Looming Change to Repair Costs Drives Auto Industry Fight

As the state legislature considers a bill to change warranty payments, unions join their bosses to make car companies pay more.

Chris Bragg and Julia Rock   ·   March 29, 2024
A blue car suspended on a post against a blue sky with a sign below reading "PATRIOT AUTO SALES: LETS DEAL TODAY"
New York bars car manufacturers from selling directly to consumers, so they have to franchise with local dealers. | John Margolies Roadside America photograph archive / Library of Congress

Mechanic Daniel Kunz works at a General Motors car dealership in West Nyack, where General Motors assumes that it takes him 8.6 hours to repair a turbo engine in a car under warranty. The 8.6 hour estimate appears in a GM-supplied “time guide” that says how much Kunz should get paid, so that’s what he gets — regardless of how long the work takes.

“I’m thorough, I double check things, so I lose a lot,” Kunz told New York Focus. “It takes three days to do it, but they only pay you for 8.6 hours.”

On Wednesday, the state Assembly overwhelmingly passed a bill that seeks to change that. But key stakeholders — auto workers’ unions and local dealerships on one side, giant car manufacturers like GM on the other — disagree fiercely over the impact and who stands to benefit. Both sides have lobbed competing claims, but declined to produce concrete evidence. Both sides argue they’re looking out for consumers.

At a mid-March rally, the state’s auto workers’ unions joined lawmakers to press for the bill on the Capitol’s ornate Million Dollar Staircase. “When that money flows, we want to make sure that it gets to the working people that are on the job, doing the work every single day,” said state Senator Tim Kennedy, who sponsors the bill in that chamber. It now moves to the Senate floor for consideration.

Not mentioned was that the technicians’ bosses — automobile dealers — may benefit at least as much from the bill’s passage. The manufacturers, like GM, argue that under current law, dealers already generate substantial profits off warranty auto repairs. They say dealers stand to make even more of a windfall if the bill becomes law.

While a car is under warranty — usually a few years or a set number of miles after it was sold — the manufacturer pays for certain repairs. Manufacturers estimate the bill would make them pay an estimated $274 million more to dealerships annually for warranty repairs — at least a portion of which manufacturers would pass along to consumers in higher car prices.

Warranty payments have “always been something that members have complained about,” said Connor Shaw, political director of the United Service Workers Union, which represents about 1,000 technicians across car dealerships in New York. But with profits booming since the pandemic, “manufacturers have really been exploiting the fact that they have unilateral control” over warranty.

New York is one of about 30 states where car manufacturers — multinational corporations like GM, Ford, and Toyota — are limited or banned from selling cars. Instead, they have to franchise with local car dealerships for sales, and those franchise dealers employ technicians who perform warranty repairs.

As wages have stagnated and interest in the profession has declined, the industry has reportedly faced a shortage of mechanics. For repairs done on cars under warranty, mechanics tend to get paid even less.

Technicians are exempt from the Fair Labor Standards Act, which imposes the federal minimum wage and overtime pay rules, and instead are generally paid flat rates per job. Dealers provide those estimates, or time guides, when the car is no longer under warranty and the car owner is paying for the repair. When it’s still under warranty, the estimates come from manufacturers.

Unions and dealers allege that as a result, manufacturers lowball on their time guides, technicians end up getting squeezed, and consumers end up with lower-quality work.

“It takes three days to do it, but they only pay you for 8.6 hours.”

—Daniel Kunz, Mechanic

The manufacturers argue that they have no role in technician pay.

“Technicians are the dealers’ employees,” the Alliance for Automotive Innovation, a lobbying group for car manufacturers, wrote in a memo opposing the legislation. “How a dealer pays those technicians is an employer-employee matter that does not involve manufacturers.”

That’s partially true. The law has nothing to say about how mechanics are compensated. But by replacing the time guide that manufacturers use with a more generous one, it would increase the number of hours that technicians get paid for warranty jobs.

