89R10022 AND-F

By: Patterson H.B. No. 3859

A BILL TO BE ENTITLED

AN ACT

relating to motor vehicle franchised dealers and the reimbursement of motor vehicle franchised dealers by manufacturers and distributors for warranty, recall, over-the-air, and preparation and delivery work.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subchapter I, Chapter 2301, Occupations Code, is amended to read as follows:

SUBCHAPTER I. [WARRANTIES:] REIMBURSEMENT OF DEALER

Sec. 2301.4001. DEFINITIONS. In this subchapter:

(1) "Goodwill repair" means a repair made by a seller for no charge that the seller is not obligated to make.

(2) "Part" includes:

(A) any component, electric vehicle battery, engine, equipment, fixture, good, part assembly, software, or transmission for a motor vehicle; and

(B) a replacement for a part listed in Paragraph (A).

(3) "Routine maintenance" includes replacement of a belt, bolt, brake pad, bulb, fastener, filter, fluid, internal combustion engine vehicle battery, nut, rotor, or wiper blade, and any other repair or service described as vehicle maintenance in the owner information booklet or similar document provided to the vehicle owner by the manufacturer or distributor.

Sec. 2301.401. WARRANTY, RECALL, PREPARATION, AND DELIVERY REQUIREMENTS. (a) On request, a manufacturer or distributor shall provide to the department a copy of the current requirements the manufacturer or distributor imposes on its dealers with respect to the dealer's:

(1) duties under the manufacturer's or distributor's warranty and under a manufacturer's or distributor's recall; and

(2) vehicle preparation and delivery obligations.

(b) Warranty, recall, or preparation and delivery requirements placed on a dealer by a manufacturer or distributor are not enforceable unless the requirements are reasonable.

Sec. 2301.402. RATE OF COMPENSATION. (a) A manufacturer or distributor shall fairly and adequately compensate its dealers for warranty, recall, over-the-air, and preparation and delivery work.

(b) A manufacturer or distributor may not pay or reimburse a dealer an amount of money for warranty, recall, over-the-air, and preparation and delivery work that is less than the amount the dealer charges a retail customer for similar [nonwarranty] work.

(c) In computing the amount of money a dealer charges a retail customer under Subsection (b) for labor, the manufacturer or distributor shall use the formula, of the following formulas, that produces the fewest number of repair orders [the greater of]:

(1) the average labor rate charged during the preceding six months by the dealer on 100 sequential [nonwarranty] repair orders paid in part by a retail customer, exclusive of:

(A) routine maintenance;

(B) tire, wheel, or wheel alignment;

(C) discounts to state agencies, insurers, or warranty or service contract providers;

(D) state inspections;

(E) goodwill repairs;

(F) accessory installation;

(G) a manufacturer's or distributor's promotion or service campaign; or

(H) repairs to a vehicle owned by the dealer, an affiliate of the dealer, or an employee of either the dealer or affiliate; or

(2) the average labor rate charged for 90 consecutive days during the preceding six months by the dealer for [nonwarranty] repairs paid in part by a retail customer, exclusive of:

(A) routine maintenance;

(B) tire, wheel, or wheel alignment;

(C) discounts to state agencies, insurers, or warranty or service contract providers;

(D) state inspections;

(E) goodwill repairs;

(F) accessory installation;

(G) a manufacturer's or distributor's promotion or service campaign; or

(H) repairs to a vehicle owned by the dealer, an affiliate of the dealer, or an employee of either the dealer or affiliate.

(d) The average labor rate under Subsection (c) is determined by dividing the total charges for labor submitted by the total number of hours charged for the repairs.

