Legislature(2001 - 2002)
04/11/2001 03:25 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 182-MOTOR VEHICLE SALES AND DEALERS CHAIR MURKOWSKI announced that the first order of business would be HOUSE BILL NO. 182, "An Act relating to motor vehicles; and providing for an effective date." Number 0209 REPRESENTATIVE HALCRO made a motion to adopt the proposed committee substitute (CS) for HB 182, 22-LS0239\F, Bannister, 4/6/01, as the working draft. There being no objection, Version F was before the committee. RALPH SEEKINS, President, Seekins-Ford-Lincoln-Mercury, Inc., came forth on behalf of the Alaska Automobile Dealership Association (AADA). He stated that (AADA) had been a fairly loosely organized group until about five years ago. Some of the members are also involved in the National Automobile Dealership Association (NADA). Over time, as [the AADA] became organized, members started to say they wished they had some of the protections that the other states have as far as franchise laws and consumer issues were concerned; concurrently, he said, [the AADA] started getting letters from the Office of the Attorney General. MR. SEEKINS stated that [members of the AADA] became aware that they did not have any legislation that existed in other states regarding consumer issues and manufacturer-dealer relationships. As a result, they asked the NADA if it had some background information. [Mr. Seekins referred to a packet of information the AADA had received from the NADA.] The AADA started then asking its members what they thought they needed to strengthen the relationships among the consumers, manufacturers, and dealers. They began bringing in piecemeal deals, and [the AADA] started searching for the basic laws that exist in the other states. Finally, the [AADA] began compiling the legislation. Number 0459 MR. SEEKINS stated that this legislation has been in formation for two and a half years. He stated that [the AADA] started to see an unfolding of a multitude of different concerns. It started looking, with the assistance of the attorney general, at those areas where consumers needed to have more clear guidelines when dealing with their local dealers in terms of advertising and installment sales contracts. Therefore, there is a huge section [in the bill] dealing with advertising terms, because with many of the terms used regularly in the automobile industry, the buying public has no clue what they really mean. For example, he said: When you use the term MSRP ... it should be clearly defined - what ... that manufacturers suggested retail price [is]. And it should maybe say, "This is not necessarily the price the vehicle sells for in this marketplace." So, we've tried to roll in some of the those suggestions from across the country. ... It's not uncommon for ... [young people] to have gone into a dealership and be there until 11 o'clock at night to sign a contract that says, "Well, take it home and we'll talk about the terms tomorrow" - only to come back and find that they'd signed a one-payment contract and they were subject to huge swings in the interest rates. MR. SEEKINS continued, stating that in reviewing the laws in other states [the AADA] found out that it is very common for family-owned dealerships to seek some kind of guarantee that if the dealer principal were to pass on, the family would have a fair shot at being able to own and operate the family-owned business without the manufacturer's being able to pull the franchise. He said there are also things that have to do with [Alaska's] unique geographic location. Some manufacturers have recognized that and have dealt with that, while others have not. For example, he said [the AADA] felt it was only fair that if a manufacturer had an equalized destination and delivery charge for vehicles in the lower 48 states, it should be extended to Alaska. Number 0716 MR. SEEKINS stated that there are some further defining things in [the bill]. For example, some dealers really want to know when someone ships an automobile to the dealer, whether there are potentially hazardous materials on the vehicle. He said [the AADA] thought it was only fair that the manufacturers provide the dealers with suggested handling and disposal processes. If those [disposal processes] were later found out to be improper, the manufacturer would indemnify the dealers for having followed them. He stressed that [the AADA] felt that clarifying the relationships between manufacturer and dealer is good for the manufacturers, the dealers, and the consumers. For example, in areas of warranty repair where a dealer is pushed into a situation regarding the amount of money that the manufacturer will pay the dealer to perform a repair, it encourages the dealer to rush the repair and maybe not give the same quality that he or she otherwise would have. MR. SEEKINS said there are areas where it has become more complex to be in the automobile business, especially in the area of high technology that comes in the package of the vehicle. Therefore, he stated, training is more