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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If you read the statute, it’s pretty clear that this gambit is mostly about the dealers receiving the full retail price for parts used during warranty repairs. The statute says “Any time guide previously agreed to by the manufacturer and the dealer for extended warranty repairs may be used in lieu of actual time expended. In the event that a time guide has not been agreed to for warranty repairs…the manufacturer’s time guide shall be used, multiplied by 1.5.” Unless the dealer refuses to agree upon the manufacturer’s time guide, they are getting the warranty book time.
The statute also requires that the dealer be paid the prevailing retail price charged by that dealer for the same parts when sold to a retail customer. This is where the money is. Consider that warranty parts reimbursement has historically been in the neighborhood of cost + 40% or perhaps cost + 50%. This profit margin is not enough for an increasing number of dealers today. Some dealers are looking for more like cost + 100% for parts at retail. In addition to the absurdity of raking the retail customer over the coals for such a huge profit margin, it should also be considered that the dealer usually sells parts to wholesale accounts (repair shops, other dealers, etc) for cost + 15% or 20%. Some dealers even sell to customers via the web (parts are shipped out) at pricing in the neighborhood of cost + 15%. I bought a couple of Chrysler parts this way earlier today! Laws of this sort use the power of the state to compel a dealer’s biggest “customer” (warranty repair) to pay the most inflated rate for parts!
Disclosure: I have worked in the automotive service business for over over 25 years, and am currently employed by a well-known automaker.
It’s not as if any Volkswagen product ever needs warranty repairs . . . . LOL.
Next BMW will stop supplying blinker fluid to BMW dealers. Oh.
Volkswagen sucks nowadays anyway. They luxury brands they own prop them up and the only good vehicles they make are the GTI and R. I say F$&@ em and keep the law in place.
Cool, now do health care.
Unpopular opinion:
The dealers can go ahead and get “screwed over” until they stop doing stupid stuff like “market adjustments” and trying to take financial advantage of every single person that walks in their door. I don’t have very much
The employees should perhaps be paid an hourly base rate with additional pay based off of how many book hours they complete? Idk. Usually the answer is between the two opposites.
Typo city today
That’s supposed to read “I don’t have very much respect for dealers and it’s kinda irritating to regulate in favor of a middleman when they’re more than happy to screw over the people downstream of them.
Technicians should be paid hourly with bonuses for finishing under book, customer satisfaction, and rate of come-backs. Flat-rate is a dinosaur that needs to go extinct; it’s inherently punitive and unfair to the technicians.
Warranty paying the dealer less brings to mind a hospital charging less when an insured person lands in the emergency department than they charge when an uninsured person. The unfortunate uninsured person receives a bill the size of which any health insurance company would laugh at.
I wonder if having something repaired out of warranty would somehow magically reduce the 8 month lead time on a part to ‘tomorrow’? Just askin’…
Is there any possibility that this could bite dealerships in the ass? Like, if VW amends their franchise contracts to the effect of setting fixed labor rates as a requirement for continuation? Sure, they’d lose some franchises, but nowhere near all. I’d wager that a large OEM can play harder ball than a dealers/technician union, especially when discussing franchise law. I have no idea how all this works, but I wouldn’t want to be at that negotiation table if things turn sour.
If Volkswagen doesn’t want to pay fairly for warranty claims maybe they could consider making cars that don’t wind up in the service bays 10 times before their warranties are up? Idk just a thought…anyway we know that VW has a long history of ethical beh…wait, what’s that? Dieselgate? Yeah that was bad, but at least the company was founded to be the peoples’ car by…oh. Oh no. Nevermind!
Whether hourly or flat-rate is better surely depends on whether or not the tech actually gives a shit about their work. Lemme ‘splain:
I’m not a mechanic, but I do electrical work and let me tell you I really appreciate working for a shop that gives me the time I need to do my best job, and pays me by the hour. Since I give many shits, am compensated for my time, and always have another job waiting after the one I’m on right now, I take the time I need—no more, no less. If I were paid by the job, I’d be incentivized to do fast work instead of good work, and quality would inevitably suffer because I’ve got a mortgage and grocery bills and stuff just like everyone else. As someone who gives a shit about his work, you the customer want me to get paid by the hour.
A tech who doesn’t give a shit, doesn’t give a shit. They will do shit work and screw both the customer and the company at any opportunity, because they don’t give a shit. They’ll exploit whatever system you put them in, maximizing their gain at the cost of both quality and efficiency. If they’re paid by the hour, they’ll milk the jobs for all they’re worth. If they’re paid by the job, they’ll rush. It doesn’t matter what the system is, they suck either way.
