Legislature(2001 - 2002)
04/10/2002 02:16 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 182
"An Act relating to motor vehicles; and providing for
an effective date."
REPRESENTATIVE LISA MURKOWSKI, SPONSOR, spoke in support of
the legislation. The legislation establishes a comprehensive
motor vehicle act. It is a compilation of work between the
automobile manufacturer's alliance, auto dealers in the
state of Alaska and consumer protection organizations. She
observed that the legislation has had considerable work. She
explained that the relationship between auto dealers and
manufacturers was addressed along with that of prospective
buyers. Guidelines to protect dealers and consumers and a
framework for dispute resolution in regards to franchise
agreements were established. The legislation addresses
uniform procedures relating to transfer, termination and
conveyance of franchise agreements, and guidelines for
succession in case of the death or incapacity of the
individual that holds the dealer franchise. The legislation
also includes meaningful provisions for the auto buying
public. Dealers are required to make reasonable inquiry as
to the condition of used vehicles. Dealers would also be
required to do a reasonable inspection of the vehicle under
the consumer protection provision on page 18, sec.
45.25.470. Dealers have expressed concern with sec.
45.25.470, which was brought forward by the Department of
Law. The courts already construe this provision to be a
requirement.
Vice-Chair Bunde referred to page 3, section 5. He
questioned how the amount for the bond was derived.
Representative Murkowski noted that there is currently a
bonding requirement under Title VIII.
Vice-Chair Bunde asked the rationale for the 18-month
requirement on page 13, line 3. Representative Murkowski
noted that the 18-month requirement was a compromise between
fractions that wanted 12-months and those that wanted 24-
months.
Representative Davies observed that test-driving provisions
were removed [from sec. 45.25.470]. Representative Murkowski
reiterated that dealers had expressed concerns regarding
[sec. 45.25.470]. Section. 45.25.470 states:
If the dealer has information that reasonably should
lead the dealer to know of the potential for a material
defect in a used motor vehicle, conduct an inspection
of the vehicle, including, at a minimum, placing the
vehicle on a rack and inspecting under the hood.
Representative Davies observed that test-driving provisions
had been included in this section.
Vice-Chair Bunde MOVED to ADOPT work draft 22-LS0239\R,
4/9/02. There being NO OBJECTION, it was so ordered.
STEVE ALLWINE, ALASKA AUTO DEALER'S ASSOCIATION, provided
information on the legislation. He noted that the
legislation would satisfy their needs with the exception of:
Sec. 45.25.470, which deals with the sales of used vehicles.
He noted that dealers support the concept of used car
inspections, but have not been able to come up with a
provision that they think is fair and reasonable. He
explained that the section is a "deal breaker" because it is
too vague. He felt that the provision would amount to
"almost an express warranty." He maintained that most
Alaskan dealers do an inspection because it is in their own
best interest; dealers live or die by their reputations. He
felt that the provision would prove difficult due to its
vagueness. He suggested that the provision be withdrawn from
the legislation. He stated that dealers would welcome the
opportunity to continue work on the provision outside of the
legislation.
Representative Hudson questioned what was the impetus for
the legislation. Mr. Allwine noted that there are not huge
issues between consumers and dealers. The legislation came
about because Alaska is the only state that does not have
regulations that give dealers some protection and guarantees
in their relationship with manufacturers. Dealer franchise
agreements are arbitrary agreements. Dealers do what the
manufacturer says they should do or they do not have an
agreement and the franchise can be removed. Dealers also
felt that it would be in the best interest of the community
to clarify some of the business advisories dealing with
advertising and marketing by putting them into statute. The
changes would level the playing field and make people who
deviate from the advisories accountable.
Mr. Allwine noted that the bond was changed from $10
thousand dollars to $50 thousand dollars. The dealers
support the provision but would like to see the amount
raised to $100 thousand dollars. He observed that $10
thousand dollars does not represent much in a car; $50
thousand dollars would represent a couple of cars. Dealers
feel that there needs to be more protection for the consumer
and pointed out that the state is a prime target for natural
disasters such as floods.
In response to a question by Vice-Chair Bunde, Mr. Allwine
explained that differences in philosophy between the
manufacturer and dealer at a local level and the deal could
result in the loss of a business. Dealers are at the mercy
of a person that may not represent everything that the
manufacturer wants.
Mr. Allwine explained that the prohibition against the use
of "invoice" came about because of advertising by dealers,
which use the term "invoice". The Attorney General has
indicated that the term "invoice" is too ambiguous and may
not adequately represent the actual net cost of the vehicle.