important. For example, Rick Morrison, an Alaska automobile dealer, will spend over $100,000 in training his employees this year. In order to get that training, he will have to send his employees out of the state. Mr. Seekins noted that [the AADA] thinks it is only fair when manufacturers provide training in other states for their dealers that they provide that same level of training for dealers in [Alaska] in order to get the same certification requirements. He stated that [Alaskan dealers] are judged on the same performance standards as dealers in the rest of the United States in terms of the customer-satisfaction index. MR. SEEKINS remarked that the harsh weather in Alaska has a greater effect on mechanical parts in an automobile; therefore, it is very common for manufacturers to put Alaskan dealers under a program called prior approval. If expenses are high in a particular area, [the manufacturers] could require the dealers to call them and get prior approval in order to perform a repair that a dealer in the lower 48 states might not have to get. He noted that the manufacturers typically don't staff those prior approval phone lines to the extent that the dealers can get the prior approval in reasonable time. The dealers are saying, "We're not objecting to you asking us to a prior approval, but our mechanic is waiting on the line 20 minutes to talk to somebody; pay him for the time that it takes him to do it. If it's a non-voluntary prior-approval program and you're requiring us to do that, well then, reimburse that technician, because he has to feed his family too." Number 1129 REPRESENTATIVE CRAWFORD asked whether there was any state [the AADA] particularly patterned [the bill] after. MR. SEEKINS responded that a lot of [the bill] came from North Carolina and Idaho. JOHN MECKE, Legislative Director, Franchise Affairs, Ford Motor Company, came forth on behalf of Ford Motor Company and the Alliance of Automobile Manufacturers, and stated that there has been a lot of change in the business, and in recent years Ford has purchased Land Rover, Volvo, and Jaguar. [Ford Motor Company] also has a large captive credit company, Ford Credit, that does about 75 percent of its dealers' retail sales. Ford Motor Company also owns Hertz Rental Car Company, which has some implications in the bill as well. Finally, [Ford Motor Company] also owns Collision Team of America, which consists of body shops; Green Leaf, which is a recycling company; and an extended-service plan company. He added that [the alliance] is made up of all the automobile manufacturers in the company - about 13 in total. MR. MECKE remarked that [the alliance] agrees that Alaska should not be the only state that doesn't have a franchise law to some degree. [The alliance] also agrees that these provisions should be weighed by the type of public policy impact that they have. Conversely, he said, there are some things [the alliance] has concerns about in the bill as they pertain to public policy issues. He said they are probably more purely business issues or contractual issues that are already dealt with in other ways. [Manufacturers] all have sales agreements with the dealers that are contractual arrangements that specify quite a few things that Mr. Seekins had talked about. For example, Ford Motor Company acknowledges and stipulates that in a family situation the surviving family members get the dealership. He stated that the alliance and the manufacturers have a very strong interest in working with the dealers on coming up with the right kind of franchise bill. He emphasized that the consumer needs to be the "litmus test," and that there need to be some protections for the Alaskan business people. Number 1630 MR. MECKE stated that he would ask the committee to assure that any focus of any franchise provisions that are considered restricted to the business activities are in accord with [the manufacturers'] relationship with their dealers. He pointed out that [Ford Motor Company] depends on its dealers and the dealers depend on [Ford Motor Company]. [Ford Motor Company] willingly has its dealers do all of its warranty work with the customers, and thinks the franchise laws should concentrate on those primary dependent relationships. He stated that a whole list of things are related to the automobile business of selling new vehicles, but [Ford Motor Company] isn't the exclusive supplier. In those areas, he said, he doesn't think franchise laws should restrict [Ford Motor Company], when other competitors that are not manufacturers and also compete in that arena are not being restricted by franchise laws. Number 1735 MR. MECKE remarked that there are a couple of areas that he would like to sensitize the committee to. For example, [Ford Motor Company] sells extended-service plans through its dealers, but also solicits customers directly if they haven't purchased them through the dealerships. This bill, he said, prohibits that from occurring. He noted that there are some things in [the bill] that change the basic way [Ford Motor