(e) In computing the amount of money a dealer charges a retail customer under Subsection (b) for parts, the manufacturer or distributor shall use the formula, of the following formulas, that produces the fewest number of repair orders:

(1) the average parts markup charged during the preceding six months by the dealer on 100 sequential repair orders paid in part by a retail customer, exclusive of:

(A) routine maintenance;

(B) tire, wheel, or wheel alignment;

(C) discounts to state agencies, insurers, or warranty or service contract providers;

(D) state inspections;

(E) goodwill repairs;

(F) accessory installation;

(G) a manufacturer's or distributor's promotion or service campaign; or

(H) repairs to a vehicle owned by the dealer, an affiliate of the dealer, or an employee of either the dealer or affiliate; or

(2) the average parts markup charged for 90 consecutive days during the preceding six months by the dealer for repairs paid in part by a retail customer, exclusive of:

(A) routine maintenance;

(B) tire, wheel, or wheel alignment;

(C) discounts to state agencies, insurers, or warranty or service contract providers;

(D) state inspections;

(E) goodwill repairs;

(F) accessory installation;

(G) a manufacturer's or distributor's promotion or service campaign; or

(H) repairs to a vehicle owned by the dealer, an affiliate of the dealer, or an employee of either the dealer or affiliate.

(f) The average parts markup for Subsection (e) is determined by dividing the total charges for parts submitted by the total cost of the parts for which charges are submitted.

(g) If a manufacturer or distributor supplies a part to a dealer at no cost or at a reduced cost for use in a repair, the manufacturer or distributor shall compensate the dealer for the dealer's cost for the part, if any, plus an amount equal to the dealer's prevailing retail parts markup, multiplied by the fair wholesale value of the part.

(h) For purposes of Subsection (g), the fair wholesale value of a part is the greater of:

(1) the amount the dealer paid for the part or a substantially identical part if presently owned by the dealer;

(2) the cost of the part as shown in the current price schedule of the manufacturer or distributor or in a price schedule issued by the manufacturer or distributor in the 24 months preceding the date of performance of the repair; or

(3) the cost of a substantially identical part shown in the current price schedule of the manufacturer or distributor or in a price schedule issued by the manufacturer or distributor in the 24 months preceding the date of performance of the repair.

(i) A manufacturer or distributor shall compensate a dealer in accordance with this subchapter if:

(1) a customer, manufacturer, distributor, or third-party requests or seeks assistance from the dealer for an over-the-air or remote installation, change, repair, update, or amendment to any part, system, accessory, or function; or

(2) the dealer performs an over-the-air or remote installation, change, repair, update, or amendment to any part, system, accessory, or function.

Sec. 2301.403. ADJUSTMENT OF RATE FOR WARRANTY WORK [LABOR RATE]. (a) A dealer may request an adjustment in the dealer's warranty work [labor] rate. The request must be sent to the manufacturer or distributor by certified mail, return receipt requested, to the address specifically designated by the manufacturer or distributor for such purpose or electronically if the manufacturer or distributor has an established portal specifically designated for such purpose and the manufacturer or distributor has given notice to the dealer of the designated address or portal, as applicable. The request [and] must state the requested labor or parts rate and include information reasonably necessary to enable the manufacturer or distributor to adequately evaluate the request as provided by this subchapter.

(b) Not later than the 60th day after the date of receipt of a request under this section, the manufacturer or distributor shall provide written notice to the requesting dealer of the approval, reduction, claimed material inaccuracy, or disapproval of the request. If the manufacturer or distributor fails to respond before the 60th day after the date the request is received, the submitted rate shall take effect on the 60th day after the date the manufacturer or distributor receives the request. If the request is disapproved, reduced, or claimed to be materially inaccurate, the manufacturer or distributor shall state in writing the reasons for the disapproval, reduction, or claimed material inaccuracy. The stated reasons for disapproval, reduction, or claimed material inaccuracy of the requested labor or parts rate must contain:

(1) an explanation of the reasons the request is disapproved, reduced, or claimed to be materially inaccurate;

(2) evidence that substantiates each stated reason;

(3) if a material inaccuracy is alleged, a copy of the calculations used by the manufacturer or distributor demonstrating a material inaccuracy; and

(4) a proposed adjusted labor or parts rate, as applicable.

(c) A requesting dealer may file a protest with the board if the manufacturer or distributor[:

[(1)] disapproves or reduces a dealer's request or claims the request is materially inaccurate[; or

[(2) fails to respond within the time required by this section].

(d) After a protest is filed, the board may uphold the manufacturer's or distributor's decision only if the manufacturer or distributor proves by clear and convincing [a preponderance of the] evidence that the disapproval, reduction, or claimed material inaccuracy of the request [or failure to respond] was reasonable.