The intent is to eliminate this from the advertising
process, which is supported by Mr. Allwine. The
"manufacturer suggested retail price" would be used since it
is a document that is on every new vehicle.
Representative John Davies referred to page 18. He
questioned if Mr. Allwine would recommend substitute
language [for section 45.25.470]. Mr. Allwine emphasized
that the provision needs considerable work. He stated that
they would consider, in separate legislation, a documented
disclosure by the seller that could be shared with the
consumer. He emphasized that a consumer may not tell a
dealer everything that is wrong. The dealer sells the car
and "maybe we've inspected it and maybe we've missed
something, whose to say that six months down the road this
doesn't come up and the consumer we sold it to comes back to
us and said this is here, you should have known about it."
He maintained that it would border on an expressed warranty
or at least be close to an implied warranty, "which is a
situation that no vendor should be in." Even new car
manufacturers are not required to put a warranty on their
vehicles.
Vice-Chair Bunde pointed out that if someone is trying to
launder a car in Alaska they are not going to disclose the
information. He didn't think [a documented disclosure] would
have much use.
In response to a question by Vice-Chair Bunde, Mr. Allwine
explained that federal law requires a sticker on the back of
every used car. The sticker lists the components that [a
consumer] must concern themselves with on their automobile
and how they can protect themselves. The consumer has the
right to take the automobile to a technician or mechanic of
their choice to have the vehicle inspected. He maintained
that the sticker addresses the "buyer beware" part of a used
car. He stressed that section [45.25.470] needs so much work
that they are not comfortable with the placement of it in
statute. He maintained that the provision is too vague and
it is not reasonable for merchants to have to face the
liability issues that come with the provision.
Representative John Davies acknowledged Mr. Allwine's
concerns, but pointed out that there has been extensive work
on the legislation. He expressed support for the inclusion
of a compromise on the issue.
Mr. Allwine noted that he received the current version the
previous night. He stressed that the dealers have put their
information forth and what has been received [back] has been
essentially the same every time. He maintained that the
provision should stand alone. "It is too important to be
left in this piece of legislation. If we leave this in the
legislation, we as a dealer group do not feel that we can
support the bill."
CLYDE (ED) SNIFFEN, JR, ASSISTANT ATTORNEY GENERAL, FAIR
BUSINESS PRACTICES, DEPARTMENT OF LAW provided information
on the legislation. He observed that the original consumer
protection section was 10 pages long and contained "real
world things and problems that we have seen in our office".
The provisions were reduced to 6 pages, most of which are
agreeable to the dealers and have been changed in response
to requests by dealers. He responded to comments by Mr.
Allwine and noted that the original provision did provide
specific information about the inspection process. He
observed that the initial proposal stated: "This is what you
do in a circumstance; you need to ask these questions; you
need to write down this information; you need to tell the
consumer what you find out; you need to do a visual
inspection, a test drive. We defined what those things were.
We also went on to include information about inspecting for
dangerous or material defects." The proposal was reduced in
response to concerns by dealers. The current version
requires dealers to ask if the seller knows what has
happened to the car, for the accident and repair history and
tell the consumer what they know. He noted that there have
been circumstances where dealers have taken a car in trade
and told the owner not to tell them anything about the car
because if they know about it they will have to disclose the
information. Dealers would be required to inspect the car
for material defects only if the dealer knows of a potential
for that kind of a defect to exist in the vehicle. The
information could come to them in a variety of ways.
Material defects are defined to only include defects that
could affect the safe operation of the car by a reasonable
person. He acknowledged that there is a point in time when
the consumer must take responsibility for the vehicle
purchase. Consumers are cautioned to hire a mechanic to
inspect the car. He noted that a car can be sold "as is"
even under the proposed legislation. He maintained that
implied warranties would not be affected by the legislation.
If there is an implied warranty, it already exists, as a
matter of state law and the legislation would not make it
any different. If a dealer inspects a car and misses
something and sells it to a consumer, then the consumer is
always going to have implied warranty claims, regardless if
there is a duty to inspect under the statute. He stressed
that the department has done a fairly good job in trying to
limit the responsibility of the dealers under the section to
fundamental and basic things. He encouraged the inclusion of
the provision.
Co-Chair Mulder expressed concern with subsection (2): "If
the dealer has information that reasonably should lead the
dealer to know…" He asked for a definition of "reasonable".
Mr. Sniffen noted that the concept of "reasonable" exists in
almost every law in the state. Concepts of negligence are
defined by referring to the reasonable person standard. A
"reasonable person" is a person that twelve people in a jury
box think should have made a decision one way or another.
