|As you are aware, Ohio has two statutes requiring a manufacturer/franchisor to indemnify the dealer/franchisee relative to defective motor vehicles that are produced by the franchisor and provided to the dealer/franchisee. The two Ohio statutes are O.R.C. §4517.60 “Indemnification and Holding Harmless of Franchisee” and §4517.72 – “Duty to Repair – repair unsuccessful,” commonly known as Ohio’s lemon law. These statutes are in effect to protect dealerships from vehicles that were improperly manufactured and have, basically, unrepairable mechanical issues.
Ohio Revised Code §4517.60, “Indemnification and Holding Harmless of Franchisee” states that “. . . each franchisor shall indemnify and hold harmless its franchisees against any losses, including, but not limited to, court costs and attorney fees reasonably incurred, or damages arising out of complaints, claims, or suits, whether or not meritorious, relating in whole or in part to claims under §1345.72 of the Revised Code (the lemon law) or to the manufacture, assembly, or design of motor vehicles, parts, or accessories, to damage corrected by the franchisor prior to receipt of a motor vehicle by the franchisee . . .” Further, as you are aware, ORC §1345.72, Ohio’s lemon law, states that “if a new motor vehicle does not conform to any applicable express warranty and the consumer reports the nonconformity to the manufacturer, its agents, or its authorized dealer during the period of one year following the date of original delivery or during the first eighteen thousand miles of operation, whichever is earlier, the manufacturer, its agents, or its authorized dealer shall make any repairs as are necessary to conform the vehicle to such express warranty . . .” (B) If the vehicle cannot be repaired successfully than the manufacturer “shall replace the motor vehicle with a new motor vehicle acceptable to the consumer or shall accept return of the vehicle from the consumer and refund each of the following: (1) The full purchase price; (2) All incidental damages . . . .” As you are further aware, nothing in this section poses any liability on the new motor vehicle dealer and the manufacturer has to indemnify the new motor vehicle dealer regarding the buyback and/or repairs. Recently, Toyota/Lexus dealers have received notices providing new policies which would seem to shift responsibility to the selling and/or repairing dealer. Recently, Lexus sent a correspondence to its dealers entitled “Dealer-Responsibility Buybacks and Accountability-Effective April 1, 2019” which emphasized its “fix it right the first time” protocol. The protocol, although in place for many years, was attempting to address the situation where there is difficult or impossible repair to a vehicle. The policy was initially used to improve customer satisfaction and increase the efficiency of the service department. However, the next evolution which is to be effective April 1, 2019, attempts to hold dealers accountable “where permitted by applicable law” where the dealers do not adhere to the “fix it right the first time” protocol. In essence, Toyota/Lexus is acting as judge and jury to determine whether or not the dealer adhered to the protocol and, in its sole discretion, determine whether or not the dealer did not adhere to protocol will debit all or a portion of the expenses incurred in the buyback to the dealership. There are three notifications provided to the dealer. The first buyback, Toyota will indemnify on its own and provide the dealer a warning. The second buyback, the dealer will be responsible for 50% of the total net repurchase cost and the third notification, the dealer will be responsible for 100% of the total buyback cost. Interestingly enough, if there are multiple dealers involved in the repair of the subject vehicle, then Toyota will allocate, in sole discretion, responsibility for how much each dealer will be debited.
Quite frankly, this would appear on its face to be an attempt to circumvent Ohio’s statutory provisions protecting the dealership from a lemon vehicle. Since this new protocol is not going into effect until April 1, obviously, there has been no case law to test Toyota’s ability to debit a dealer for its actions regarding the attempted repair of a lemon vehicle. Obviously, only time will tell. However, I would certainly advise your technicians, service writers and service managers to check the repair history of a vehicle and to specifically document the diagnosis of the issue, the TSB’s review, the outreach to the manufacturer for aid and support in attempting to resolve the problem and the specific attempt to repair the problem. Remember to document, document, document on the repair orders.
Robert A. Poklar
Weston Hurd LLP