Automobile manufacturers do not fully reimburse their dealers for warranty work performed on their cars, causing many dealers to do inadequate and shoddy warranty work, a consumer group has charged.
Public Citizen, a Ralph Nader group, plans to file a petition today asking the Federal Trade Commission to create rules requiring disclosure of dealer and mechanic subsidization of warranty repairs.
The consumer group contends that the dealer is actually paying part of the cost of warranty work, and passing at least some of that cost on to mechanics, a situation that "impairs the value of new car warranties."
Jack Neal, of the National Automobile Dealers Association said his organization completed a study of some 1,000 dealers around the country only two months ago that revealed "several problems" with the present warranty agreements between all major automakers and their dealers.
"Nearly 75 percent of all dealers surveyed had different rates for warranty and non-warranty work," Neal said, "and they were all receiving less for warranty work."
Neal said that dealers were losing an average of $3.05 on every warranty job they did, including even the smallest and simplest repairs. And, he said, warranty work required 8-10 additional minutes of paperwork.
There were several other problems cited by the study, Neal said, including widespread dissatisfaction with the present system of having some warranty claims sit around until approved by a manufacturer's representative.
"And the manufacturer's reps are never around when you need them," Neal said the study revealed.
Another problem associated with warranty work is the fact that none of the dealer overhead is included in the automaker's reimbursements for warranty work. And, Neal said, there are also problems with payments for parts, which are lower on warranty work than on regular business.
"This is an ongoing problem," Neal said, "but the situation is improving. General Motors and Ford have proposed new, but complicated, formulas that promise to boost the labor payments for warranty work in an attempt to equalize some of the costs."
Public Citizen's Bob Schultz said his group did its own study that also disclosed another problem: ABOUT /? disclosed another problem: about 30 percent of the dealers they checked with were paying their own mechanics a lower rate to do warranty work.
"The fundamental problem with this practice is that it creates incentives to dealers and mechanics to prefer non-warranty repair work over warranty work," said Schultz in his filing. "This practice makes the purchaser's warranty less valuable, and thus it should be disclosed to the new car purchaser."
Schultz said his studies, showed that many dealers were receiving between 15 and 25 percent less than the market value of their services for warranty work. Market value was determined by the charges to non-warranty customers.
The effects of these distortions can range from "a simple refusal to perform warranty work, to delays in performing repairs, to sloppy or inadequate work if the car is accepted for repair," Schultz said.