While manufacturers earn billions in profits, in Albany, they appear to be outgunned by a coalition with stronger local ties. The bill is positioned to pass through the legislature.

The workers and bosses have successfully joined to oppose the direct sale of electric vehicles to consumers by companies like Tesla, which employs non-union workers and does not sell its product through traditional franchised auto dealers. And they are pushing to pass a bill this year that would bring more regulation and oversight to the auto broker industry, which also competes with franchise car dealers.

“The bill is going to create hundreds of millions of dollars in costs every single year. That cost is going to get passed on to consumers.”

—David Bright, Alliance for Automotive Innovation

“We partner where it makes sense, we fight where it makes sense,” said Shaw, the union official. “But where we see our issues aligned, it helps open more doors when you can promote a unified front between labor and management.”

The state Automobile Dealers Association has a well-funded political action committee that, in the dealers’ own telling, helps them gain access to top state politicians for regular meetings. When New York Focus sought comment from the state Automobile Dealers Association for this article, it referred the request to union officials.

In an interview, Shaw acknowledged that it made sense for unions to take the lead on pressing for the bill’s passage. Unions enjoy more public support, and they offer ground troops to politicians during election season. But dealers are employers in communities spanning the state and prolific charitable donors. In Albany, the two make a powerful combination.

A lone catalytic converter sits displayed on a prop table. The edge of a podium and a woman's elbow are visible on the right. Elbow belongs to New York Governor Kathy Hochul.
A catalytic converter at a press conference held by Governor Kathy Hochul on October 17, 2022. | Darren McGee/ Office of Governor Kathy Hochul

Under the pending bill, dealers would use the same guide for warranty jobs as they do for non-warranty “customer pay” jobs, which generally allot more time for the work.

A water pump replacement on a Toyota, for example, is currently allocated 2.6 hours for a car under warranty, when Toyota pays. But once the car is out of warranty, and the customer pays for repairs, the same replacement can be allocated seven hours, according to a legislative memo circulated by the United Auto Workers.

Auto manufacturers argue that overhauling their time guides makes little sense because warranty work can be performed much more quickly. Franchise auto dealers work on vehicles that are newer and less rusted. Unlike independent auto shops, which serve a broader array of past-warranty vehicles, franchised auto dealers have specialized equipment and technicians tailored to a single brand.

The bill before the legislature dictates that each auto dealer may individually determine what constitutes “reasonable labor time allowances” for a given warranty repair. That means, according to the manufacturers’ Alliance, that there is “no check on the adoption and use of an ever-increasing time guide to use to bill automakers for warranty repairs.”

Technicians working on a single manufacturer’s vehicle can generally perform repairs more quickly, Assembly sponsor Kenny Burgos acknowledged. But warranty technicians “shouldn’t be penalized for being an expert on a certain manufacturer and therefore not fairly compensated,” he said.

Last Friday, the Alliance submitted proposed amendments in writing to the legislative sponsors. Burgos said they would “diminish” its intent.

One amendment would allow unions and technicians to request information about how much manufacturers paid for repairs, shedding light on dealer profits. Another — meant to address labor’s concerns that technicians are being shortchanged — would require dealers to pay technicians for “no less” than the number of hours a technician spent on a repair.

“The money will flow from the auto dealers to the technicians. We are very confident that dynamic will transpire.”

—State Senator Tim Kennedy

Manufacturers’ time guides would remain in place, but they would not be allowed to “unreasonably deny” dealer requests to modify the allowance for a specific job.

Those ideas have gained no traction with the unions, which said they’ve rejected the proposals. David Bright, a senior attorney for the manufacturers’ Alliance, said that he’s fought unions over the issue in several states, and has found repeatedly that “there’s no appetite from the other side for the middle ground.”

As the two sides fight over who would pocket the new fees, the manufacturers have turned to a common industry refrain: Paying more for work will drive up costs for consumers.

