Sometimes, new vehicle dealers want to spice up the new vehicle inventory using non-OEM items such as bed liners, tires and wheels, lift kits, and other modifications. Any modification of a new vehicle using non-OEM accessories or parts may pose complex issues for a dealer. Whether a dealer should modify its vehicles will require research into the type and effect of the modification, the dealer sales and service agreement, franchisor service manual and bulletins, warranty documentation, dealership insurance policies, and other sources.
Let’s examine some of the issues.
Non-OEM accessories are not covered under warranty
It is a safe bet to assume that the non-OEM modifications are not covered by the new vehicle warranty. Here is an example from one manufacturer’s dealer agreement.
- 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
Manufacturers warrant their genuine parts and accessories. Therefore any other non-OEM parts and accessories are not warranted by the manufacturer. Even if the modification of the new vehicle will not void the new vehicle warranty (we will discuss that next), who will warrant the modification? If it is the supplier of the non-OEM parts and accessories, how strong is that warranty? How strong is the supplier providing the warranty? Will the dealer be left holding the bag for problems that arise?
Does the modification invalidate the warranty?
Certain accessories such as bed liners or wheels and tires may not affect the vehicle’s warranty. However, other modifications, particularly if they affect the safety, performance, or structural integrity of the vehicle may.
You must check each type of modification and the potential impact on the vehicle warranty. Check the manufacturer’s warranty documents. Check the manufacturer service manual. A dealer must determine the extent to which modifications may invalidate the vehicle’s warranty, leaving the dealer on the hook for lawsuits.
Potential Violation of the Franchise Agreement
How does the modification affect the vehicle’s safety, performance or structural integrity? Review your dealer agreement. Major modifications may violate your dealer agreement. Here is an excerpt from one franchisor’s dealer sales and service agreement concerning safety or emissions effects:
- 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.
Here is another dealer sales and service agreement provision on non-OEM accessories or parts adversely affecting the mechanical operation of a motor vehicle.
- Subject to the provisions set forth below, DEALER has the right to sell, install or use, for making non-warranty repairs, products that are not Genuine [OEM] Parts or Accessories. DEALER acknowledges, however, that its customers expect that any parts or accessories that DEALER sells, installs or uses in the sale, repair or servicing of [Manufacturer Motor] Vehicles are, or meet the high quality standards of, Genuine [Manufacturer] Parts or Accessories. DEALER agrees that in sales, repairs or servicing where DEALER does not use Genuine [Manufacturer] Parts or Accessories, DEALER will only utilize such other parts or accessories that will not adversely affect the mechanical operation of the [Manufacturer] Motor Vehicle being sold, repaired or serviced, and that are equivalent in quality and design to Genuine [Manufacturer] Parts or Accessories.
It is important to check your dealer sales and service agreement to determine whether and to what extent any modification to new vehicles could cause a violation of the franchise agreement.
Notification of Non-OEM products
If you use non-OEM accessories or parts, you may be required by the dealer sales and service agreement to notify customers that the parts are non-OEM and not covered by the manufacturer warranty. Here is one example:
- If Dealer modifies or sells a modified new Motor Vehicle, or installs any equipment, accessory, recycled part or part not supplied by [Manufacturer], or sells any non [OEM] service contract for a Motor Vehicle, Dealer will disclose this fact on the purchase order and bill of sale, indicating that the modification, equipment, accessory or part is not warranted by [Manufacturer] or, in the case of a service contract, the coverage is not provided by [Manufacturer] or an affiliate. (Emphasis added)
Here is another example:
- In order to avoid confusion and to minimize potential customer dissatisfaction, in any instance where DEALER sells, installs or uses other than Genuine [Manufacturer] Parts or Accessories, DEALER shall disclose such fact to the customer and shall advise the customer that these items are not included in warranties furnished by DISTRIBUTOR. Such disclosure shall be written, conspicuous and stated on the customer’s copy of the service or repair order or sale document. In addition, DEALER will clearly explain to the customer the extent of any warranty covering the parts or accessories involved and will deliver a copy of the warranty to the customer.
- In servicing vehicles marketed by [Manufacturer], Dealer agrees to disclose the use of recycled and non [Manufacturer] parts and accessories…
Even if the franchise agreement does not provide that you must notify the customer, it may be good practice to notify consumers that non-OEM accessories and parts have been used on the new vehicle to avoid consumer claims of fraud, misrepresentation, or breach of contract. If the non-OEM accessories or parts are used and have a warranty, you should provide the consumer with that warranty information, since they will not be covered by the manufacturer warranty.
Manufacturer Indemnification
In the event that the non-OEM accessories or parts are alleged to result in a product claim or an injury claim, the manufacturer may have no obligation to indemnify you against these claims. Here is an example of one manufacturer’s indemnification policy from the dealer sales and service agreement:
- [Manufacturer] will assume the defense of Dealer and indemnify Dealer against any judgment for monetary damages or rescission of contract, less any offset recovered by Dealer, in any lawsuit naming Dealer as a defendant relating to any Product that has not been altered… (Emphasis added)
Modification of a new vehicle could give a manufacturer grounds to decline a request for indemnification for a product or injury lawsuit.
Insurance coverage
If there is a product claim or personal injury claim that results from a modification with non-OEM accessories or parts, your insurance company may become critical. If the franchisor will not indemnify you, what will your insurer do? Check your policy. If you are making modifications not disclosed to your carrier so it can price in that risk, it may deny coverage. If your dealership modifies new vehicles, check your policy and put the insurance company on notice since that may increase the carrier’s risk and your premium.
You do not want to be the defendant in a wrongful death lawsuit without indemnification by your franchisor or your insurance carrier.
Conclusion
The decision to modify new vehicles raises many complex issues. Before deciding to new modifications, consider:
- Understand how a modification affects the vehicle’s safety, performance, and structural integrity.
- Make sure you have checked your dealer agreement to determine whether you comply with its language when modifying new vehicles.
- Make sure you are notifying consumers when the vehicle has been modified using non-OEM accessories and those parts and accessories will not be covered by the manufacturer new vehicle warranty.
- Understand your dealership’s insurance policy and how modifications to new vehicles without notice to the carrier may affect your coverage.
- Contact a knowledgeable attorney.