(e) If the board does not determine by clear and convincing evidence that the disapproval, reduction, or claimed material inaccuracy of the request [or failure to respond] was reasonable, the board shall order the requested rate into effect as of the 60th day after the receipt of the request by the manufacturer or distributor.

(f) Except by agreement of the parties, a warranty labor rate or warranty parts rate established under this subchapter may not be adjusted more often than once a year.

Sec. 2301.404. TIME FOR PAYMENT. (a) A manufacturer or distributor shall pay a dealer's claim for reimbursement for warranty [work], recall, over-the-air, or [dealer] preparation and delivery work not later than the 30th day after the date of approval of the claim.

(b) A claim that is not disapproved before the 31st day after the date of receipt is considered approved.

(c) If a claim is disapproved, the manufacturer or distributor shall provide the dealer written notice explaining [of] the reasons for the disapproval.

Sec. 2301.405. CHARGE BACK TO DEALER. (a) A manufacturer or distributor may not charge back to a dealer money paid by the manufacturer or distributor to satisfy a claim approved and paid under this subchapter unless the manufacturer or distributor shows that:

(1) the claim was false or fraudulent;

(2) repair work was not properly performed or was unnecessary to correct a defective condition; or

(3) the dealer who made the claim failed to substantiate the claim as provided by the manufacturer's or distributor's requirements that were enforceable under Section 2301.401 at the time the claim was filed.

(b) A manufacturer or distributor may not audit a claim filed under this subchapter after the first anniversary of the date the claim is submitted unless the manufacturer or distributor has reasonable grounds to suspect that the claim was fraudulent.

Sec. 2301.406. PROHIBITED REQUIREMENTS FOR PAYMENT. (a) A manufacturer or distributor may not require, as a prerequisite to the payment of a claim for reimbursement, that a dealer file a statement of actual time spent in performance of labor, unless the manufacturer or distributor intends to reimburse the dealer based on the actual time spent on the repair in accordance with this subchapter and the manufacturer or distributor has given timely notice to the dealer that actual time is the basis for reimbursement.

(b) A manufacturer or distributor may not recover or attempt to recover any portion of the compensation due to a dealer for warranty, recall, over-the-air, or preparation and delivery work by reducing the amount due by a separate charge, surcharge, like charge, other charge, supplemental charge, or a reduction in return reserve allowance to the wholesale price paid by the dealer to the manufacturer or distributor for any product, including motor vehicles and parts. A manufacturer or distributor may not add any additional charge to a dealer for a service such as an information system or for the dealer's obtaining technical information and repair assistance from the manufacturer or distributor. This subsection does not prohibit a manufacturer or distributor from increasing prices for a vehicle or part in the normal course of business.

(c) A manufacturer or distributor may not establish or implement a special part number for a part used in warranty, recall, over-the-air, or preparation and delivery work if the result is lower compensation to the dealer than as calculated under Section 2301.402. This subsection does not prohibit a manufacturer or distributor from establishing or implementing a special part number for recall tracking if required by federal law.

(d) Except as otherwise provided by this subsection, compensation to a dealer for a part used in the performance of a recall must be calculated using the price for the part listed in the current parts catalog of the manufacturer or distributor or a parts catalog issued by the manufacturer or distributor in the 24 months preceding the date of the performance of the recall work, whichever results in greater compensation to the dealer. If the part, irrespective of the part number, is in a dealer's current inventory, the compensation to a dealer must be calculated using the price for the part from the manufacturer's or distributor's parts catalog at the time the part was purchased for the dealer's inventory.

SECTION 2. The changes in law made by this Act apply only to warranty, recall, over-the-air, or preparation and delivery work under Subchapter I, Chapter 2301, Occupations Code, as amended by this Act, that commences on or after the effective date of this Act. Warranty, recall, over-the-air, or preparation and delivery work that commences before the effective date of this Act is governed by the law in effect on the date the work was commenced, and the former law is continued in effect for that purpose.

SECTION 3. This Act takes effect September 1, 2025.