks for warrantyparts or service compensation and service incentives shall only be for thesix-month period immediately following the date of the claim and, in the caseof chargebacks for sales compensation only, for the six-month periodimmediately following the date of claim. However, such limitations shall notbe effective if a manufacturer, factory branch, distributor, or distributorbranch has reasonable cause to believe that a claim submitted by a dealer isintentionally false or fraudulent. For purposes of this section, "reasonablecause" means a bona fide belief based upon evidence that the material issuesof fact are such that a person of ordinary caution, prudence, and judgmentcould believe that a claim was intentionally false or fraudulent. A dealershall not be charged back or otherwise liable for sales incentives or chargesrelated to a motor vehicle sold by the dealer to a purchaser other than alicensed, franchised motor vehicle dealer and subsequently exported orresold, unless the manufacturer, factory branch, distributor, or distributorbranch can demonstrate by a preponderance of the evidence that the dealershould have known of and did not exercise due diligence in discovering thepurchaser's intention to export or resell the motor vehicle.
B. It shall be unlawful for any motor vehicle manufacturer, factory branch,distributor, or distributor branch to:
1. Fail to perform any of its warranty obligations, including tires, withrespect to a motor vehicle;
2. Fail to assume all responsibility for any liability resulting fromstructural or production defects;
3. Fail to include in written notices of factory recalls to vehicle ownersand dealers the expected date by which necessary parts and equipment will beavailable to dealers for the correction of defects;
4. Fail to compensate any of the motor vehicle dealers licensed in theCommonwealth for repairs effected by the dealer of merchandise damaged inmanufacture or transit to the dealer where the carrier is designated by themanufacturer, factory branch, distributor, or distributor branch;
5. Fail to fully compensate its motor vehicle dealers licensed in theCommonwealth for warranty parts, work, and service pursuant to subsection Aeither by reduction in the amount due to the dealer or by separate charge,surcharge, or other imposition by which the motor vehicle manufacturer,factory branch, distributor, or distributor branch seeks to recover its costsof complying with subsection A, or for legal costs and expenses incurred bysuch dealers in connection with warranty obligations for which themanufacturer, factory branch, distributor, or distributor branch is legallyresponsible or which the manufacturer, factory branch, distributor, ordistributor branch imposes upon the dealer;
6. Misrepresent in any way to purchasers of motor vehicles that warrantieswith respect to the manufacture, performance, or design of the vehicle aremade by the dealer, either as warrantor or co-warrantor;
7. Require the dealer to make warranties to customers in any manner relatedto the manufacture, performance, or design of the vehicle;
8. Shift or attempt to shift to the motor vehicle dealer, directly orindirectly, any liabilities of the manufacturer, factory branch, distributoror distributor branch under the Virginia Motor Vehicle Warranty EnforcementAct (§ 59.1-207.9 et seq.), unless such liability results from the act oromission by the dealer; or
9. Deny any dealer the right to return any part or accessory that the dealerhas not sold within 12 months where the part or accessory was not obtainedthrough a specific order initiated by the dealer but instead was specifiedfor, sold to and shipped to the dealer pursuant to an automated orderingsystem, provided that such part or accessory is in the condition required forreturn to the manufacturer, factory branch, distributor, or distributorbranch, and the dealer returns the part within 30 days of it becomingeligible under this subdivision. For purposes of this subdivision, an"automated ordering system" shall be a computerized system thatautomatically specifies parts and accessories for sale and shipment to thedealer without specific order thereof initiated by the dealer. Themanufacturer, factory branch, distributor, or distributor branch shall notcharge a restocking or handling fee for any part or accessory being returnedunder this subdivision. This subdivision shall not apply if the manufacturer,factory branch, distributor, or distributor branch has available to thedealer an alternate system for ordering parts and accessories that providesfor shipment of ordered parts and accessories to the dealer within the sametime frame as the dealer would receive them when ordered through theautomated ordering system.
C. Notwithstanding the terms of any franchise, it shall be unlawful for anymotor vehicle manufacturer, factory branch, distributor, or distributorbranch to fail to indemnify and hold harmless its motor vehicle dealersagainst any losses or damages arising out of complaints, claims, or suitsrelating to the manufacture, assembly, or design of motor vehicles, parts, oraccessories, or other functions by the manufacturer, factory branch,distributor, or distributor branch beyond the control of the dealer,including, without limitation, the selection by the manufacturer, factorybranch, distributor, or distributor branch of parts or components for thevehicle or any damages to merchandise occurring in transit to the dealerwhere the carrier is designated by the manufacturer, factory branch,distributor, or distributor branch. The dealer shall notify the manufacturerof pending suits in which allegations are made which come within thissubsection whenever reasonably practicable to do so. Every motor vehicledealer franchise issued to, amended, or renewed for motor vehicle dealers inVirginia shall be construed to incorporate provisions consistent with therequirements of this subsection.
