IL Auto Repair Reform Law Has Been Good for Dealers, Technicians, Drivers and Taxpayers

Chicago, IL: A 2022 law that eliminated a two-tiered compensation system for certified auto mechanics at Illinois’ car dealerships has increased paychecks and helped combat a statewide shortage of qualified auto technicians, while boosting economic activity, increasing state and local tax revenue, and promoting improved vehicle safety and reliability—according to a first-of-its-kind study released by the Illinois Economic Policy Institute (ILEPI) and the Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign.

Read the study, Improving the Motor Vehicle Franchise Act in Illinois: Impacts of the Multiplier Act on Car Dealerships, Mechanics, and Drivers, here.

Prior to 2022, skilled mechanics and technicians at Illinois’ car dealerships were paid different rates for repair work on new vehicles that were under warranty relative to vehicles that were not. Workers repairing non-warranty cars—which are paid for by Illinois drivers—earned market rates consistent with local area standards while those providing warranty repairs—which are covered by out-of-state and foreign auto manufacturing companies—were compensated at below-market rates. The difference between warranty rates and customer-paid retail rates negatively impacted the earnings potential of skilled mechanics, eroding job quality and contributing to high turnover that left a shortage of qualified technicians at car dealerships.

House Bill 3940, also referred to as the “Multiplier Act” aimed to combat the inequity that contributed to the mechanics  labor shortage. It passed 85-24 in the House and 58-0 in the Senate, and went into effect in January 2022.

“This bipartisan law removed the two-tiered compensation system and ensured that automakers fully fund warranty repair services at local dealers,” said ILEPI Economist and study coauthor Frank Manzo IV. “By bringing pay for warranty work up to the same market  standard for non-warranty work, the law has generated positive economic impacts across Illinois.”

In their study, ILEPI and PMCR researchers first used data from the U.S. Census Bureau, U.S. Bureau of Labor Statistics, and National Automobile Dealers Association to compare the economic outcomes of affected workers with other private sector workers in Illinois as well as with their counterparts in neighboring states that do not have similar warranty parity laws. Researchers then utilized IMPLAN, an industry-standard economic modeling software, to assess impacts on gross domestic product (GDP) and tax revenues.

The data revealed that the law has increased worker earnings at Illinois’ auto dealers by $143 million annually and saved auto dealers money through a 9 percent reduction in employee turnover. Additionally, researchers found that law has boosted Illinois’ economy by over $300 million and generated more than $40 million in combined state and local tax revenues every year. Importantly, these impacts have occurred at no cost to Illinois’ car owners and taxpayers because the reimbursements for warranty work are paid for by out-of-state and foreign manufacturers, not vehicle owners.

 “Warranty repairs are paid for by auto manufacturers, who are nearly all multinational corporations based in Michigan, Texas, Germany, Japan, and the Netherlands,” said Manzo. “These companies have enjoyed record revenues and profits in recent years and can clearly afford to pay the market rate to Illinois’ small business owners for skilled mechanics in jobs that cannot be outsourced.”
 
At least four other states have enacted similar warranty parity laws. California, Wisconsin, and Montana had laws prior to 2023, while Minnesota became the newest state with a policy in October 2023. Other states, like Colorado and Texas, have also introduced bills to end the two-tiered compensation system in automotive repairs.
 
“The data shows that this bipartisan law fixed a manufacturers’ defect and delivered wins for local businesses, skilled mechanics, and taxpayers,” concluded University of Illinois Professor, PMCR Director, and study coauthor Robert Bruno, Ph.D. “Its effectiveness should encourage the State of Illinois to strengthen educational and enforcement efforts and other states to consider enacting their own warranty parity policies.”