Unfortunately, there is no way, in some circumstance, to
narrow the definition beyond what a reasonable person should
have known about a car.
Co-Chair Mulder questioned why not include a proscribed list
of things and remove the attorneys from the equation. Mr.
Sniffen responded that if they could anticipate everything
the list would be long, and was not sure if it would
accomplish the intent to make sure the consumer knows
everything that the dealer should know about a car they took
in trade. He emphasized that they are not asking dealers to
go out of their way to find out the information. It is
information the person providing the car may already have.
The provision asks dealers to ask the questions and disclose
what they find out.
Co-Chair Mulder observed that there is an element of risk
from the person that gives the car to the dealer to be
honest. Mr. Sniffen pointed out if the consumer fails to
disclose the information that the dealer has done his job.
He observed that the provision only requires the dealer to
ask and make a good faith attempt to find out about the
problems. If the consumer is dishonest, the dealer has done
his job.
Co-Chair Mulder clarified that if the dealer asks and the
seller is not honest that the dealer would not be liable.
Mr. Sniffen affirmed that the dealer is not liable for the
lack of previous owner to disclose information on any
defects.
Representative Croft observed that everyone is asked to
behave responsibly. He noted that concerns were expressed
that the original proposal was too detailed but that the
current standard is too general. He summarized that the
dealer would not be liable unless they have some other
reason to know.
In response to a question by Representative John Davies, Mr.
Sniffen clarified that the original proposal included a more
detailed inspection procedure. The inspection procedure
required an initial inspection that would be extended if
certain things were found. The detailed list raised issues
among dealers.
Representative Whitaker asked if there is an outpouring of
public concern regarding the issue. Mr. Sniffen noted that
the number one complaint received by their office pertains
to used automobile purchases. "A lot of those complaints are
essentially: I bought this car. They told me it was a great
car. I drove it for a week and it fell apart on me. What can
I do, and we find out later on that perhaps the dealer knew
things about the car that they did not disclose to the
consumer, that might have affected the decision to
purchase." Alaska is one of the only states that do not
have an automobile dealer franchise law. There are other
states with laws that deal with consumer protection issues
and the purchase of used vehicles. The legislation is
consistent with some states' laws.
Representative Whitaker questioned the number one consumer
complaint in other states, which have these types of
consumer protection laws. Representative Whitaker concluded
that there was no information regarding their effectiveness.
Representative Hudson clarified that the "lemon law" would
not be affected. Mr. Sniffen observed that lemon laws are
only applicable to new cars.
RALPH SEEKINS, ALASKA AUTOMOBILE DEALER ASSOCIATION,
FAIRBANKS, testified via teleconference in opposition to the
inspection provisions in AS 45.25.470. He expressed concern
that buyers would lie about the condition of their used
cars. He noted that there is an old saying in the industry
that "buyers are liars". Vehicle histories are currently
kept for 18 to 24 months. The histories are "dumped out" if
there is not an update. The requirement would cause dealers
to maintain records on previous repairs in order to fulfill
future reporting requirements. He referred to provisions of
implied warranty and noted that the Uniform Commercial Code
(UCC), which was adopted by Alaska, would allow the display
of some of the implied warranties. He stressed that the
legislation would not disallow the disclaimer of implied
warranty under the UCC. He did not disagree with the intent.
Every car he takes in trade is reviewed to determine if it
will be certified under the manufacture's program. He
maintained that a lot of things happen in a new car
dealership that might not happen in a used car dealership,
which does not have $5 - $6 million dollars invested in
their facilities and equipment. He felt that the issue could
be beneficial to the buyer and most dealers and expressed
the desire to work with the administration and legislature
to "be able to place something in here in terms of
inspection, from the beginning." He observed that dealers
asked for licensing provisions and changes in bonding and
advertising. He acknowledged that there is a tendency in
certain areas for abuses to exist and stated that they would
like to address them up front. Dealers also requested
warranty coverage issues to protect buyers from
manufacture's policies. Those provisions have been removed
to make the legislation easier for people to look at. He
suggested that the provision be placed in separate
legislation to allow the parties to come to consensus. He
noted that anyone that sells less than five vehicles a year
is private seller and would not be subject to inspection
requirements as automobile dealers. He noted that they had
just received model legislation from the National Automobile
Association. He emphasized the intent to work on the issue
and make it right.
