Big Win for Illinois Dealers on Warranty Reimbursement Law

Volkswagen Lawsuit Challenging Illinois Warranty Law Dismissed

Earlier today, Judge Tharp dismissed Volkswagen’s challenge to the Illinois Warranty Law under the Illinois Motor Vehicle Franchise Act. IADA staff worked with the Office of the Attorney General on its motion to dismiss the lawsuit, and all 5 counts in Volkswagen’s suit were dismissed.

Volkswagen challenged the time allowances in the Warranty Law (Information About New Warranty Reimbursement Law | Illinois Automobile Dealers Association (illinoisdealers.com)) asserting the following violations of the U. S. Constitution:

1. Due Process;
2. Equal Protection;
3. First Amendment (Freedom of Speech);
4. Takings; and 
5. Commerce Clause.

Due Process

The court rejected Volkswagen’s claim that the Warranty Law violated Due Process by depriving Volkswagen of property in an arbitrary manner that is not rationally related to a legitimate government interest.  The court held that Volkswagen failed to provide evidence to overcome the presumption that a statute has a rational basis.  The court further held that the Illinois legislature had a legitimate state interest in addressing manufacturer tendencies to undercompensate dealers for warranty repairs and in ensuring that technicians are fairly compensated.

Equal Protection

The court rejected Volkswagen’s claim that the Warranty Law violated Equal Protection by arbitrarily treating EV manufacturers without dealer networks (Tesla, Rivian, Lucid) differently than traditional manufacturers with dealer networks, by requiring traditional manufacturers to reimburse dealers at 1.5 times the time guide specifications.  The court found that the Warranty Law was created to ensure that manufacturers with independent dealers adequately reimburse those dealers for warranty repairs, and that the law did not affect manufacturers without independent dealers.   The court added that if the direct sale manufacturers elected to use independent dealers, the Warranty Law would apply to them in the same manner as it applies to Volkswagen and other traditional manufacturers.

First Amendment

Volkswagen’s claim that its free speech rights were impaired because (1) the Warranty Law increased its cost of doing business; (2) Volkswagen wants to shift the increased cost to consumers by increasing vehicle prices; (3) a possible interpretation of the prohibition against cost recovery surcharges would prohibit it from telling customers that increased vehicle prices resulted from increased warranty compensation; (4) Volkswagen fears liability if it communicates about the reason for vehicle price increases; therefore, (5) the Warranty Law burdens commercial speech in violation of the First Amendment; and (6) the warranty Law violated the First Amendment.  The judge found only that Volkswagen had proved that it intended to raise vehicle prices, but found that there was no First Amendment violation because the statute did not limit Volkswagen’s speech.  The Warranty Law prohibited Volkswagen from increasing the vehicle prices only of those dealers that seek increased warranty reimbursement, but authorized increased price increases across the board and did not stop Volkswagen from telling customers about the reason for the price increases. 

Takings and Commerce Clause

The court found that Volkswagen’s takings and commerce clause claims relied on an incorrect interpretation that the Warranty Law prohibited it from recovering increased warranty costs by increasing vehicle prices.  Because Volkswagen remains free to recover its increased warranty expenses, the statute did not give Illinois dealers a competitive advantage over dealers in other states.

In dismissing Volkswagen’s challenge to the Warranty Reimbursement Law, the court held that Volkswagen failed to state a claim for relief on the Due Process and Equal Protection claims and lacked standing on the First Amendment, Takings, and Commerce Clause claims.

Special thanks to the Illinois Attorney General’s Office for defending the Illinois Warranty Law and working with IADA to dispute Volkswagen’s suit.  Also, IADA would like to thank Dan Marquardt, Marquardt of Barrington Buick GMC, for his involvement and advocacy from day 1 on this issue.  

Thanks to all Illinois dealers for contacting their elected officials to pass the strongest warranty law in the country.

You can view the opinion entered by the Court in the Volkswagen case here.