Seven Nissan dealerships in Iowa have sued the car manufacturer, alleging they are struggling to turn a profit after the company tacked a state-specific fee onto cars going to the Hawkeye state.
Nissan North America began including the “Warranty Supplemental Expense Charge” after the Legislature in 2018 passed a law raising the reimbursement rate that car makers must pay dealerships for parts and labor on warranty work.
The dealerships began paying the extra fee in February 2019. It started at $55 per vehicle and grew to $170 per vehicle last August.
James Arenson, an attorney representing the dealerships, including Des Moines-based Hummel Brothers, said Nissan’s new charge means some sellers may stop carrying the least-expensive models, which have the thinnest profit margins.
“If it’s a low-price (vehicle), it could leave absolutely no room for any dealing,” said Arenson, who filed the lawsuit in U.S. District Court for the Northern District of Iowa on Friday. “And it would take away any incentive for dealers to sell those vehicles.”
A Nissan spokesperson did not immediately respond to an email seeking comment. Mark Hummel, the dealer principal for Hummel Brothers, did not return a call and email.
As part of franchise agreements, dealerships agree to provide services and cover warranties. The manufacturer agrees to reimburse the dealerships for the parts and labor allocated to warranty work.
Arenson said dealerships often lose money on the warranty side of the business under their agreements with manufacturers, and in 2018, Gov. Kim Reynolds signed a bill to create a new formula for the reimbursements, allowing the dealerships to make more money, Arenson said. The bill won unanimous approval in the House and Senate.
According to the lawsuit, Nissan told the dealerships in 2018 that it would add a surcharge to every vehicle purchase “based on the uniquely higher cost of providing warranty coverage on vehicles retailed and/or operated in Iowa.”
The dealerships argue that Iowa and federal laws prohibit Nissan from imposing the surcharge.