In the News: Dealer Attorneys Warn of Rising Warranty Audits
- Gregory Arroyo
- Jul 17
- 4 min read
Updated: Jul 27
As warranty work grows, dealer attorneys outline where reimbursement disputes are spreading and how stores can better protect claims from chargebacks.
By Gregory Arroyo
Tom Druzynski believes dealer service departments could see more warranty-audit activity through the rest of 2026 and into 2027. His forecast is based on what he is seeing and hearing as director of service operations for West Herr Automotive’s 41 rooftops.
“I’m watching more and more manufacturers ramping up and adding to their audit staff,” Druzynski said.
His outlook comes as dealer attorneys and the National Automobile Dealers Association report more audit activity and resulting chargebacks. It also comes as more warranty revenue is flowing through dealership service departments.
Core OEM warranty revenue increased 13.9% last year, pushing the total above $32 billion. Over two years, warranty revenue grew 33.8%, while the number of warranty-related repair orders increased 12%, according to figures WarrCloud CEO Jim Roche shared during a May Car Dealership Guy interview.
The growth has unfolded alongside separate disputes over the labor time assigned to warranty repairs, the reimbursement dealers receive for parts, and the circumstances under which manufacturers can charge back previously paid claims.
The Fight Over Labor Time
For decades, manufacturers have required dealers to use factory time guides when seeking reimbursement for warranty repairs. That is beginning to change.
In a June 30 article, Bass Sox Mercer attorney Micah A. Andrews wrote that state efforts to expand dealer protections around warranty labor-time reimbursement have “accelerated significantly” in recent years.
The laws take different approaches. New York and Minnesota require warranty reimbursement to reflect the labor-time guide a dealership uses for customer-pay repairs.
Alaska prohibits warranty allowances from falling below those in independent guides, while Montana allows dealers to choose between the factory guide and a third-party guide. Illinois applies a 1.5 multiplier to factory labor times when no alternative guide has been agreed upon. New Jersey has also enacted protections.
The measures address a gap that a higher hourly labor rate alone cannot close. If a warranty repair pays three hours but takes four to complete, the loss reaches the technician before the repair story is written.
At West Herr, a past audit had exposed weaknesses in repair stories and supporting documentation, and new OEM requirements were demanding greater detail. The need to produce stronger stories without consuming more technician time became an issue at one of the group’s twice-yearly meetings with technician representatives from each store.
Master technician Todd Puccio believed that burden was especially difficult to absorb when warranty work was already approaching the break-even point. “If we’re just breaking even on the repair, I don’t want to spend 10 minutes or 15 minutes at the end of the repair having to write my story,” he said.
Druzynski put the problem back to Puccio during the meeting: If repair stories were consuming that much time, he would help evaluate another way to write them. That brought Puccio into a demonstration of Pencilwrench, a repair documentation solution West Herr would eventually pilot at its East Aurora store.
Parts: Another Battleground
Labor time is only one part of the reimbursement fight. Dealers are also challenging how manufacturers calculate payment for warranty parts, especially when the repair involves high-cost components.
In January, Car Dealership Guy reported on a lawsuit filed by two New York dealerships alleging hundreds of thousands of dollars in warranty-reimbursement shortfalls tied largely to electric-vehicle battery replacements.
According to the report, one dealership claims it was underpaid by nearly $300,000, while the other alleges a shortfall of more than $615,000. Both argue that the payments failed to reflect the retail parts reimbursement required under New York dealer law.
The dispute comes as fixed operations account for 53.8% of total dealership gross, surpassing the previous high of 50.2%, according to NCM and Presidio data shared during the May Car Dealership Guy interview.
Paid But Not Final
Better labor and parts reimbursement does not end a dealer’s exposure. A paid warranty claim remains subject to review until the applicable audit window closes. NADA Academy Instructor Leigh Yates compared the process to receiving a blank check that the dealership fills in each month.
“Your OEM gives you a blank check, and you fill in that amount every month when you submit your claims, but you don’t get to keep the money until you’re outside of that audit window,” Yates said during a May episode of NADA’s Dealer Driven. “Your goal should not just be to get the claim paid. It should be to get the claim paid in a manner that allows you to keep the money should that claim get looked at in an audit.”
Yates said dealerships should train employees on the records required to support claims. She also stressed that outsourcing claims processing does not transfer the dealership’s audit exposure.
Bass Sox Mercer attorney Savannah N. Criado drilled into those recordkeeping risks in a June 30 article, one in which she echoed Druzynski’s observation that warranty-audit activity and resulting chargebacks are increasing.
Criado described coding mistakes, missing details, and other technical errors as “low-hanging fruit for a chargeback, which OEMs will leverage,” noting that state franchise laws may protect dealers when chargebacks are based on minor technical errors.
She also advised dealers to preserve audited repair orders, the policies governing each claim, and records of their conversations with auditors.
West Herr had addressed the technician-story portion of that record through Pencilwrench. What concerns Druzynski is how much further an audit can reach. He has heard of auditors comparing repair-order notes with phone and text timestamps to verify customer authorization, with mismatched timestamps costing dealers reimbursements on high-cost repairs.
“There’s a storm brewing, and it’s not far off,” Druzynski said. “I guarantee it.”
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