Hey there, looked high and low for a solution to this issue. Dealership is worthless in helping. They say just grind it down and repaint for $800 but it'll return since the rust originates between the two sheets of metal. So my next step was to see if there were decent looking OEM style paintable fenders, cut the rust out and put some fender flares on in place.

Anyone have any helpful tips, tricks, products? The dealership I bought it from says they wont warranty it because there is no hole in the sheet metal. We wash it regularly and make sure to keep the drain hole free of debris and it still happened in our upstate NY Salt covered roads.

Here's to hoping someone has dealt with this and can help me out!

 

Other than grind off rust and repaint there is nothing you can do. Salt and the sand coming off the tires literally just sand blasts the paint off in the wheel well areas. Clear coat over the base coat makes for thicker paint layers that last a little longer from new but it's the inevitable.
I'm a snowmobiler with a place in the ADK so I know what you're experiencing. That's mainly why my friends upstate lease or trade in every 3 yrs. as with the long cold winter the roads are covered for months with that stuff.
Fortunately, NYS doesn't fail you for rust holes in the body like PA does at inspection.
I'm fighting the frame rust on my '11 Tahoe due to being a frequent flyer all winter in the ADK's. Every summer I have to Fluid Film the bottom of the truck so I can get my 200k miles out of it.

 

That would be covered under the 3 year / 36K mile warranty which you are well past. GM warranties for 6 years / 100K miles for rust through holes which that is not.

I grew up in Saratoga Springs and moved to the Southeast in my early 20s. I watched many a vehicles go to the crusher due to the inability to pass inspection because of rust damage soon after the loan was paid off. I sent my 1987 firebird to the junk yard due to rust from the NY winters. I was lucky to get 10 years out of it. The driver seat was dragging on the ground as it was pulled onto the flatbed.

Your only options are to move away from the salt belt and get a car that was never driven on salt covered roads or get a cheap car just for winter driving. If you are seeing rust on the body, the undercarriage is going to be even worse. You can have it fixed but it's going to make things even worse because you'd be removing the factory coatings. You can replace the panels but the undercarriage is still going to be near end of life.

It's amazing the difference between a salt belt car and one that rarely or never sees snow. I have a 2007 Suburban that I bought with 7K miles on it. It has 329K miles on it now and has only seen a handful of drives on snow covered roads. There's absolutely no rust on the sheet metal panels and no rust underneath except for surfaces that were not painted from the factory. The entire exhaust system is original and has no rust. Vehicles down here will last indefinitely provided they are damaged in accidents or don't suffer mechanical failure.