Company] does business with its dealers on the distribution of vehicles. He said he has a system whereby dealers earn the supply of vehicles based on how they turn their inventory over and how efficient they are in selling their vehicles. This bill, he said, suggests that [manufacturers] "chuck" that system and just build vehicles that are retailed for consumers without any regard to how those inventories are being turned over by various dealerships. He added that he also has incentive programs that would make it easier for a smaller dealer to get into an incentive program versus a larger dealer. Some of the provisions of the bill would eliminate the ability for a small dealer to get a certain amount of payment at a 3- or 4-unit level versus a bigger dealer that could get it at a 15- or 20- unit level. MR. MECKE noted that some manufacturers have mandatory binding arbitration in their sales agreements, and this bill would negate that element. He pointed out that there is a federal law that encourages mandatory binding arbitration. He added that there are an awful lot of prescriptive provisions in the bill in the area of warranty. He stated that there are a number of unique circumstances in [Alaska] relative to things like training and certification; however, there are other areas where the bill gets a little bit too directive. He remarked that [Ford Motor Company] has a situation whereby its dealers, through this law, are exclusive providers of warranty, which is fine; however, it is suggested in the bill to dictate the amount of profit margin paid to the dealer of the different procedures. Number 2074 CHAIR MURKOWSKI asked why Alaska has been the last state to put dealer protections and provisions in place. MR. MECKE answered that he thinks it is probably because there are not that many dealers and the market areas are not that large. The original franchise laws were to protect dealers from arbitrary termination. From there, franchise law went into creating protected areas around which a dealer could protest if another dealer is added. Based on population, he said, there has never been the need [for franchise laws in Alaska]. He noted that a number of years ago Ford Motor Company bought a number of dealerships. This caused an immense amount of fear in the minds of its dealers throughout the country, because they thought [Ford Motor Company] would put them out of business. REPRESENTATIVE HALCRO asked Mr. Mecke whether he has a fairly standard franchise agreement or if it varies per market. MR. MECKE responded that every Ford dealer in the country basically has the same sales agreement. He said there are a few that may have a term agreement, but 99.9 percent have continuing agreements. Other manufacturers have term agreements, but they are the same for all the dealers. REPRESENTATIVE HALCRO asked how those relate as far as competition clauses. For example, if he has agreed to have a Ford franchise and has invested millions of dollars establishing an infrastructure, but five years later his term runs out and he has to negotiate an extension, he asked whether there is a standard method by which dealers are protected as far as competition. Number 2320 MR. MECKE responded that [the dealer] would get another agreement at the end of the term, unless there was some violation of the agreement. In the sales agreements at Ford there is a laid-out explanation of what a market study is. He explained that [Ford Motor Company] does market studies on metropolitan areas every two to five years. They would first see a trend toward a particular area. It starts out as a monitored area growth, then goes to a future preferred location, and then it may or may not go to an "add point" (addition of dealership). REPRESENTATIVE HALCRO asked Mr. Mecke whether he has a formula that says, "It's time to add another dealership." MR. MECKE answered that it is very complex. REPRESENTATIVE HALCRO asked whether there is ever a situation wherein a dealer is protected at all costs from competition. For example, he said, in Anchorage there has been one Ford dealership for 25 years. He asked at what point in time another one would be added. MR. MECKE responded that it is not a simple answer. The worst thing he could do, he said, is cause a situation whereby adding a second dealer weakened the first dealer or both. TAPE 01-57, SIDE B Number 2468 MR. SEEKINS remarked that this bill basically states that even when manufacturers determine these things, there's still a checklist that they have to go through in Alaska. He remarked that [the AADA] is not precluding that; dealers would like a day in court, not to allow an arbitrary decision to be made. He remarked that Anchorage Chrysler filed a lawsuit within the last week because it was allegedly encouraged to add additional real estate, and another Chrysler dealership was granted to another party to come into the Anchorage market. That dealer, he said, would have liked to have had a checklist to say whether or not it was necessary. MARK MUELLER, Manager, Retail Relationship, Daimler