(a) Each manufacturer or distributor shall specify in writing to each of its dealers licensed in this state, the dealer’s obligations for predelivery preparation and warranty service on its products, and shall compensate the dealer for such preparation and service. Compensation for parts used in warranty service shall be fair and reasonable, as determined by methods described in subsection (b) of this section. Compensation for labor used in warranty service shall be fair and reasonable, as determined by methods described in subsection (c) of this section.

(b) The retail rate customarily charged by the dealer for parts shall be established by the dealer submitting to the manufacturer or distributor one hundred sequential nonwarranty customer-paid service repair orders which contain warranty-like parts, or sixty consecutive days of nonwarranty customer-paid service repair orders which contain warranty-like parts, whichever is less, covering repairs made no more than one hundred eighty days before the submission and declaring the average percentage markup. The average of the markup rates shall be presumed to be fair and reasonable, however, a manufacturer or distributor may, not later than thirty days after submission, rebut that presumption by reasonably substantiating that the rate is unfair and unreasonable in light of the practices of all other franchised motor vehicle dealers in the vicinity offering the same line-make vehicles. The retail rate shall go into effect thirty days following the declaration, subject to audit of the submitted repair orders by the franchisor and a rebuttal of the declared rate as described above. If the declared rate is rebutted, the manufacturer or distributor shall propose an adjustment of the average percentage markup based on that rebuttal not later than thirty days after submission. If the dealer does not agree with the proposed average percentage markup, the dealer may file a protest with the commissioner not later than thirty days after receipt of that proposal by the manufacturer or distributor. If such a protest is filed, the commissioner shall inform the manufacturer or distributor that a timely protest has been filed and that a hearing will be held on such protest. In any hearing held pursuant to this subsection, the manufacturer or distributor shall have the burden of proving that the rate declared by the dealer was unfair and unreasonable as described in this subsection and that the proposed adjustment of the average percentage markup is fair and reasonable pursuant to the provisions of this subsection.

(c) The retail rate customarily charged by the dealer for labor may be established by submitting to the manufacturer or distributor all nonwarranty customer-paid service repair orders covering repairs made during the month prior to the submission and dividing the amount of the dealer’s total labor sales by the number of total labor hours that generated those sales. The average labor rate shall be presumed to be fair and reasonable, provided a manufacturer or distributor may, not later than thirty days after submission, rebut such presumption by reasonably substantiating that such rate is unfair and unreasonable in light of the practices of all other franchised motor vehicle dealers in the vicinity offering the same line-make vehicles. The average labor rate shall go into effect thirty days following the declaration, subject to audit of the submitted repair orders by the franchisor and a rebuttal of such declared rate. If the declared rate is rebutted, the manufacturer or distributor shall propose an adjustment of the average labor rate based on such rebuttal not later than thirty days after submission. If the dealer does not agree with the proposed average labor rate, the dealer may file a protest with the commissioner not later than thirty days after receipt of that proposal by the manufacturer or distributor. If such a protest is filed, the commissioner shall inform the manufacturer or distributor that a timely protest has been filed and that a hearing will be held on such protest. In any hearing held pursuant to this subsection, the manufacturer or distributor shall have the burden of proving that the rate declared by the dealer was unfair and unreasonable as described in this subsection and that the proposed adjustment of the average labor rate is fair and reasonable pursuant to the provisions of this subsection.

(d) In calculating the retail rate customarily charged by the dealer for parts and labor, the following work shall not be included in the calculation: (1) Repairs for manufacturer or distributor special events, specials or promotional discounts for retail customer repairs; (2) parts sold at wholesale; (3) engine assemblies and transmission assemblies; (4) routine maintenance not covered under any retail customer warranty, such as fluids, filters and belts not provided in the course of repairs; (5) nuts, bolts, fasteners, and similar items that do not have an individual part number; (6) tires; and (7) vehicle reconditioning.

(e) If a manufacturer or distributor furnishes a part or component to a dealer, at no cost, to use in performing repairs under a recall, campaign service action or warranty repair, the manufacturer or distributor shall compensate the dealer for the part or component in the same manner as warranty parts compensation under this section by compensating the dealer the average markup on the cost for the part or component as listed in the manufacturer’s or distributor’s price schedule less the cost for the part or component.

(f) A manufacturer or distributor may not require a dealer to establish the retail rate customarily charged by the dealer for parts and labor by an unduly burdensome or time consuming method or by requiring information that is unduly burdensome or time consuming to provide, including, but not limited to, part-by-part or transaction-by-transaction calculations. A dealer may not declare an average percentage markup or average labor rate more than twice in one calendar year.

(g) A manufacturer or distributor may not otherwise recover its costs from dealers within this state, including an increase in the wholesale price of a vehicle or surcharge imposed on a dealer solely intended to recover the cost of reimbursing a dealer for parts and labor pursuant to this section, provided a manufacturer or distributor shall not be prohibited from increasing prices for vehicles or parts in the normal course of business.

(h) Time allowances for the diagnosis and performance of warranty work and service shall be reasonable and adequate for the work to be performed.

(i) Each manufacturer or distributor shall perform all warranty obligations, include in written notices of factory recalls to owners and dealers the expected date by which necessary parts and equipment will be available to dealers for the correction of such defects and compensate dealers for repairs necessitated by such recall.

(j) All claims by dealers under this section for such labor and parts and all claims for compensation relative to any sales incentive, marketing and advertising programs shall be paid not later than thirty days after approval by the manufacturer or distributor, provided manufacturers or distributors retain the right to audit such claims and to charge-back the dealer for false or unsubstantiated claims for a period of one year following payment. A manufacturer or distributor shall not deny a claim submitted under this subsection or charge-back such a claim or payment following a timely audit based solely on the dealer’s failure to comply with a claim processing procedure, a clerical error or other administrative technicality, provided such failure does not call into question the legitimacy of the claim. The manufacturer or distributor shall allow the dealer to resubmit such claim according to reasonable manufacturer or distributor guidelines not later than thirty days after the initial claim denial or charge-back. If there is evidence of fraud, the provisions of this subsection shall not limit the right of a manufacturer or distributor to audit a dealer for longer periods of time and charge-back the dealer for any fraudulent claim. Dealers shall be required to maintain defective parts for a period of not longer than ninety days following submission of claims. All such claims shall be either approved or disapproved not later than thirty days after their receipt on forms, and in the manner specified by, the manufacturer or distributor. Any claim not disapproved in writing or by means of electronic transmission not later than thirty days after receipt shall be deemed approved and payment shall be made within thirty days.