Legislature(2017 - 2018)BELTZ 105 (TSBldg)

02/23/2017 01:30 PM LABOR & COMMERCE

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Audio Topic
01:33:43 PM Start
01:34:06 PM SB47
03:29:10 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 47 MOTOR VEHICLE DEALER FRANCHISES TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
-- Public Testimony --
             SB  47-MOTOR VEHICLE DEALER FRANCHISES                                                                         
                                                                                                                                
1:34:06 PM                                                                                                                    
CHAIR COSTELLO announced  the consideration of SB  47. She stated                                                               
that  the intent  is to  hear the  introduction, take  questions,                                                               
begin public testimony, and hold the bill for further review.                                                                   
                                                                                                                                
1:35:09 PM                                                                                                                    
SENATOR KEVIN MEYER, Alaska State  Legislature, sponsor of SB 47,                                                               
stated  that he  would prefer  that the  legislature stay  out of                                                               
negotiated contracts,  but when  a manufacturer uses  a one-size-                                                               
fits-all  franchise  agreement  it doesn't  necessarily  fit  the                                                               
unique  circumstances in  Alaska. The  intention is  not to  take                                                               
sides but  to put Alaskan dealers  on a level playing  field with                                                               
those in the Lower 48.                                                                                                          
                                                                                                                                
He advised  that some of the  topics covered in the  bill are how                                                               
agreements are terminated, the  procedure for returning inventory                                                               
to  the  manufacturer,  fair   compensation  for  warranty  work,                                                               
allowing dealers to  provide warranty work for  consumers who are                                                               
over 100  miles from the dealer  or who do not  have road access,                                                               
procedures  for succession  plans  for dealers,  and other  minor                                                               
items.  He said  his primary  concern  is how  this benefits  the                                                               
Alaska consumer and  how to keep franchise agreements  up to date                                                               
and  applicable to  Alaska. He  expressed optimism  that bringing                                                               
the bill forward could encourage the  two sides to work out their                                                               
differences without legislation. That would be his preference.                                                                  
                                                                                                                                
1:39:00 PM                                                                                                                    
CHRISTINE  MARASIGAN, Staff,  Senator Kevin  Meyer, Alaska  State                                                               
Legislature, said  she would like  to go through the  sections of                                                               
SB 47 and have the invited  testifiers explain the issues and why                                                               
certain provisions are needed.                                                                                                  
                                                                                                                                
MS. MARASIGAN  requested Mr.  Toth and Mr.  Allwine sit  with her                                                               
and help explain some of the sections.                                                                                          
                                                                                                                                
1:40:19 PM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
1:41:17 PM                                                                                                                    
CHAIR COSTELLO reconvened the meeting.                                                                                          
                                                                                                                                
1:41:42 PM                                                                                                                    
TIM  TOTH  Past President  and  Board  Member, Alaska  Automobile                                                               
Dealers Association, Anchorage, Alaska, introduced himself.                                                                     
                                                                                                                                
1:41:53 PM                                                                                                                    
STEVE ALLWINE,  President, Mendenhall Auto Center;  Board Member,                                                               
Alaska Automobile Dealers Association, introduced himself.                                                                      
                                                                                                                                
MS. MARASIGAN  presented the following sectional  analysis for SB                                                               
47:                                                                                                                             
                                                                                                                                
     Section 1                                                                                                                
     Uncodified Law New section                                                                                                 
     Legislative findings                                                                                                       
                                                                                                                                
She advised that the preamble in this section explains why the                                                                  
bill is amending so many sections of law.                                                                                       
                                                                                                                                
     Section 2                                                                                                                
     Amends AS 45.25.110(a)                                                                                                     
     Addresses termination, adds acted in good faith                                                                            
     clause.                                                                                                                    
                                                                                                                                
     Section 3                                                                                                                
     Adds a new subsection to AS 45.25.110                                                                                      
     Reasons not to terminate an agreement, standards for                                                                       
     the motor vehicle dealer.                                                                                                  
                                                                                                                                
MS. MARASIGAN  suggested Mr.  Toth talk about  Section 3  and the                                                               
reasoning for making it harder to terminate a dealer.                                                                           
                                                                                                                                
1:43:21 PM                                                                                                                    
MR. TOTH explained that Section 3  sets some good faith rules for                                                               
terminating a  dealership and gives  a dealer a way  to recapture                                                               
some of their significant investment  when there is a decision to                                                               
terminate a dealer.                                                                                                             
                                                                                                                                
CHAIR  COSTELLO  asked him  to  mention  the organization  he  is                                                               
representing and who are members of that organization.                                                                          
                                                                                                                                
MR. TOTH  said he  is a  board member and  past president  of the                                                               
Alaska Automobile Dealers Association.                                                                                          
                                                                                                                                
CHAIR COSTELLO asked him to describe the membership.                                                                            
                                                                                                                                
