2006 Code of Virginia § 46.2-1571 - Warranty obligations

46.2-1571. Warranty 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. Claims fordealer compensation shall be paid within thirty days of dealer submission orwithin thirty days of the end of an incentive program or rejected in writingfor stated reasons. The manufacturer, factory branch, distributor, ordistributor branch shall reserve the right to reasonable periodic audits todetermine the validity of all such paid claims for dealer compensation. Anychargebacks for warranty parts or service compensation and service incentivesshall only be for the twelve-month period immediately following the date ofthe claim and, in the case of chargebacks for sales compensation only, forthe eighteen-month period immediately following the date of claim. However,such limitations shall not be effective in the case of intentionally false orfraudulent claims. A dealer shall not be charged back or otherwise liable forsales incentives or charges related to a motor vehicle sold by the dealer toa purchaser other than a licensed, franchised motor vehicle dealer andsubsequently exported or resold, provided the dealer can demonstrate that heexercised due diligence and that the sale was made in good faith and withoutknowledge of the purchaser'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 compensate its motor vehicle dealers licensed in the Commonwealthfor warranty parts, work, and service pursuant to subsection A of thissection, or for legal costs and expenses incurred by such dealers inconnection with warranty obligations for which the manufacturer, factorybranch, distributor, or distributor branch is legally responsible or whichthe manufacturer, factory branch, distributor, or distributor branch imposesupon 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; or

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.

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.

(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.)