Dealer’s Use of Non-OEM Parts and Accessories – Important Factors
In the wake of recent bulletins issued by at least one automotive manufacturer concerning the use of non-OEM parts and accessories in the repair of that manufacturer’s vehicle brands, dealers should review their internal practices and policies, and underlying issues, associated with the use of non-OEM parts and accessories in vehicle repairs and/or vehicle modifications. Several of these issues are discussed below.
Non-OEM Parts & Accessories – Warranty Considerations
With respect to any modification of a new vehicle using non-OEM parts or accessories (i.e., lift kits, tires, wheels, etc.) the issues a dealer must contend with can be complex. Whether the dealer should modify vehicles requires thorough evaluation about the effect of the modification, the requirements of the dealer franchise agreement and manufacturer’s service manuals and policies, warranty information, dealership insurance coverage, and related information.
As a general rule, manufacturers warrant their genuine parts and accessories. However, non-OEM parts and accessories are not warranted by the manufacturer. By way of example, the pertinent provisions of one such manufacturer’s sales and service agreement state:
“The Company shall from time to time establish, by notice to the Dealer, the warranty applicable to each GENUINE PART. There shall be NO OTHER WARRANTY, express or implied, including any warranty of MERCHANTABILITY OR FITNESS, or any other obligation of the Company to the Dealer or the customer with respect to any GENUINE PART or any part thereof except the warranty established pursuant to this subparagraph. The Dealer shall expressly incorporate such warranty as a part of each sale of a GENUINE PART, in accordance with instructions set forth in the Warranty Manual.”
Assuming a vehicle modification using non-OEM parts did not void the warranty, an important question remains as to who will warrant the modification. The dealer could be responsible for any problems that arise, and any related liability. Assuming further that the supplier of the non-OEM part offered a warranty, questions concerning the scope of the supplier’s coverage and the supplier’s financial wherewithal to make good on such coverage must be addressed.
A related question the dealer must determine is whether the modification using non-OEM items voids the manufacturer’s warranty. While there may be parts that do not necessarily invalidate the manufacturer’s warranty, other modifications, especially if they involve safety or performance, may impact or void, the manufacturer’s warranty. A dealer must verify the modification’s impact on the vehicle warranty and determine whether the vehicle warranty would be invalidated, leaving the dealer legally exposed. Additionally, the extent of a dealership’s duty to disclose warranty information in connection with the sale of a vehicle to which after-market modifications have been made using non-OEM parts has been the subject of increased judicial scrutiny.
Implications Under the Dealer Franchise Agreement
Dealers should review their specific franchise sales and service agreements to determine whether a vehicle modification using non-OEM parts or accessories violates the franchise agreement. Below is pertinent language from one manufacturer’s sales and service agreement which states:
“Dealer agrees that it will not make any modifications to [Manufacturer] Products that may impair or adversely affect a vehicle’s safety, emissions, or structural integrity.”
Certain provisions of other manufacturers’ franchise agreements regulate the use of non-OEM parts or accessories affecting the mechanical operation of the vehicle. Dealers must consult the pertinent provisions of their franchise agreements to determine whether and the extent to which a specific vehicle modification using non-OEM parts or accessories would be construed as a violation of the franchise agreement.
Disclosure of Non-OEM Products
If a dealer utilizes a non-OEM part or accessory, the dealer may be required to notify customers that the part is non-OEM and not covered by the manufacturer warranty. A recent example of one manufacturer’s notice requirement includes a disclosure and customer acknowledgment form that states:
“Non-[OEM] parts and accessories are not covered under the [Manufacturer] New Vehicle Limited Warranty. They may also damage the vehicle, compromise its compliance with safety standards or void the [Manufacturer] Warranty on the vehicle itself. [Manufacturer] is not responsible for the consequences of installing any non-[OEM] equipment, parts or accessories on the vehicle. A list of non-[OEM] parts used is available on request.”
Failure to comply with the foregoing requirement could subject the dealer to a per incident surcharge, among other consequences. Where neither the franchise agreement nor manufacturer policy require customer notification of non-OEM parts, it may be prudent practice to do so anyway to avoid claims of misrepresentation, breach of contract or fraud.
Other issues relating to the manufacturer’s indemnification obligation, or the dealership’s own insurance company, in the instance a non-OEM part allegedly results in a product or injury claim, can be significantly impacted. Dealers should be certain to do their due diligence before undertaking modifications using non-OEM parts or accessories.