Providing Warranty Repairs for Nonfranchised Line-Makes:

Dealer Compliance Alert: May 1, 2019

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The following question continues to surface and frankly more and more often.

“…Can my dealership perform warranty repairs for line-makes which we

are not franchised to sell or repair…?”

This question cannot be answered easily and from the exchange TRVA has had with dealers it is obvious there are many misunderstandings and oftentimes misconceptions as to what dealers believe they know about the subject.

The following are illustrations of the types of conversations the TRVA state office is having with dealers which are related to the primary question listed in bold above.

MANUFACTURER REQUEST:

▪ Several dealers reported a nonfranchised line-make manufacturer called asking the dealers to perform warranty repairs because a consumer was broken down and there is no other franchised dealer located in the immediate vicinity. The manufacturer wanted to pay the nonfranchised dealer directly for the warranty repairs.

▪ The Texas Department of Motor Vehicles, TxDMV, is very strict on this issue and requires all warranty repairs to be performed by franchised dealers on vehicles for which they are franchised by a manufacturer. There is no allowance for a nonfranchised manufacturer to “hire” or “request” a dealer to perform warranty repairs and be paid directly for providing the service.

Texas Administrative Code: Rule §215.103(d) – Upon the manufacturer’s or distributor’s prior written approval, which cannot be unreasonably withheld, only a franchised dealer of the manufacturer or distributor may contract with another person as a subcontractor to perform warranty repair services that the dealer is authorized to perform under a franchise agreement with a manufacturer or distributor. Payment shall be made by the franchised dealer to the subcontractor and NOT by the manufacturer or distributor to the subcontractor. (emphasis added)

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Best Practice Recommendation: Tell the manufacturer you can provide the service, but only if another franchised Texas dealer will SUBCONTRACT the work to your dealership. This solution is permitted within the same rule which prohibits the manufacturer from paying you directly. Here, the manufacturer contacts another RV dealer, which is properly franchised to sell and service the line-make in question, and that dealer subcontracts the work to your dealership. The manufacturer pays the franchised dealer and your dealership is paid by the franchised dealer and NOT the manufacturer.

Possible Exception: Note the word “POSSIBLE” is being used which means the process is not preapproved by the TxDMV, however, if there isn’t a franchised dealer available to perform the warranty repairs, within a reasonable distance to a broken down or distressed and inconvenienced consumer, then the local dealer MAY be granted an exception as a convenience to the consumer by the TxDMV. These instances, when they

arise, should be well documented and all communications, preferably emails, between the manufacturer and dealer, should be retained. When a TxDMV field auditor visits the dealership and finds one of these exceptions the only plausible excuse would be due to the convenience of the consumer and the TxDMV auditor should excuse the violation.

If the TxDMV auditor chooses to write up the violation, a dealer is encouraged to contact TRVA and file an appeal with the agency. The TxDMV Enforcement Division will review the appeal and TRVA will speak with the agency with the expectation of receiving a dismissal of the violation.

Caution: This possible exception should be a rare occurrence, as in rare as hen’s teeth, and not a normal practice by a dealer. If a dealer has established a pattern and practice of doing this routinely, the dealer may be exposed to multiple fines imposed by the TxDMV for performing warranty work on vehicles which they are not franchised to service.

DEALERS WITH MULTIPLE LOCATIONS:

▪ A dealer, which has multiple locations in TX, called asking it is was OK to provide warranty repairs at a location for which the line-make is not franchised since the dealer’s other location is franchised to provide warranty repairs for a particular line-make.

▪ The TxDMV licenses dealerships by location, therefore, just because the company ownership is the same, the dealership providing the warranty repairs must be franchised with the specific line-make for which the repairs are being made.

Exception: There is an exception to this which provides some relief for dealers who own multiple locations. For example, if Phil’s RV Center has a location in Austin and Houston

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and in Austin Phil’s is franchised to sell and service Airstream, however, in Phil’s Houston dealership the location does not hold an Airstream franchise. If a Phil’s Austin customer buys an Airstream and travels to Houston where a warranty issue arises and the customer goes to the Phil’s Houston location seeking warranty repairs, this is permissible under the following arrangement.

Phil’s Austin would authorize Phil’s Houston to perform the warranty service and the Austin location would pay the Houston location for the repairs. The dealer’s warranty claim would be filed by Phil’s Austin and paid to the Austin dealership even though the Houston, nonfranchised location, provided the warranty repair.