That’s why pay-by-the-hour is the way to go. The shitty techs will be shitty regardless, but it will incentivize the good ones to do their best work.
I know some Kia and Hyundai cars need a lot of engine work under warranty and the book time is way too low, when I worked in a shop some of the book times you could beat by a huge amount, I remember some timing belts were 4 hours and they could be done in 45 minutes. other things like wiring harnesses could be shown as 8 hours and it could take 12 or more as you have to be really careful in the interior
Good job VW, you’ve actually managed to make me side with the fucking dealerships. Never thought I’d see the day. Get bent, greedwhores.
Yeah pay a union guy by the hour and get billed by the hour. Slow day 10 hour oil change $1,000. And those warranty book hours are just more accurate. I had an Isuzu I Mark throw a belt. Book says 10 hours because you need to remove the engine. My non warranty mechanic said remove mounts on 1 side loosen on the other slide the belt through he could do it in 2.5 hours. And he had a lower hourly rate. So i had him do it. I expected Isuzu to fight me on paying, they covered the deductible because still cheaper than the dealer. What happens when not repaired right? VW pays again or they get a warranty. What about largest customer discount? Also newer car less rust easier to work on. But yeah I bet dealers will be having stocking, shipping, parts, issues if this passes plus a healthy price increase. Like VW needs the ILLINOIS VW sales. What 100 a month. Move out tell them to suck grapes.
I have a motorcycle that’s under warranty that’s been at the dealer for 10 months. Nobody knows what’s wrong with it so they just keep throwing parts at it. Parts are slow arriving because of supply line problems (aargh!). I also know that the dealer is in no hurry because they’re not making as much money off my warrantied bike.
Ha! I was Ford dealer technician *many years ago* and here is an example of what goes on when it comes to repair work: Vehicle under warranty – and it needs a valve cover gasket replaced: Warranty pays 1HR and 3 tenths ( 1 Hr , 18 minutes) Same scenario, but the vehicle out of warranty, this is called a : “Cash Pay” and now it is 2 – 2.5 hours of labor!
And no, I DO NOT miss, one bit, working at a “Stealership” The manufacturers screw the Techs with short warranty times and the Techs ( some of them anyway) screw the customer with overly long labor times.
Here is an article that discusses the advantages of both “Book Rate” and a flat hourly rate for mechanics.
I leave it to you (plural) to determine which you think is better.
https://www.uti.edu/blog/automotive/hourly-rate-vs-flat-rate-how-auto-mechanics-are-paid
I always try to consider the potential consequences of things like this. If car manufacturers are forced to pay a higher price for recall work, my first assumption is that the prices of new cars would just inch upward to compensate. But then I wondered if recalls are a typical budget line item for new cars. Do the manufacturers assume that they’ll have to pay out a certain amount in recall work for each car they release? Or do they go in expecting to get it right the first time? Is it overly optimistic to think that maybe this type of legislation will incentivize manufacturers to try harder to avoid recalls in the first place and place a renewed focus on first time quality?
It wouldn’t surprise me if the manufacturers’ actuaries didn’t trade warranty cost futures.
Traded, not didn’t trade.
You are very astute.
If manufacturer warranty repair costs go up (because they have to pay retail) it just ends up going back into the price of cars. Warranty repair costs are a line item when a manufacturer is determining the total cost of a car.
So, what will happen is that the consumer will pay for it as the car price goes up (or the quality/feature go down to hit the same price point) to compensate for the additional expense. The dealership will get paid more. And they will pass almost nothing on to the technicians doing the work. So, it is essentially taking money from consumers and giving it to dealerships for the same work.
Ha! I was Ford dealer technician *many years ago* and here is an example of what goes on when it comes to repair work: Vehicle under warranty – and it needs a valve cover gasket replaced:
Warranty pays 1HR and 3 tenths ( 1 Hr , 18 minutes)
Same scenario, but the vehicle out of warranty, this is called a : “Cash Pay” and now it is 2 – 2.5 hours of labor!
And no, I DO NOT miss, one bit, working at a “Stealership”
Dealers will 100% keep the money, or at best give a small amount to techs during the next negotiation of their CBA. But stiff them on their pension/retirement. I’ll bet the auto dealers association is the primary driver of that legislation.
Also, Bullshit on hourly, good techs can earn 70-80 hours a week in flat rate while the lazy a-hole a few bays down can only hit 50 because he’s out back smoking half the time, or bullshitting with the service writers up in the air conditioning. Flat rate lets good techs be good techs and let’s lazy people reap what they sow.
