Do not accept anything less than what you brought in. You didn't bring them damaged rims, and their responsibility, at the least, is to return them in the shape that they got them. The only thing he wants to keep under the radar is the bad work. You are not being unreasonable expecting your rims in good shape. And, no way would I accept them staightening them up. Once you do, they are yours, including the cost of replacing them when a crack or something else develops in the future. This is not being unreasonable.
I wouldn't play games with this service manager. Either he steps up to the plate, or go higher than him. He isn't doing you any favors, and doesn't deserve any loyalty.
This is a sensitive subject for me. I once took my truck to a reputable tire dealer to have new tires installed. I dropped the truck off for the day, and wouldn't be back until late that evening. They would leave the truck out for me to pick up, and I'd come back the next morning to pay. When I got there the next morning, the owners son asked to speak to me outside. During the course of work, they had dropped a tire on the hood of my truck- I hadn't noticed the damage, because I had picked it up in the dark. They had tried to straighten it out, but you could still see it, and the damage was in a natural crease in the hood. I wasn't upset- things happen. How it is dealt with is what does matter.
Chris, the son, immediately volunteered to repair the hood- he used to work in a body shop. The truck, though, had a new paint job, less than 6 months old. I told him I would take it to the body shop and get their honest opinion, then get back with him. At that point, he was very willing to do whatever to correct things.
The body shop, run by a close friend of mine (I say that because I trust him, he is a straight shooter, and I know he would fix it right without doing any unnecessary work), said that I wouldn't be satisfied with bondo, because of heat and vibration. The best thing was to replace the hood.
Back to Chris- he concurred, but asked if he could look for a used hood. I said that was fine, as long as it was in good shape. No bondo or other work to get it into shape to paint.
Fast forward two weeks (his dad was gone on vacation this whole time), and he wasn't able to find a hood. So, Chris ok'd ordering a new hood and getting it painted. I would bring him the statement from the body shop.
Fast forward another week- I take the statement in, and his dad is back. He blows through the roof, refuses to take the bill, and informs me that my truck isn't worth the cost of the hood. I didn't blow a gasket, but I did inform him that his responsibility was to return my truck to me in the shape that it came in, not to judge what it was worth. He flat refused, and would only pay to have the hood repaired- in his estimation, not the body shop. He would only reimburse me $125.00. That was MANY years ago, and I haven't bought anything from them again. More than once, I have seen Chris in public, and he asked if they could have my business back. Sorry. Loyalty is earned, not given. I still have that dented hood in an old corn crib here at the house.
Businesses have a responsibility to protect your property. When they don't, the only right thing to do is restore it, not patch it. Whatever the resolution is, both should agree on the solution. Otherwise, you are at an impass and you, the customer, are going to lose. When they put their interests above doing what's right, it is time to part ways.
I say all of this with a clear conscience. I worked in a family business for many years, and we have lost our shirts making things right when a problem arose. With the stabilizer business, I have done whatever was necessary to satisfy the customer. Right is right, whatever it costs.