As the aftermarket gears up to try to deliver a knockout punch to a warranty program that took root in California and now includes approximately 10 states, the "villain" is not necessarily the OEM this time around. In a way, the nemesis isn't even a person or group, but the pursuit of clean air.
The mandated warranty program, which is believed to have costly consequences for aftermarket parts distribution and repair, will also deliver a hit to the automakers themselves, and though they've stopped short of publicly denouncing the warranties, many carmakers have not provided ringing endorsements, either.
The program in question is a 15-year, 150,000-mile "super warranty" imposed by the California Air Resources Board (CARB) as part of a clean air measure in California and a number of Northeastern states.
All efforts by the aftermarket to have the policy reconsidered have so far been thwarted, but the industry does have a few ideas left in its arsenal.
"The bottom line is, we've exhausted our administrative remedies," says Aaron Lowe, vice president of government affairs for the Automotive Aftermarket Industry Association (AAIA).
At press time, a coalition of state and national groups was considering litigation, but the task will prove to be arduous, says Lowe."It's going to be a difficult road. A lawsuit could be expensive. We have a tough battle ahead of us."
Lowe says, "We are contracting out with a law firm to do a feasibility study," and if the study provides grounds for a lawsuit, the group is moving forward.
The warranties are a requirement for partial-zero emission vehicles, also known as PZEVs. In its pursuit of mandating zero emission vehicles (ZEVs) as a percentage of an automaker's fleet, CARB has allowed these manufacturers to produce PZEVs that can satisfy part of the ZEV requirements in specified states.
These clean gas vehicles must meet strict exhaust and evaporative emission standards and include features like multiple catalysts, oxygen sensors and exhaust gas recirculation. In some areas, these vehicles emit air that's cleaner than the air outside, according to CARB.
While serving as an incentive for consumers to buy more environmentally friendly vehicles, the warranty regulations are also aimed at helping drivers in lower income communities operate cleaner cars.
The extended warranty program only applies to emission-related parts, which can include anything from ignition systems to a vehicle's electronics system, but a concern for the aftermarket is the "tag-along" repairs and maintenance jobs that will accompany emission-related work.
Extended warranties could divert about $8 billion in revenue from the independent aftermarket by 2020, according to research commissioned by the aftermarket.
While all parties can agree that incentives for consumers to drive fuel-efficient and environmentally friendly cars are a good thing, the aftermarket believes the warranties attached to these vehicles pose a distinct competitive disadvantage for aftermarket parts and repair specialists.
"We think ultimately it has a negative impact on the industry we represent with no appreciable good effects," says Rodney Pierini, president and CEO of the California and Nevada Automotive Wholesalers' Association (CAWA), one of the many groups comprising the coalition that opposes the warranty program.
AAIA's Board of Directors has allocated about $50,000 for a task force to explore litigation, and the coalition has been interviewing attorneys and plans to compile research that looks at this issue on the local level. Studies thus far have only taken a global perspective of how the warranties would affect aftermarket parts distribution and repair, says Pierini.
The task force met in June to review the proposal and pursue possible litigation.
Perception is a hurdle
A significant challenge for the aftermarket is battling the perception that opposition to this measure means these groups are "anti-consumer." In reality, says Lowe, the aftermarket wants consumers to have more choices regarding where their vehicles are repaired.
"This issue might not play well because on the surface it looks like you're taking away a consumer right."
He adds: "We don't have a problem with the standards themselves. We think it's a great idea. We're just opposing the warranty part of this provision."
Last year, there were 35 PZEV or Advanced Technology (AT) PZEV models on the road, and 140,000 such vehicles will occupy California roadways this year, according to CARB, whose members could not be reached for comment by press time.
Vehicle models ranging from the BMW 325Ci, the Ford Focus ZX3 and the Honda Accord LX to the Mercury Milan and Subaru Outback are classified under this program, as well as a number of hybrid and alternative fuel vehicles.
Now occupying 10 percent of an automaker's fleet, these vehicles will be a requirement in 16 percent of fleets in participating states by 2018.
Other states that have adopted the PZEV standards include Connecticut, Massachusetts, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont and Washington, though Oregon, Pennsylvania and Washington have eliminated the extended warranty component.
The Automotive Service Association (ASA) was instrumental in urging Washington's state legislature to remove the warranty program from their version of the bill, says Bob Redding, ASA's Washington representative.
"The high water mark for us was the Washington state effort the last legislative year," he says, adding that the number of similar types of state bills introduced have dropped this year. "We oppose these super warranties and we don't want to see them migrate even more."
He understands the need to provide incentives for low emission vehicles, especially hybrids, but the current high fuel prices may be all the incentive that drivers need, says Redding, who's not opposed to the motoring public making the move to more environmentally friendly modes of transportation.
"We're not opposed to these hybrid type vehicles. We repair them and look forward to repairing a lot more of them," he says.
The effort to challenge the warranties will likely only occur in California.
"If California were to change their standard, then all the other (states) have to change their standards, too," says Lowe.