Motors, came forth and stated that he is concerned with the Internet and the brokerage area, because there are third parties trying to get into his business and work around the system. Most manufacturers, he said, have joint programs with web sites that are driving both sales and service customers to their dealers. [Manufacturers] are trying to develop those at little or no cost to the dealers, and are concerned that some of the proposed legislation might hinder them from using their internal web sites to drive customers into the dealers' showrooms. Number 2260 JIM MOORS, National Automobile Dealer Association, came forth and stated that NADA represents new car and truck dealers in the 50 states, and has about 90 percent of the dealers as members. Dealers and manufacturers, he said, want the best relationship. He said there is a history that led to the franchise's being enacted. It started in 1936 in Wisconsin, and the issue was termination of the franchise agreement. At the time, these agreements could be terminated at will; the dealers made a sizable investment. The agreement, he said, and who holds the pen is in the manufacturers' hands. The dealer agreements contain a lot of the provisions that are in these franchise laws that are protections for the dealers. He stated that he doesn't think the manufacturers are opposed to a lot of the protections, but they can change them. Many of the protections are basic and call for good cause. None of the laws say that a dealer cannot be terminated. He remarked that in the bill there is a list of criteria that asks, "Is the addition of a new dealer in the public interest? What's the impact on competition? What's the impact on the existing dealer's investment?" MR. MOORS stated that for the most part these are family-owned businesses around the country. When an "add point" is proposed [the dealers] have the right to say to the manufacturer, "We want a third party to decide whether that [additional dealership] is justified." The manufacturers come in with their statistics and their demographics, and they make their case to the hearing body. If they can show that Anchorage has grown in population and there needs to be another Ford dealership, it is approved. He remarked that in the protests that have been filed for additional dealer points, maybe 10 percent have resulted in the additional dealer's being denied. Number 2099 MR. MOORS explained that the successor issue is another issue that is very important. This has been agreed upon, and it is in the contract that the dealership should be passed on to the son or daughter or to management, provided that the person is qualified. This bill would codify this protection. He stated that there is a lot of pressure put on dealers from time to time for exclusive facilities or to upgrade facilities. He stated that this is an incredibly competitive market; manufacturers compete, and the competitive pressures at that level filter down to the dealers, which can result in requests and encouragement to build brand-new facilities because other manufacturers are doing so. Under the bill there is limited protection whereby the dealer has the right to protest those types of requests. He noted that this bill is not much different other states' [bills] on the core areas such as termination, exclusivity, and successorship. REPRESENTATIVE HAYES asked what the [the committee's] plan is with this bill. CHAIR MURKOWSKI responded that it would be her intention to appoint a subcommittee. MR. SEEKINS stated that [the AADA] thinks there is a good foundation [with the bill], and would like to keep it moving. REPRESENTATIVE ROKEBERG asked how this bill addresses the issue of consolidation. MR. SEEKINS responded that the bill does not give the manufacturers any force to consolidate, nor does it give them any ability to restrict consolidation. REPRESENTATIVE ROKEBERG stated that he thinks the best example would be when Daimler Benz purchased Chrysler, where there was a Mercedes dealer, a Chrysler dealer, and then the residual company. There could then be three potential dealerships in one marketplace. He asked whether the manufacturer would be able to kick out the additional product lines because they would come under the umbrella of that manufacturer. Number 1713 WILLIAM HURST, Director, State Franchise Legislation and Strategy, Daimler Chrysler, came forth and stated that his company has a program called Project 2000, which is designed to put the Chrysler-Plymouth stores with the Jeep stores. That is done through negotiations agreements with the dealers. In terms of the Mercedes situation, the market plan is to not put Mercedes and Chrysler-Jeep together. He added that there are a lot of significant problems with the bill, but he thinks they can be worked out. REPRESENTATIVE HALCRO remarked that he wouldn't mind chairing the subcommittee. CHAIR MURKOWSKI stated that she and Representative Hayes would work on the subcommittee as well. [HB 85 was held over.]
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