"Reasonableness" In State Warranty Reimbursement Statutes Takes A Hit In 2025

Legislatures in several states overhauled their warranty reimbursement statutes in 2025, which generally require OEMs to pay "reasonable" reimbursement to dealers for labor performed by service technicians for repairs to vehicles under the manufacturer's written warranty, typically by reference to a dealer's declaration of the rate charged to retail customers for nonwarranty repairs. Of these states, five eliminated or sharply limited the ability of manufacturers to rebut a dealer's declared labor rate as "unreasonable," with one state providing additional structure in determining what constitutes a "reasonable" labor rate, while still permitting OEMs to dispute a dealer's declared labor rate as "materially unreasonable."

Nebraska

Nebraska enacted L.B. 667 effective September 3, 2025. This law amends Neb. Rev. Stat. § 60-1438 of the Motor Vehicle Industry Regulation Act, which addresses compensation for warranty labor and parts. Under prior law, a manufacturer could deny a dealer's proposed average markup and the dealer could file an administrative protest, at which the OEM had the burden of showing the denial was "reasonable." The amended statute removed several references to requirements that warranty compensation be "reasonable," while retaining language providing that in determining the reimbursement rate for warranty labor, "the principal factors to be given consideration shall be the prevailing wage rates being paid by dealers in the community in which the dealer is doing business." The amended statute further provides that "in no event shall the compensation of the dealer for warranty parts and labor be less than the rates charged by the dealer for like parts and service to retail or fleet customers."

North Carolina

North Carolina enacted S.L. 2025-41 effective July 1, 2025. This law amends N.C. Gen. Stat. § 20-305.1 governing reimbursement paid to dealers for warranty and recall parts and labor. The prior version of this statute required that warranty time allowances and compensation be reasonable and allowed a franchisor to rebut a dealer's declared retail labor rate or parts markup by substantiating that the proposed rate was unfair or unreasonable in light of the retail rates charged by other franchised dealers in the relevant market area. The amended statute deletes this comparative analysis, and now permits a manufacturer to rebut a dealer's declared labor rate only by reasonably substantiating that the dealer's submission is "inaccurate," and imposes the burden on the manufacturer to prove as much in any administrative protest concerning the dealer's declared rate.

North Dakota

North Dakota enacted H.B. 1515 effective August 1, 2025, which includes revisions to N.D. Code § 51-07-29 governing compensation paid to dealers by manufacturers for performing warranty repairs. Prior law allowed manufacturers to rebut a dealer's declared parts or labor rate by showing it was "unreasonable in light of the practices of all other franchised motor vehicle dealers in an economically similar area of the state." The amended statute removes this comparative analysis and now limits a manufacturer's ability to rebut a dealer's declared labor rate based solely whether the dealer's submission is "materially inaccurate." In rebutting a dealer's proposed labor rate, the manufacturer must provide a written explanation rebutting the dealer's calculated rate with supporting calculations and any additional evidence, as well as a proposed adjustment of the proposed rate, which can be based solely on the dealer's own submission. A dealer can file a civil action in court disputing the OEM's determination, at which the manufacturer has the burden to prove both that the dealer's declared rate was "materially inaccurate" and that the proposed adjustment was "materially accurate."

Ohio

Ohio enacted H.B. 96 effective September 30, 2025. This law amended Ohio Rev. Stat. § 4517.52, which previously permitted a manufacturer to rebut a dealer's declared warranty labor rate if the OEM concluded that rate was "materially inaccurate or substantially different than that of other similarly situated, same line-make new motor vehicle dealers in the vicinity." The amended statute deletes this comparative analysis, leaving a manufacturer the option to reject a dealer's declared labor rate only if the manufacturer believes that rate is "materially inaccurate." The statute requires the parties to resolve any disagreement through the manufacturer's internal dispute resolution process, but permits the dealer to appeal any determination through this process to "a court of competent jurisdiction."

Virginia

Virginia enacted S.B. 1308 effective July 1, 2025, which includes revisions to Va. Code § 46.2-1571 governing reimbursement paid to dealers for warranty and recall parts and labor. The prior version of this statute required that compensation paid by a manufacturer to a dealer for this work not be less than the amount charged by a dealer to retail customers for nonwarranty repair work based on a dealer's submission of 100 sequential repair orders, and further provided that "the determination of compensation in accordance with [this provision] shall be deemed reasonable due to the substantial number of repair orders reviewed, unless the franchisor can show that the amounts are not reasonable." The amended statute deletes this quoted language, leaving the statute silent on the procedure by which a manufacturer and dealer should resolve any dispute concerning reimbursement concerning warranty labor.

Wyoming

Wyoming enacted S.F. 106 effective July 1, 2025. Prior to this recent amendment, Wyo. Stat. § 31‑16‑117 was comparatively simple, requiring only that manufacturers provide dealers a "schedule" for compensation paid for parts and labor provided in connection with predelivery preparation and warranty repairs, and requiring that this schedule not "fail to include reasonable compensation" for such work. The amended statute permits dealers to seek reimbursement for warranty labor by submitting 100 consecutive repair orders reflecting qualified customer paid repairs, and calculating the dealer's warranty labor rate by dividing the total amount charged for labor for qualified repairs by the total number of hours worked on those repairs. A manufacturer can dispute the declared rate as "materially incomplete, materially inaccurate or materially unreasonable" and propose an adjustment to the declared rate. After mandatory mediation, a dealer can file a civil action challenging the OEM's determination, at which the manufacturer bears the burden of proof by a preponderance of evidence that the dealer's submitted rate was "materially incomplete, materially inaccurate or materially unreasonable."

Conclusion

The five states adopting statutory amendments eliminating or sharply limiting the ability of manufacturers to rebut a dealer's declared labor rate as "unreasonable" is part of a larger trend of states regulating the compensation paid by manufacturers to dealers for parts and service under written warranties for new cars. State dealer associations continue to be active in this area, and manufacturers should anticipate further developments in warranty reimbursement requirements in 2026.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.