A provision in Delaware's SB286 fundamentally changed how manufacturers must compensate dealers for warranty work—and most business owners still don't know it applies to them.
Most Delaware manufacturers assume warranty work is simply part of the dealer relationship. But a provision buried in SB286—An Act To Amend Title 21 Of The Delaware Code Relating To Commerce And Trade—changed that assumption in a way that directly affects your bottom line and your dealer agreements.
Here's what happened: Under § 8707(c) of SB286, manufacturers and suppliers (called "warrantors" in the statute) must now reimburse dealers for warranty parts and labor at rates that reflect the dealer's own retail nonwarranty pricing—not at a discounted warranty rate set by the manufacturer.
Before this provision, manufacturers typically set a fixed, below-market reimbursement rate for warranty work. Dealers absorbed the difference as a cost of doing business. SB286 changed that model.
Now, warrantors must reimburse dealers using the dealer's retail nonwarranty rate for both parts and labor. The statute includes a floor: reimbursement cannot be less than the dealer's wholesale cost for parts, plus 40% for handling, plus return freight costs. This floor ensures even dealers with lower retail rates receive fair compensation.
In practical terms, warranty work shifts from a subsidized cost center into a compensated revenue stream. For small dealerships, this can meaningfully improve margins on service operations that were previously break-even or loss-leaders.
The provision applies to manufacturer-dealer agreements entered into on or after July 1, 2014. If you've signed or renewed a dealer agreement since that date, this rule likely applies to your relationship with that dealer.
The provision is broad: it covers any "warrantor"—meaning manufacturers, suppliers, or distributors offering warranties on products sold through dealers. It applies regardless of industry, though it's most relevant to manufacturers with dealer networks in Delaware or dealers who operate in Delaware.
If you haven't reviewed your dealer agreements in light of this provision, now is the time. Check whether your current warranty reimbursement language complies with § 8707(c). Specifically:
If your agreements don't align with the statute, you have two options: update them prospectively with new dealers, or work with existing dealers to bring current agreements into compliance. Some manufacturers have chosen to renegotiate rates with dealers to reflect the new standard.
This provision doesn't have a sunset date, so it remains in effect indefinitely. It's a permanent part of Delaware's dealer protection framework.
For a detailed, business-specific guide to SB286's dealer-related provisions and how they affect manufacturer-dealer relationships in Delaware, resources are available through Delaware business and manufacturing associations.