D. On any new motor vehicle, any uncorrected damage or any corrected damageexceeding three percent of the manufacturer's or distributor's suggestedretail price as defined in 15 U.S.C. §§ 1231-1233, as measured by retailrepair costs, must be disclosed to the dealer in writing prior to delivery.Factory mechanical repair and damage to glass, tires, and bumpers areexcluded from the three percent rule when properly replaced by identicalmanufacturer's or distributor's original equipment or parts. Whenever a newmotor vehicle is damaged in transit, when the carrier or means oftransportation is determined by the manufacturer or distributor, or whenevera motor vehicle is otherwise damaged prior to delivery to the new motorvehicle dealer, the new motor vehicle dealer shall:
1. Notify the manufacturer or distributor of the damage within three businessdays from the date of delivery of the new motor vehicle to the new motorvehicle dealership or within the additional time specified in the franchise;and
2. Request from the manufacturer or distributor authorization to replace thecomponents, parts, and accessories damaged or otherwise correct the damage,unless the damage to the vehicle exceeds the three percent rule, in whichcase the dealer may reject the vehicle within three business days.
E. If the manufacturer or distributor refuses or fails to authorizecorrection of such damage within ten days after receipt of notification, orif the dealer rejects the vehicle because damage exceeds the three percentrule, ownership of the new motor vehicle shall revert to the manufacturer ordistributor, and the new motor vehicle dealer shall have no obligation,financial or otherwise, with respect to such motor vehicle. Should either themanufacturer, distributor, or the dealer elect to correct the damage or anyother damage exceeding the three percent rule, full disclosure shall be madeby the dealer in writing to the buyer and an acknowledgement by the buyer isrequired. If there is less than three percent damage, no disclosure isrequired, provided the damage has been corrected. Predelivery mechanical workshall not require a disclosure. Failure to disclose any corrected damagewithin the knowledge of the selling dealer to a new motor vehicle in excessof the three percent rule shall constitute grounds for revocation of thebuyer order, provided that, within thirty days of purchase, the motor vehicleis returned to the dealer with an accompanying written notice of the groundsfor revocation. In case of revocation pursuant to this section, the dealershall accept the vehicle and refund any payments made to the dealer inconnection with the transaction, less a reasonable allowance for theconsumer's use of the vehicle as defined in § 59.1-207.11. Nothing in thissection shall be construed to exempt from the provisions of this sectiondamage to a new motor vehicle that occurs following delivery of the vehicleto the dealer.
F. If there is a dispute between the manufacturer, factory branch,distributor, or distributor branch and the dealer with respect to any matterreferred to in subsection A, B, or C of this section, either party maypetition the Commissioner in writing, within thirty days after either partyhas given written notice of the dispute to the other, for a hearing. Thedecision of the Commissioner shall be binding on the parties, subject torights of judicial review and appeal as provided in Chapter 40 (§ 2.2-4000 etseq.) of Title 2.2. However, nothing contained in this section shall give theCommissioner any authority as to the content or interpretation of anymanufacturer's or distributor's warranty. A manufacturer, factory branch,distributor, or distributor branch may not collect chargebacks, fully or inpart, either through direct payment or by charge to the dealer's account, forwarranty parts or service compensation (including service incentives) or forsales incentives or other sales compensation until 40 days following finalnotice of the amount charged to the dealer following all internal processesof the manufacturer, factory, factory branch, distributor, or distributorbranch. Within 30 days following receipt of such final notice, the dealer maypetition the Commissioner, in writing, for a hearing. If a dealer requestssuch a hearing, the manufacturer, factory branch, distributor, or distributorbranch may not collect the chargeback, fully or in part, either throughdirect payment or by charge to the dealer's account, until the completion ofthe hearing and a final decision of the Commissioner concerning the validityof the chargeback.
(1988, c. 865, § 46.1-550.5:30; 1989, cc. 365, 727; 1990, c. 250; 1991, c.92; 1992, c. 135; 1993, c. 90; 1994, c. 783; 1995, cc. 421, 477; 1997, c.484; 1998, c. 681; 2001, cc. 80, 89; 2006, cc. 809, 818; 2007, c. 830; 2009,cc. 173, 176; 2010, cc. 284, 318.)