I congratulate you on your willingness to jump in and participate in this issue directly in the forum.
HOWEVER, hiding behind "corporate policy" as if it were handed down by God to Moses along with the Ten Commandments is ridiculous. Are you a manager or a computer ? Computer's make decisions according to a fixed set of rules; Managers make decisions based on the circumstances. It's time to be a manager.
The firm that he purchased the exhaust firm directed him to deal directly with _you_ for warranty coverage. They have already ducked out of helping him. For some very short shipping money you could make him happy and retain some of your reputation. Or, you can stick to your guns and lose a thousand customers over $50. Your choice.
Bob
Offering to work some odd deal through that third party is a non-starter.
You should pick up the cost of the return