Eh, there’s two sides to it. That tech that figured out that to replace front control arm bushings, you don’t NEED to drop the subframe completely as the book says but instead just unbolt it from the rear and pry it down can be called a good tech. However, now that good tech is introducing undue wear on the front subframe bushings and could cause premature failure leading to a customer expense. Is that tech now a lazy tech?
IDK, I was a service writer for Volvo for 8 years prior to joining the military. I see both sides of these arguements.
I get what you are saying. There are ways for techs to do poor work to get ahead but that will always come back to bite them eventually when the customer returns with resulting issues. A shop can deal with them through tracking of return service calls and making the tech take responsibility. If they do it once, they do it a lot and there is eventually a pattern that should result in some sort of employment action.
You don’t write the rules to catch the bad ones. You write the rules to empower the good ones and then you use your other tools to weed out the bottom feeders.
On a very basic scale, the repair time for an in warranty car should be a lower allotment than something with more rust, wear and mileage. If they want to work within the law, they can just add multipliers to their book times for age and mileage. Suddenly it does cost 40% more to fix a 10 year old car than a new one, regardless its warranty status, sticking it to poor people with older vehicles?
Perverse incentive achieved!
It all comes out in the wash as higher vehicle prices eventually *shrug*
Oh that’s a great plan! Warranty rate for the OEM while it’s still new enough and +5% for every 2 years the vehicle is repaired outside warranty *if it includes a price cap*. That way, the customer doesn’t have to pay as much right out of the gate, costs increase on a fixed scale that’s known to the customer, and also incentivizes the customer reaching a point that the recognize and plan accordingly for a new vehicle.
“It’s worth noting that Volkswagen of America is the only automaker to file suit over this legislation”
Volkswagen: “This legislation will cost us $10 million in warranty repair charges.” *screams and flails*
Toyota: “Warranty repair? Like, the car breaks while still new enough to be under warranty? That happens?”
hehehe came here for this
Audit the books to make sure they’re accurate for time. It used to really irk me to pay for a “5 hour job” that took the tech 2 hours and was done in a slapdash fashion. Like, I know when I dropped off the car and when I got the call it’s ready. “But the book says 5 hours, so that’s what we’re charging you.”
Or the multiple water pumps GM covered on my car because they pay 1.0 hours for a 1.5-2 hour DIY job.
In short, paying techs fairly so I don’t feel screwed and they can still put food on the table is good for everyone.
And if the book time was 5 hours and it took them 7, because your bolts were unusually rusty, you’d have paid for 5 hours, win some lose some, but an experienced mechanic who figures out a workaround that lets him do a 5 hour job in 2 1/2 shouldn’t be punished by making less money for being more efficient.
No excuse for rushing through a job and cutting corners, which seems to be what happened in your case though
Agreed, efficient mechanics shouldn’t get screwed out of wages. The current system of flagging hours does have its perks for folks who can quickly do decent work. Flag 60 hours during a 40 hour week and zero comebacks does make for a decent payday.
If the books on how long things take get more harmonized for warranty and customer paid work, that would be a decent outcome IMO. When warranty pays 1 hour and customers pay 3, something’s fishy.
It’s a stretch on VW’s part to claim this offers anyone an unfair advantage, especially when they have enjoyed an obvious advantage over the consumer for so long. It’d be funny if Illinois tried to make this lawsuit moot by passing something that would also apply this to manufacturer-owned direct-to-consumer facilities to really knock the wind out of the argument.
People love to make fun of Illinois, but it’s one of the few states that actually passes legislation that helps regular folks instead of wealthy corporations. At least most of the time.
That’s one huge reason that Sheryl and I aren’t in a hurry to leave. Yeah, everything’s expensive and our politicians are caricatures of real people, but we can feel safe that lawmakers aren’t really coming for our marriage or to make our medical care illegal. I mean, some have tried, but they continue to get shot down.
Plus when the inevitable water shortages come due to climate change our property values will skyrocket as all the Texas/Southwest/California people realize they live in unsustainable hellscapes and are forced to flee!
Well, VW knows what an out-of-warranty VW costs and VW can’t afford that on a large scale.
Speaks volumes about the manufacturer, in my opinion. Any corners that can be cut, VW cuts. Any loophole to be taken, VW takes. Any responsibility to denied, VW denies. Any lies to be told, VW takes the podium.
Give it a few days, though, and another VW-phile article will pop up here anyway.