The manufacturers say dealers would rake the higher payments in, citing an Alliance-commissioned study that found that New York dealers made an eye-popping 78 percent profit on warranty repairs in 2022 — essentially keeping four out of every five dollars. (The law firm that conducted the Alliance’s study declined to share the underlying data with New York Focus.)

Dealers say that’s nonsense. Far from making a profit, they claimed in a legislative memo last year, they lose money on warranty repairs.

“Consumers are only willing to pay so much. You have to limit yourself to the market.”

—Assemblymember Kenny Burgos

Manufacturers say the bill would cost them $274 million annually, and that they’d pass much of it on to consumers. Burgos, a Democrat, said he isn’t clear on the costs — “I don’t have any figures,” he admitted when pressed by an Assembly Republican in floor debate this week — but that threats of passing costs on are overblown.

“Consumers are only willing to pay so much,” he said. “At some point, you have to limit yourself to the market.”

Chuck Bell, an analyst for Consumer Reports who focuses on New York, said that no one in the legislature is “really vetting [the bill] for the potential negative impacts on customers.”

The unions, for their part, point out that manufacturers’ profits – like car dealers’ — are at record levels. Brian Schneck, president of the United Auto Workers Local 259, who said he wrote the bill along with Shaw, said manufacturers have ample resources to eat the costs.

“What justifies them raising vehicle prices by 35 percent since 2019 — well before this bill was even thought of?” Schneck said. “They’re making billions of dollars of profit every quarter.”

a giant statue of a mechanic in a blue suit and white hat next to an arrow-shaped sign reading UNITED AUTO SALES
United Auto Sales statue on Route 64 in Clarksville, Arkansas, 1987. | John Margolies Roadside America photograph archive / Library of Congress

Mike DiGuiseppe, vice president of Local 259, said that the dealers can’t afford to pay technicians more without higher reimbursements from manufacturers, which are “trying to convince everyone that they’re looking out for the mechanics.” Shaw said he didn’t know the dealers’ profit rate, but he’s confident that the money will flow to technicians.

A February study by a pro-union policy institute found that a similar 2021 Illinois law has boosted pay for auto technicians between 3 and 7 percent, grown the state economy by more than $300 million, and generated more than $40 million in state and local tax receipts. Volkswagen has sued Illinois over the law, characterizing it as “crony capitalism” that redistributes wealth from manufacturers to dealers.

The unions argue the bill would be good for car owners, who don’t pay for warranty work. The manufacturers argue it would be a boon for dealers, which get paid for warranty work. The dealers say they need the money to cover warranty work. No one has backed up their claims with independent verification.

And many legislative Democrats are eager to back a priority of organized labor — and express confidence that the money will reach workers.

Kennedy, who is poised to leave the state Senate after an April 30 special election for US Congress, said he believed “with the passage of this bill, the money will flow from the auto dealers to the technicians. We are very confident that dynamic will transpire.”

Correction: March 29, 2024 — This article previously stated that a proposed amendment to the bill would allow dealers to request information about manufacturers' costs; in fact, it would allow technicians and their unions to make the requests.

Chris Bragg is the Albany bureau chief at New York Focus. He has done investigative reporting on New York government and politics since 2009, most recently at The Buffalo News and Albany Times Union.
Julia Rock is a reporter for New York Focus. She was previously an investigative reporter at The Lever.
Also filed in New York State

More counties are turning to private corporations to run medical care in jails. The companies have deadly track records.

Rebecca Lamorte was let go by her employer in June, prompting the Assembly Speaker to place an upset call to her boss.

For tenants in the first upstate city to adopt rent stabilization, benefiting from the law’s basic protections is an uphill battle.

Also filed in Labor

Medicare Advantage plans are spreading across upstate New York, despite a reputation for denying care. In Cortland County, retirees kept it at bay.

No state pursues workers for overpaid unemployment benefits as aggressively as New York. A proposed reform is colliding with New York’s own repayment problem.

New Yorkers for Local Businesses has spent half a million dollars trying to kill a bill to help workers recover stolen wages. Almost all its backers appear to own McDonald’s franchises.