Representative John Davies acknowledged Mr. Seekins' desire
to "make it right," but observed that the committee
substitute was version R and was in its second time through
the alphabet. He asked if Mr. Seekins could recommend
language to modify the legislation, which they would
support. Mr. Seekins noted that the National Automobile
Dealer Association was sending additional language that they
could take a look at. He emphasized that they do not have a
problem with trying to make it better, but stressed that
they would like the opportunity to really make it right. He
referred to provision (a) (2), which requires that an
automobile be placed on a rack and inspected under the hood.
He noted that the legislation doesn't require the vehicle to
be lifted up; it only has to be put on the rack. He
maintained that this is too big a loophole to be addressed
in the remaining time. He emphasized that he already
inspects vehicles on their appraisals because he doesn't
want to get stuck with a vehicle that has been rebuilt. He
is willing to make appraisal slips available and to disclose
repairs made after his purchase, but "some of the little
things in here, just catch us".
LIBBY DANNENBURG, ALLIANCE AUTOMOBILE DEALERS, testified via
teleconference in support of the legislation. She noted that
the Alliance has some remaining concerns, but would not
object to the current version.
TAPE HFC 02 - 79, Side B
JOHN MECKY, FORD MOTOR COMPANY, testified via teleconference
in support of the legislation. He noted that he was
available for questions.
STAN HURST CHRYSLER testified via teleconference in support
of the legislation. He observed that the legislation
provides protections to both the dealer and the
manufacturer.
MARK MUELLER, GENERAL MOTORS, DETROIT, testified via
teleconference in support of the legislation and noted that
he was available for questions.
BOB DUTTON, TOYOTA, testified via teleconference in support.
MARY WASHBURN, DIRECTOR, DIVISION OF MOTOR VEHICLES,
DEPARTMENT OF ADMINISTRATION, provided information on the
legislation. She noted that the previous dealer bond was $10
thousand dollars, which was insufficient. They recommended
the bond be raised to $50 thousand dollars, which is an
entry level. She noted that $100 thousand dollars would be
applicable but that they did not want to exclude anyone from
becoming an automobile dealer because of bonding.
STEVE CONN, EXECUTIVE DIRECTOR, ALASKA PUBLIC INTEREST
RESEARCH GROUP, ANCHORAGE, testified via teleconference. He
noted that the original language contained a requirement for
dealers to conduct a reasonable inspection of the vehicle
including a test drive and visual inspection for material
defects. He suggested that the provision be returned to the
bill with the deletion of "material defects." After a
reasonable inspection of the vehicle including a test drive
and visual inspection that whatever information is gathered
would be provided in writing to the prospective buyer of the
vehicle before the sale. This is the salient component. He
emphasized that most consumers believe that the dealer, when
he takes on a vehicle, does make a reasonable inspection.
Whatever the dealer knows from the seller and a reasonable
inspection would be provided to the buyer. He stated that
after more than a year of working on the legislation that to
"leave the consumer standing at the curb" and to make the
legislation only a "deal between the franchisers and the car
dealers" would do a major disservice and be an insult to
consumers who are looking for enough information to make a
good choice.
RICK MORRISON, ALASKA AUTOMOBILE DEALERS ASSOCIATION,
ANCHORAGE, testified via teleconference in support of the
legislation. He noted that the project has been seven years
in the making. Alaska is the last state in the nation to
have any franchise law protections for automobile dealers
and manufacturers. The legislation provides clarity to
protect both the dealer and the consumer. In 1973, the
Federal Trade Commission (FTC) attempted to address
disclosures and inspections on vehicles. The FTC found that
the cost to consumers would be too great and the implied or
express warranties made the issue so complex that they were
unable to come to a solution. The FTC worked on the issue
for 11 years and ended with the window sticker now applied.
Mr. Morrison observed that the dealer association prefers a
$100 thousand dollar bond. He noted that the market area is
[a radius of] 14 miles [around an existing new motor vehicle
dealer] and maintained that it should be extended to 50 -
100 miles. He referred to page 17, line 24 and observed that
no vehicle should be required to be sold with accessories.
