Kia’s trained technician warranty reimbursement policy

So one of your long-time, highly experienced Kia technicians has allowed some of his training to lapse, but he continues as usual to perform warranty repairs according to all Kia repair procedures. Your dealership continues to submit warranty reimbursement claims as usual and is paid as usual. However, Kia is now enforcing a policy it claims to have announced in 2007, which states that “warranty claims for those repairs with corresponding trained technician warranty claim edits will be denied if the repairs were not performed by a fully-certified Kia technician.” It is unclear whether previously paid warranty claims will be charged back or if the denial of reimbursement will apply going forward. In either case, you stand to lose significant revenue from repairs performed by your most qualified, yet non fully-certified, technician.

This policy strikes me as draconian and impossibly inflexible! We all know that the reality is that most technician training involves something other than giving the technician critical repair information that cannot be found anywhere else. Instead, a technician with experience can successfully follow manufacturer procedures in completing the repair. In most cases, training and certification is not critical to a proper repair.

For a Kia dealer faced with a chargeback or nonpayment due to a repair being made by a non fully-certified technician, state motor vehicle franchise laws may be available to assist. Depending upon the specific wording of the warranty reimbursement and chargeback provision within your state law, it may be that Kia is prohibited from applying this Trained Technician Compliance rule. The most helpful franchise protection will include language that specifically defines and limits when it is appropriate for the manufacturer to not reimburse the dealer for warranty repair work. Language restricting the manufacturer to situations involving a failure to perform the repair or reporting materially false information will be most helpful in insisting that Kia be reasonable in its warranty reimbursement procedures.

Nissan’s new sales performance measurement

All Nissan dealers recently received notice that Nissan’s regional sales effectiveness measurement has changed. In the March, 2011 memorandum Nissan explained that in the past it had measured dealers on both a “segment-adjusted” basis as well as a “non-segment adjusted” basis. Nissan announced that it will now use only the “segment-adjusted” basis for calculating dealers’ “regional sales effectiveness.” This is a positive development for dealers.

“Segment adjustment” refers to the registrations against which your dealership will measured. A non-segmented approach simply compares a dealer’s new vehicle sales as a percentage of all registrations made within your assigned territory as compared to Nissan’s percentage of all registrations within the region. This measurement is potentially very unfair if there is a non-Nissan dealer in your market, which sells an unusually large amount of a particular vehicle, which is not within a segment against which a Nissan vehicle competes. Such a situation has the potential to unfairly skew the registration numbers against the dealer, making the dealership appear to be deficient in sales performance as measured against the average performance of Nissan dealers in the region.

Nissan’s new approach of utilizing only segment adjusted registrations will serve to avoid the impact of a situation as described above assuming that Nissan includes the proper vehicles within the correct vehicle segments. As is discussed below with regard to Honda’s new service retention measurement policy, despite the use of only a segment adjusted measurement for other reasons, Nissan’s sales performance calculation continues to be unfair and inherently faulty.

General Motors’ notice of final changes in APR

Just days prior to my writing this month’s column, GM notified dealers across the country that it had completed its final analysis of changes required to be made to the dealer’s Areas of Primary Responsibility. You will recall that most, if not all, GM dealers were notified late last year that GM intended to study the proper assignment of census tracts to dealers’ APRs as a result of the large number of dealers no longer in the GM dealer network. As expected, in most cases, the notice stated that the preliminary studies would result in an addition of census tracts to dealers’ APRs.

You may recall that I wrote in a previous column the addition of territory could be problematic for many dealers in that there is a correlating negative impact upon a dealer’s sales performance percentage (same number of dealer sales being measured against a greater number of total registrations). As a result, we recommended that dealers study the proposed new APR maps to insure the additional territory being assigned was in fact an area in which your dealership had the best opportunity among the same-linemake GM dealers to penetrate. Due to the air mile measurement generally used by GM, many of our GM dealers found that the proposed new APR included census tracts that were more properly assigned to another dealer. We assisted those dealers in writing letters informing GM of the dealer’s belief that the proposed new APR was inaccurate.

In GM’s latest notice of their final analysis of changes to dealers’ APRs, GM acknowledges receiving the dealers’ comments and in some cases made some alterations to the originally proposed new APR. However, GM failed to make all changes requested by dealers. In some states, dealers will now have the choice to either formally protest the proposed new APR or wait to see how the change in APR affects the dealership’s sales performance numbers. In other states, the only practical option dealers have is to play the waiting game. If it appears that the change in APR has a materially adverse impact upon the dealership’s performance calculation, dealers will want to renew their demand to GM for a reversal of the changes in APR.

Honda’s new service retention policy

Honda has announced that it will begin measuring dealer’s compliance with its service obligations under the Dealer Sales and Service Agreement by requiring dealers to meet state average service retention rates. The formula announced by Honda to measure service retention raises concern. Honda states that they will be comparing “expected active UIOs” in the dealer’s assigned territory by multiplying the number of total UIO for a model year by the average UIO penetration that Honda achieves for that model year in all other markets within the state. The expected active UIOs for each model year are then added together to arrive at the total expected active UIO. The dealer’s expected active UIO is then compared to the dealer’s actual active UIO to determine the dealer’s service retention performance.

We have many of the same concerns with Honda’s new service retention policy as we do with Honda, and most other manufacturers’, sales performance calculation. Like Honda’s sales performance calculation, the use of an average for measuring service retention performance is inherently faulty. By definition, not every dealer can be at or above average. Instead, roughly one half of the dealers are above and one half are below the average. As dealers improve their performance, the average simply moves upward, such that there will always be roughly one half of the dealers below average even if all dealers are performing what an independent analysis would show is a high level.

The other problem with the use of an average is that it assumes that all markets within the measurement area, in this case the dealer’s state, are similar. As we all know, however, markets within a state can be considerably different in terms of population demographics and geography. Things like employment, average income and shopping patterns can have a huge impact upon customer behavior. In the case of vehicle service, some markets may more easily lend themselves to retaining customers than others. Yet, under Honda’s new formula, all Honda dealers within a state will be measured against the same “average” level of performance.

Honda dealers should pay close attention to any enforcement mechanisms that Honda creates relating to service retention. If you find that you are no longer entitled to certain benefits or are told that you are in breach of your service obligation under the dealer agreement, an experienced motor vehicle franchise lawyer should be contacted to assist with putting Honda on notice of the disparate effect the service retention measurement is having on your dealership.