What the automakers are saying
Though the carmakers have not taken a public stance against the warranties, a number of off-the-record comments reveal some disagreement with the current policy.
For one thing, more warranty work eats into a dealer's labor margins. And predictably, as some automakers struggle with their own warranty programs, the financial health of each vehicle manufacturer plays into their opinion of the extended warranty program in light of its costly implications.
A Ford spokesperson, noting the cost challenges, says the company hasn't had too many problems attaining compliance.
Toyota says it is "happy to offer that warranty," according to Cindy Knight, environmental communications administrator for Toyota Motor Sales, USA.
In fact, "we worked with the California Air Resources Board to come up with that category of emission certification." Its Prius hybrid warranty is eight years and 100,000 miles anywhere in the country, she adds.
"We want to give people peace of mind about hybrids," she offers. "People didn't know what to expect. If they took a leap of faith with us, we wanted to make sure they were not taking an economic risk."
She says the warranties help ensure hybrid owners are comfortable in the face of expensive hybrid components. Knight adds that despite concerns — and circulating statements that hybrid batteries need replaced after five years — Toyota has had very few battery replacements out of warranty.
Addressing the aftermarket concern of the captive business involved with the warranties, Knight admits consumers can take their vehicles anywhere they want for maintenance items such as belts, hoses and tires. "There won't be any special reason to go to a dealer if you have your own reliable trained service person."
Honda's bumper-to-bumper warranty is for three years and 36,000 miles, with a five-year, 60,000-mile powertrain component warranty.
Though Honda doesn't think fuel economy standards should be set by individual states, "In the end, anything that improves a consumer's views of fuel efficient non-polluting cars is OK with us," says Honda Spokesman Chris Martin.
He does, however, question the extended warranty program's effect on the overall air quality. "Warranties in general are used as marketing tools," he adds.
When dealing with vehicles such as hybrids, drivers face a fear of the unknown, says Mark Perleberg, lead auto expert with NADA Guides. With cars such as the Prius, "no one really knows what that car is going to be like when it is at 70,000 miles."
Foreseeing these extended warranties being difficult to underwrite, Perleberg advises automakers to make sure they're dealing with "solid companies."
A diverse legion
While the aftermarket continues its pursuit of the program's reconsideration, more and more PZEVs are hitting the road with these super warranties.
The coalition opposed to the warranty program represents a varied cast of aftermarket groups, like AAIA, CAWA, the Motor & Equipment Manufacturers Association (MEMA), the Automotive Service Association (ASA) and the Automotive Parts Remanufacturers Association (APRA), to name a few.
"So it's now not just a warranty on a few vehicles," says Mike Conlon, general counsel to APRA and legislative counsel to the Automotive Engine Rebuilders Association (AERA). "It's a warranty that's getting to be generally available on a lot of vehicles."
Lowe from AAIA estimates that by 2009, vehicles with these extended warranties will be in the majority.
Conlon says this warranty program affects parts remanufacturers and engine rebuilders in two ways: "For those emissions-related parts for which there is a warranty, we don't get to do those repairs, and the dealers tend to use our parts less than the independent repair shops. For the non-emissions-related parts, when the owner takes their vehicles in for emissions repairs, that tag-along work is lost to the dealers, too."
"Why is the Air Resources Board getting in the business of legislating where the consumer gets their car repaired?" asks Lowe. "We don't see this as something the state should be in the business of doing."
The idea for the warranty program dates back a number of years, as California has long sought ways for automakers to comply with requirements for low emission vehicles.
Ideally seeking zero emission vehicles, the state decided to offer automakers credits for the differing levels of vehicle emissions, with low emission vehicles required as an overall percentage of a manufacturer's fleet — the lower the emission level, the higher the credit.
Faced with aftermarket opposition, CARB commissioned a study through the RAND Corporation, which states "between model years 1973 and 1989, California required manufacturers to provide a five-year or 50,000-mile (whichever occurs first) warranty for parts listed on an 'emission warranty parts list.'" The current warranty program is basically an extension of the previous regulations, the RAND authors add.
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 projects 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, remedies to the loss of revenue and jobs are suggested, 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 may 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, or 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 over 600 telephone interviews of California residents.
The Penway research notes that a high percentage of respondents think that 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.
Using past battles as inspiration
If the past is any indication, the aftermarket may stand to persevere.
In the late '80s, the aftermarket successfully rallied against a 10-year, 100,000-mile warranty also proposed by CARB.
But there's one distinct difference: That skirmish was fought in the Legislature.
"Now we're facing this battle in the regulatory realm," admits Lowe, which, he adds, is a lot less influenced by grassroots efforts.
As the aftermarket groups forge ahead, "CARB really doesn't seem to have any interest in talking with us about this issue."
"It was a different era then," says Pierini, comparing the current social climate to that in the '80s. "People are more environmentally conscious (now)."
Says Conlon: "It's unfortunate we've gotten to this point. We'd like to have taken care of it earlier."
