The aftermarket says it's caught in the middle of a feud between the California Air Resources Board and automakers.
A recently approved extended warranty in California may represent a small victory for the aftermarket, but a number of associations and interest groups see millions of dollars lost to automakers in distribution and repair.
The extended warranty "flies in the face of logic" for a number of reasons, says Norman Plotkin, legislative advocate for the California Nevada Automotive Wholesalers' Association (CAWA). Despite what he calls a lack of scientific evidence in establishing a correlation between warranties and more durable parts, as well as the financial impact the warranties will have on the aftermarket, Plotkin says the California Air Resources Board (CARB) lacks statutory authority in this matter, especially considering the fact that California's health and safety code calls for only a three-year, 50,000-mile or seven-year, 70,000-mile warranty for auto parts, depending on the value of the part in question.
CARB initially proposed a mandatory 15-year, 150,000-mile warranty, but after some coaxing by a number of aftermarket associations and interests, the agency instead approved a more moderate 10-year, 120,000-mile warranty for these same parts.
The warranties will affect all new vehicles beginning in 2010, says Aaron Lowe, vice president of government affairs for the Automotive Aftermarket Industry Association (AAIA).
The measure will need approval from the Office of Administrative Law (OAL) before fully taking effect, and Plotkin says a coalition of aftermarket associations plans to file a letter with the OAL stating CARB is overstepping its statutory authority with this measure.
The options at this point are to do nothing or fight this with litigation, which can be a costly road for aftermarket advocacy groups.
The warranty, in essence, takes the place of a parts recall, says Plotkin. The new CARB regulations require the board to determine that if a part fails above the 4 percent rate — regardless of its impact on emissions — the manufacturer extends the warranty if the part was monitored by an on-board diagnostic system.
The aftermarket is merely "collateral damage" in a war between CARB and automotive manufacturers, Plotkin says.
The automakers we contacted would not offer official comment (nor would CARB by press time), but Steve Douglas, from the Alliance of Automobile Manufacturers (AAM), says, "The automobile manufacturers (including both the Alliance and AIAM, who collectively represent every automobile manufacturer in the U.S.) opposed this regulation from the beginning and offered several alternatives that did not include the draconian requirements including the extended warranty."
This is one of those rare occurrences when the aftermarket and automakers are in agreement about an issue, comments Lowe.
Aftermarket groups say this amended proposition more closely reflects the working life of the parts in question than the previous proposal. But the fact remains that these extended warranties are taking business from the independent distribution and repair channels.
Opponents say one reason is once dealership repair shops bring in the warranty repairs, they then can move into "upsells," like oil changes and other preventive maintenance.
"We fought this thing," Lowe says. "Service facilities showed up from all over the state, (but) the board just decided they were going to move ahead with it one way or the other."
A big burden on business
Though CAWA did manage to get the ear of CARB to amend this warranty program, the state's repair shops "are not pleased with the results," says Rodney Pierini, CAWA's president and CEO.
He adds: "The fight is not over; it's just round two."
A number of California-based repair shops said they weren't even aware of the new regulations, but those who were informed of the mandate expressed concern over its effect on the independent aftermarket.
"It's gonna put a big burden on our business," says Ed Aulestia, owner of Ed's Automotive Center, in North Hollywood, Calif. "I've been in business since 1976, and it's getting tougher and tougher to stay in business."
However, a representative from D&S Auto Service in Santa Rosa, Calif., says for every driver who goes to a dealership repair shop, at least five others are suspicious of dealerships and take their vehicle to an independent shop.
Bob Redding, Washington representative for the Automotive Service Association (ASA), points to the fact that almost a dozen states have followed CARB's previous warranty requirements, not to mention that the federal government often picks up California regulations. "They do not, with any consistency, take us into consideration when developing these proposals," he adds. "When you take business out of our shops and give them to someone else, you hurt us. There's too much at stake to push this off in a cavalier fashion."
Plotkin asserts this warranty is all about power, and that the initial goal of the warranties, to mollify the state's polluted air, has been lost in the bureaucratic shuffle. "There's no requirement in the regulations that the part in question be emitting pollutants," he adds. "The arrogance and the pure power is really disheartening because that's my government. I'm a California citizen and that's my government."
While testifying before CARB, the aftermarket requested that independent service facilities be permitted to perform warranty work beyond the statutory warranty period, according to Lowe.
CARB responded that it did not have the authority to grant the independent repair sector permission to perform this warranty work.
In response to this, Redding asks, "Where does that leave us? We just lose business again."
In its efforts to curb the extended warranties, the AAIA, the California Automotive Business Coalition (CALABC) and the California Autobody Association (CAA), among other groups, joined CAWA.
"Now the big question is, 'What do we do next?'" asks Lowe. "We don't think they have legislative authority to go beyond the warranties."
Looking at the research
This isn't the first time the aftermarket has found itself on the losing end of an extended warranty proposal in California. The recent warranty debate mirrors another CARB policy that offers 15-year, 150,000-mile warranties for emissions-related products on partial-zero emission vehicles (PZEVs). The clean gas vehicles must meet strict evaporative emissions standards. Aftermarket groups have been speaking out against the PZEV warranties for many years.
Those on different sides of the PZEV debate point to two studies as evidence of their arguments, which also can shed some light on the recent warranty mandate.
One study, commissioned by CARB through the RAND Corporation, states the current warranty proposal is basically an extension of previous regulations.
The RAND study, which surveyed drivers in 366 households across California, as well as repairs at 48 independent repair shops and 28 dealer repair shops in California, concludes that the independent repair business will continue to grow with or without extended warranties. The study predicts revenue increases of 30 percent with the warranty program and 36 percent without the program between 2003 and 2020.
The study also projects that although there would be a loss of jobs at some independent repair locations, the extended warranties would not cause layoffs in the repair industry "as a whole."
However, the study suggests remedies to the loss of revenue and jobs, like policies that facilitate the transition of workers at independent repair shops to new jobs and requiring automakers to cover emission repairs using service contracts that allow repairs to be done at an approved network of independent repair shops. Also suggested is a potential partnership agreement between dealerships and independent repair shops, a notion that might seem far too utopian to many.
Lowe says it's important to note that the RAND study is inconclusive regarding the extended warranty program's effect on durability and the length of time an emission control system meets performance standards before needing repair.
Aftermarket groups have taken issue with the RAND results and say their efforts to contact CARB for input were fruitless.
An aftermarket study conducted by Thomas Penway Research Group, Inc. comprised 100 personal interviews, as well as consumer research conducted with more than 600 telephone interviews of California residents.
The Penway research notes that a high percentage of respondents think numerous maintenance and repair items unrelated to emission systems will be covered under the warranty, like oil changes and tune-ups, and that these extended warranties will cause a shift of $8 billion in revenue from the independent aftermarket to dealers between 2003 and 2020.
