ZERO COST, ZERO REIMBURSEMENT — NOT SO FAST Manufacturers supplying warranty parts at zero cost or on an “exchange” basis is a practice that has been around for a long time. However, this continues to be a misunderstood topic in terms of how the manufacturers actually compensate for these parts versus how they are required to compensate the dealer under various state laws. This practice, where manufacturers supply high-ticket parts to dealers at no cost, has become more common. While this approach might appear beneficial to some on the surface, it often results in financial challenges for dealers, who receive minimal handling allowances instead of a retail markup. This article explores the complexities surrounding zero-cost parts, focusing on the legal landscape in states like Montana, where specific provisions exist to ensure dealers are compensated fairly. We delve into the process, the challenges dealers face and the potential strategies you can employ to secure the retail markup dealers are entitled to by law. ZERO-COST PART PROVISION CONCEPT Manufacturers sometimes supply warranty parts to dealers at zero cost or on an exchange basis. This can vary from manufacturer to manufacturer but typically includes high-ticket parts such as radios, navigation units, transmissions, engines and EV batteries. When it comes to these “exchange components,” manufacturers have historically only paid a handling allowance, which can range from approximately $25 to $450, depending on the part. However, there are currently 27 states, including Montana, that mandate both warranty parts reimbursement at retail rates and have a specific zero-cost parts provision. This statutory mandate requires a manufacturer to compensate for ALL parts at a retail markup, and therefore only providing a handling allowance is in contravention of such mandate. The concept is simple: If a warranty part is provided at no cost, the manufacturer is still required to compensate the dealer at their retail markup based on the cost of the part as listed in the manufacturer’s price schedule. The realization of this reimbursement can be anything but simple, depending on the manufacturer and state. While certain parts may be supplied at no cost due to legitimate factors, there is a growing concern among dealers that many high‑cost parts are being supplied at no cost solely to circumvent paying retail markup. THE PROCESS Unfortunately, the process is all over the board, depending on the manufacturer and state. Some manufacturers have procedures in place that allow the dealer to easily submit their claim and receive retail reimbursement. Of course, some manufacturers may be willing to pay for most zero-cost parts but may balk with respect to EV batteries, which has been a huge point of contention nationwide. Many also seem to have nearly no formal process in place and will often make it difficult to obtain information on how to properly submit the warranty claim. Of course, this may be by design in many cases. A good starting point for a dealer would be to reach out to their regional representative in the process of determining how to submit for retail reimbursement on exchange parts. Most likely, this will be some form of manual submission. A point of caution By Jordan Jankowski, Chief Operating Officer, Armatus Dealer Uplift 41 MONTANA AUTO DEALER
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