Contributors

Halbert B. Rasmussen

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Some exotic brands, such as Bugatti, Pagani, and Koenigsegg, sell some or all of their repair parts directly—without passing through a U.S.-based parts distributor. Unlike mainstream manufacturers like Mercedes-Benz or Audi who import parts through U.S. distribution subsidiaries and sell them to dealers, these brands require U.S. dealers to purchase parts directly from their European headquarters. As a result, the dealer becomes the importer of record and is responsible for paying U.S. customs duties and tariffs. In most cases, the dealer either sets up a direct payment method with Customs or reimburses its freight forwarder for the duties paid on its behalf.

Once the Trump administration announced significant tariff increases (the details of which we cover in other articles), we have heard reports that some of these brands have advised dealers that tariffs paid in the course of importing warranty parts will not be reimbursed by the manufacturer. But this passing the tariff-buck is almost certainly not permitted by California law and is probably not going to pass muster under the motor vehicle dealer franchise laws of other states with strong warranty reimbursement provisions. California Vehicle Code § 3065 mandates that manufacturers reimburse dealers for warranty parts at the dealer’s established retail rate. That rate is meant to reflect the dealer’s actual acquisition cost of the part, which should include all incidental costs such as customs duties and tariffs.

The California statutes do not require manufacturers to separately itemize and reimburse tariff costs on a line-by-line basis. Instead, by mandating that the parts retail rate (i.e., markup percentage) be applied against the acquisition cost for the part, if the dealer’s acquisition cost rises due to tariffs, then the retail price—whether customer pay or warranty—would increase accordingly.

Dealers in California who are required to import parts directly and who pay duties in the process are entitled to factor those costs into the pricing of warranty parts. The manufacturer, in turn, is obligated to reimburse based on that adjusted pricing. Dealers should ensure that their retail pricing is updated to reflect their true acquisition cost and that this pricing is applied consistently across both customer-pay and warranty repairs. They should also document tariff-related charges, such as customs invoices or freight forwarder billing statements, to support their total acquisition costs. While these specialty manufacturers may not intend to undercut the law, their statements that tariffs are not reimbursable are inconsistent with how warranty reimbursement laws work in California and many other states.