Auto repair reform has strengthened Illinois’ economy

When your car breaks down, you take it to a mechanic. Sometimes, the repairs are paid for under your manufacturer’s warranty. Sometimes they are not, and you pay for the repairs yourself.

What you probably didn’t know is that up until recently, the out-of-state and foreign corporations who are financially responsible for warranty repairs were paying dealerships and service technicians a lot less than you for the same work.

This meant that skilled mechanics fixing non-warranty cars earned pay rates competitive with local area standards while those providing warranty repairs were compensated at below-market rates.

This two-tiered compensation system imposed financial and labor market burdens on more than 700 new car dealers across Illinois and the tens of thousands of workers that they employ. Underpaid warranty repairs lowered the incomes of auto mechanics, eroding job quality and contributing to high turnover and a shortage of skilled technicians at car dealerships.

This all changed in 2022, when overwhelming bipartisan majorities in the Illinois General Assembly passed House Bill 3940. Also referred to as the “Multiplier Act,” the measure ended the two-tiered compensation system in auto repair, requiring out-of-state and foreign auto companies to pay the same market rate for warranty repairs as everyday consumers would pay for non-warranty repairs.

A new study from the Illinois Economic Policy Institute and Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign reveals what warranty parity has meant for Illinois’ mechanics, auto dealers, drivers, and taxpayers.

Researchers show that earnings for Illinois’ auto mechanics have increased by $143 million annually since the law went into effect. These are middle-class careers that cannot be outsourced to China or India.

Better pay has resulted in stronger employee retention, with turnover at auto dealers falling by 9% — saving these small businesses money on recruiting and training costs. This finding confirms accounts from the Illinois Automobile Dealers Association that “technicians’ wages have increased, helping to solidify auto technician as a career opportunity in an industry that has been losing workers.”

The law also has delivered a big win for Illinois’ economy. Higher earnings translate into more consumer spending and our analysis shows that HB 3940 has grown the economy by $300 million annually, while strengthening public budgets to the tune of about $40 million in state and local tax revenues each year.

It also has helped promote safety for drivers. Because auto mechanics are paid by the job, below-market pay rates on warranty jobs effectively incentivized auto mechanics to cut corners to get the warranty work done within the allotted time. Otherwise, mechanics risked being compensated for fewer hours than the actual time needed to perform repairs. Under the new law, certified technicians and their employers no longer are financially penalized for devoting the proper time to correctly diagnose vehicle problems to meet reliability standards and repair defects.

Notably, each of these positive impacts has occurred at no cost to Illinois’ consumers, taxpayers, or new car dealers. Warranty repairs are free to car owners, and the manufacturers paying for them are all out-of-state multinational corporations that have enjoyed record revenues and profits in recent years.

All of these important benefits explain why a diverse array of states — including Minnesota, Wisconsin, California, and Montana — have passed similar warranty parity laws. Colorado and Texas also have introduced legislation to do the same.

The effectiveness of Illinois’ law should encourage the secretary of state to expand educational and outreach efforts that can ensure dealerships are receiving the correct reimbursements and skilled mechanics are receiving the competitive earnings needed to prevent future labor shortages in this vital sector of our economy.

While our divided politics often breeds skepticism and distrust in the policy making process, it is heartening to see legislators come together to fix a real manufacturer’s defect in our laws — and deliver a real win for our economy, workers, consumers, and taxpayers in the bargain.

• Frank Manzo IV is an economist at the non-partisan Illinois Economic Policy Institute.