Sure, there is some paperwork involved here, but the process will keep dealers, where this is applicable, out of trouble with the TxDMV.

ONE DEALER MAKES A REQUEST OF ANOTHER:

▪ One dealer calls another and asks the other dealer to perform warranty repairs, however, the other dealer is not franchised by a manufacturer to perform warranty repairs on the line-make in question.

▪ This activity is not permitted by the TxDMV, unless both dealers are franchised for the same line-make by the same manufacturer.

Exception: There is a permissible exception, so let’s look at an illustration.

Let’s suppose Phil’s RV Center in Austin sells a Mr. Smith an Airstream and Smith, during his travels, winds up at Aztec RV Center in El Paso. Smith contacts Phil’s RV Center reporting a problem and there isn’t an Airstream dealer in El Paso to perform the warranty repairs. Phil’s contacts Aztec and arranges for the repair of Smith’s Airstream. Phil’s pays Aztec for the repairs and Phil’s bills Airstream for its warranty reimbursement. Or, to reverse the scenario, Aztec could contact Phil’s and offer to provide the service if paid directly by Phil’s. In either example, this activity is allowed by the TxDMV. Remember, subcontracting between dealers is permitted, but not by a manufacturer.

Reminder: If a dealer bills and collects warranty repair reimbursement for services provided for a nonfranchised unit this is a violation and the dealer can be fined by the TxDMV if discovered by audit.

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CONSUMER DEMANDS SERVICE:

Consumers are spoiled by auto dealers in respect to having access to warranty repairs. If a consumer purchases a Ford car or light truck the consumer can basically go to any North American Ford dealer and receive warranty support services. Franchises for auto dealers are

not issued by model, a.k.a., line-makes, but are issued for, as in the case of Ford, all passenger cars and light trucks. So, any passenger car and light truck which is manufactured by Ford can be sold and warranty repairs accomplished at a Ford dealer.

Conversely, as an example, Forest River manufactures both Rockwood and Salem travel trailers, but franchises them separately to RV dealers. In fact, at last count, Forest River had some 140 +/- different franchises available in Texas.

Most consumers who purchase a Rockwood trailer will assume any Forest River dealer can provide warranty support and consumers can become quite belligerent when seeking the repair of their units, especially while under warranty. In the event your dealership has one of these irate customers in your dealership and the manufacturer asks you to perform the warranty repairs, even though you are not franchised to do so, your dealership should refuse to do so.

One remedy, available to the consumer in these instances, would be to pay the nonfranchised servicing dealer for the service and then the consumer would provide the receipts for the repairs to the manufacturer in order to seek reimbursement when a franchised dealer is unavailable to provide the service under the manufacturer’s warranty. Remember, there is also the possibility to have the work subcontracted out to your dealership by another franchised line-make dealer as was explained in the issue discussed on the prior pages of this DCA.

IN CONCLUSION:

Always remember, the best way to conceptualize the statutory requirments and rules which govern you as a dealer can be summed up pretty well in the following.

Texas Occupations Code §2301.251 (a)(2) and (b) License Required – (a) Unless a person holds a license issued under this chapter authorizing the activity, the person may not perform or offer to perform repair services on a motor vehicle under a franchise and a motor vehicle manufacturer’s warranty, regardless of whether the person sells or offers to sell motor vehicles at the same location. (b) A franchised dealer must have both a franchised motor vehicle dealer’s general distinguishing number issued under Chapter 503, Transportation Code, and a license issued under this chapter.

So, if your dealership does not hold a franchise, e.g., license, then it may not perform any unauthorized activity, e.g., perform warranty repairs, unless it obtains the franchise to do so. As

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we have already covered there are exceptions or workarounds to this as it is related to being a subcontractor to another dealer who is franchised to perform the warranty repairs.

Never accept the assurance of a manufacturer or another dealer or a consumer that an activity is permitted by the TxDMV unless you are sure of the facts and you understand the potential

exposure to your dealership. If in doubt, call TRVA and we will be happy to comment or seek out an appropriate answer or response from the TxDMV.

Questions, please direct those to Phil Elam at philelam@trva.org.

Always be mindful, TRVA does not dispense legal advice, however, we do extensive research on a wide variety of subject matters which are germane to the RV dealer industry. We report this research in the form of Dealer Compliance Alerts in order to assist our members in obtaining and maintaining compliance with the myriad of often complex statutes and rules which are promulgated by the Texas Legislature and enforced by various state agencies.