Three RV manufacturers recently filed bankruptcy and two have halted production. Others simply went out of business, creating additional challenges for the dealers who sold those manufacturers’ products in the past or who have those companies’ products in inventory.
Dealers can easily find themselves owed tens of thousands of dollars, or more, from manufacturers for warranty reimbursements, incentives, and other spiffs that become virtually uncollectible if the manufacturer ceases its business operations. This challenging business environment means RV dealers should re-evaluate their manufacturer business partners, and determine their exposure to risks from a manufacturer, according to RV Executive Today, a publication of the Recreation Vehicle Dealers Association (RVDA).
What are a bankrupt RV manufacturer’s warranty obligations? The answer can depend on whether the RV manufacturer will reorganize or liquidate in bankruptcy. Fleetwood Enterprises Inc. and Monaco Coach Coach. announced intentions to remain in business and to reorganize under Chapter 11 of the U.S. Bankruptcy Code.
A bankrupt manufacturer can either retain its warranty obligations or cancel them, and it has the power to choose. Bankruptcy experts point out that a manufacturer that intends to reorganize or be purchased, and to remain in business (like Fleetwood and Monaco), would likely retain some of its obligations to provide warranty and service support.
If a manufacturer decides to liquidate and go out of business under the bankruptcy code, the bankruptcy court may set up a process to determine whether warranty obligations will or will not be paid.
How can dealers handle sales of existing units, warranty obligations, financing, and some other issues when a manufacturer does go out of business? RVDA offers the following considerations:
- Discuss with your dealership’s attorney the possibility of titling the out of business manufacturer’s units in your dealership’s name, and selling them used with a limited express warranty, or “as is.”
- Remember, there may still be component warranties for the chassis and appliances, etc. that are not affected by the RV manufacturer’s bankruptcy.
- If you sell the vehicle as new, there needs to be full disclosure as to the manufacturer’s inability to pay for warranty work, and likely a prominent disclosure on the bill of sale.
- Do your contracts with consumers specifically disclaim express and implied warranties? Review your contracts with consumers who bought units built by the out of business manufacturer. Did you assume responsibility for the warranty work? Or does your paperwork indicate that the only warranty is the manufacturer’s warranty, and only the manufacturer is responsible for warranty work?
- In some states, it may be illegal to sell a new vehicle without a warranty, or to sell a vehicle as new if the manufacturer is no longer licensed to do business in the state. Check your state’s law.
- In the recent past, lenders have told dealers they will not accept financing requests for new or used units built by manufacturers who had gone out of business.
- If a bankruptcy reorganization turns into a liquidation, discuss with your dealership’s attorney whether your good faith effort to repair a customer’s warranty issue, without seeking reimbursement, is inconsistent with your disclaimer of implied warranties, and whether you may be obligated for additional repairs. Is there a contract disclosure/customer acknowledgement you can use to perform these good faith repairs?
Several extended service agreement companies offer agreements for new units that carry no manufacturer warranty.