He explained that accessories must be placed on the car in
order to display them for sale. Some can be removed and
others cannot. He agreed that a car should be able to be
bought with just the factor options, but emphasized that it
would be tough to make a particular car available without
accessories. They compromised on many areas, but still have
concern with portions of the bill. He pointed out that
customers could be asked to disclose information relating to
a car, but that under privacy laws they cannot share
information relating to the seller with the buyer. He
observed that, under the Fair Trade Practices law, if a
dealer knows something is wrong with the car and it is not
passed on to the consumer that they would be at fault. He
maintained that the provision would result in frivolous
lawsuits. He referred to Section. 45.25.470: "If the dealer
has information that reasonably should lead the dealer to
know…" He maintained that the provision is vague and open
ended. He observed that if a car was serviced five years
previously and recommendations were made for repairs, but
the customer did not return, then they records would have
been downloaded and deleted in 24 months. The dealer could
be at fault if the car is subsequently sold through the
dealer [and the problem was not identified]. He maintained
that dealers would have to charge the consumer for a
warranty or express warranty. He observed that he allows
consumers to return cars in 3 days or exchange the car for
any car of equal value within 30 days. He does not support
page 18, lines 16 - 28. He maintained that the section is
onerous and would cause more difficulties for the consumer
than it would solve.
In response to a question by Representative Davies, Mr.
Morrison suggested the use of a substitute process. He noted
that there could be a safety inspection of all vehicles.
There could be a standard for all vehicles that are on the
street. If there were an inspection than the customer that
is trading the vehicle could sign a form developed by the
state, which would be transferred to the buyer. He stressed
that both ideas would need additional consideration and
pointed out that the devil is in the details.
Representative John Davies asked if repair records would be
given to a consumer who has a vehicle identification number
on a car that they are considering for purchase. Mr.
Morrison stated that he would supply repair information but
not the names of the owner. He observed that he could only
store two years of information. He does not charge for the
service.
In response to a question by Vice-Chair Bunde,
Representative Murkowski acknowledged that the provision
under AS 45.25.470 has been a concern of dealers. She
observed that it addresses the number one consumer
complaint. She maintained that the provision fits within the
bill and emphasized that the intent was to make the impact
as minimal as possible while still protecting the consumer.
She acknowledged that a separate vehicle could be used, but
spoke in support of retaining the provision. She stated that
removal of the consumer protection provision would not be a
"deal breaker" but emphasized their importance.
Representative Lancaster MOVED to Delete Sec. 45.25.470 page
18. Representative John Davies OBJECTED. He stressed that
the section retains a significant balance in terms of
consumer protection. He observed that the issue has been
discussed for up to seven years. He expressed disappointment
that those in opposition have not been willing to put
"their" version on the table. He thought that the current
language, which has been worked and compromised on, should
go forward, if those in opposition to the provision are not
willing to put alternative language on the table. He thought
that it would follow the reasonable persons standards.
Representative Croft pointed out that the legislation is
balanced in terms of the significant protections for
manufacturers and dealers, but that adoption of the
amendment would withdraw protection for the public. He
acknowledged that there could be arguments about the
specifics of the obligation to inspect, but felt that there
should be a reasonable requirement to inspect the car being
sold. The only requirement would be the FTC sticker.
Representative John Davies spoke against the amendment. He
noted that the section is the only piece in the legislation
that addresses what is the number one consumer complaint. He
pointed out that no compromise is possible; nobody is
willing to "roll up their sleeves and put it down on the
table." He felt that the process was somewhat disingenuous
and spoke in support or retaining some consumer protection
in the legislation.
Vice-Chair Bunde suggested that retention of the provision
might encourage further work.
Representative Lancaster spoke in support of the
legislation. He observed that the industry has requested
time to look at revisions.
Representative Whitaker spoke in support of the amendment.
He stressed the difficulty of regulating truth telling in
relationship to the selling and buying of cars.
Representative John Davies suggested that the use of another
piece of legislation could be a dodge. He stressed that
retention of the provision would provide incentive for
additional legislation. He emphasized that the provision
would send a message regarding the standard of care, justice
and truth. He stressed that there should be at least one
standard for public protection. He maintained that the
legislation would be unbalanced with the [withdrawal of
section 45.25.470].
A roll call vote was taken on the motion.
IN FAVOR: Lancaster, Moses, Whitaker, Hudson, Williams,
Mulder
OPPOSED: Bunde, Croft, Davies, Moses
Representative Foster was absent from the vote.
The MOTION PASSED (6-4).
Co-Chair Williams MOVED to report CSHB 182 (FIN) out of
Committee with the accompanying fiscal note. Representative
Croft OBJECTED. He stressed that the time should be taken to
craft a provision on a reasonable inspection.
A roll call vote was taken on the motion.
IN FAVOR: Bunde, Harris, Hudson, Lancaster, Moses, Whitaker,
Williams, Mulder
OPPOSED: Croft, Davies
Representative Foster was absent from the vote.
The MOTION PASSED (8-2).
CSHB 182 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and a new with zero fiscal note by the
Department of Administration and a previously published
fiscal note: LAW (#1).
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