MR. ALLWINE advised  that the association has 29  new car dealers                                                               
in  the   state  who  have  various   franchise  agreements.  The                                                               
association  also  has  used car  dealer  members  and  associate                                                               
members from the insurance and financial industries.                                                                            
                                                                                                                                
MR.  TOTH  offered to  share  a  list  of  the members  with  the                                                               
committee.                                                                                                                      
                                                                                                                                
1:45:41 PM                                                                                                                    
SENATOR  GARDNER  asked  if  the  provisions  in  Section  3  are                                                               
standard  in the  rest  of the  country and  if  have there  been                                                               
problems with  a manufacturer insisting  a dealer carry  only one                                                               
line of car.                                                                                                                    
                                                                                                                                
MR.  ALLWINE said  this has  come  up from  time to  time when  a                                                               
manufacturer is looking for "more  shelf space" and perhaps wants                                                               
their product to  be a standalone. That makes sense  in some, but                                                               
not all,  environments in Alaska  and elsewhere. For  example, he                                                               
currently has  five separate franchises  in two  buildings. Three                                                               
operate in one  building and two in the other.  He said that when                                                               
he  put  that project  together  he  received pushback  from  the                                                               
manufacturers.  Similarly, if  he  and one  of the  manufacturers                                                               
were to  sever their relationship and  he made a decision  to put                                                               
another manufacturer in the building,  he would have to negotiate                                                               
that  with  the existing  manufacturers  in  the building.  Under                                                               
current  statute  he  is potentially  jeopardizing  his  existing                                                               
franchises.                                                                                                                     
                                                                                                                                
That is the  reason for Section 3 and it's  not uncommon in other                                                               
states, Mr. Allwine said.                                                                                                       
                                                                                                                                
1:48:10 PM                                                                                                                    
MS. MARASIGAN continued the sectional analysis of SB 47.                                                                        
                                                                                                                                
     Section 4                                                                                                                
     Amends AS 45.25, adds new section.                                                                                         
        Sec. 45.25.115 Good Cause; burden of proof. This                                                                        
      allows the manufacturer to terminate an agreement on                                                                      
     conduct of the auto dealer.                                                                                                
                                                                                                                                
She added  that this section increases  the time from 90  days to                                                               
180  days for  that termination,  with a  notice provision.  This                                                               
doesn't apply  if the dealer  is terminated due to  insolvency or                                                               
fraud. She suggested Mr. Toth address the reason for more time.                                                                 
                                                                                                                                
MR. TOTH said this section  ensures the termination flows through                                                               
proper due process.                                                                                                             
                                                                                                                                
CHAIR  COSTELLO asked  how the  due process  works under  current                                                               
statute and why isn't it working.                                                                                               
                                                                                                                                
MR. TOTH said the structure for  terminations is a gray area. The                                                               
dealer agreements  are unilateral contracts that  are resigned at                                                               
different intervals depending on  the manufacturer. The contracts                                                               
are based on  the manufacturer's terms, not the  state's terms or                                                               
what is in the best interest of the dealers.                                                                                    
                                                                                                                                
CHAIR COSTELLO questioned his use  of "state's terms" because her                                                               
understanding  is that  the state  has  no role  in the  existing                                                               
relationship.                                                                                                                   
                                                                                                                                
MR. TOTH  clarified that he was  trying to say that  other states                                                               
have that provision and dealers in Alaska would like it too.                                                                    
                                                                                                                                
SENATOR  HUGHES  referenced  the   term  "reasonable  time"  that                                                               
appears  on  page 4,  line  17.  She  asked  who will  make  that                                                               
determination and whether that should be more definitive.                                                                       
                                                                                                                                
MS.  MARASIGAN  explained  that  180  days  is  the  upper  limit                                                               
although  someone could  provide  notice a  reasonable amount  of                                                               
time before that time.                                                                                                          
                                                                                                                                
SENATOR  HUGHES said  it's clear  that the  manufacturer has  180                                                               
days after they  notify a dealer of the  failure. The "reasonable                                                               
time" refers to  the time the dealer has to  correct the failure.                                                               
She asked why that isn't a specific number of days.                                                                             
                                                                                                                                
MS. MARASIGAN said she would follow up with the answer.                                                                         
                                                                                                                                
SENATOR  GARDNER  referenced  page  4, line  12,  and  asked  how                                                               
"reasonable  and  materially  significant"   is  defined  in  the                                                               
context  of failure  to comply  with a  franchise agreement.  She                                                               
observed  that the  manufacturer's  and dealer's  interpretations                                                               
could be worlds apart.                                                                                                          
                                                                                                                                
1:53:30 PM                                                                                                                    
MR. ALLWINE  said there are  two sides to  this. One is  that the                                                               
180-day  timeline is  needed because  manufacturers change  their                                                               
minds "depending on the direction  and velocity of the wind." The                                                               
other is  that what the  manufacturer writes in the  contract may                                                               
actually  be  very  difficult  for  the  merchant  or  vendor  to                                                               
deliver. The  phrase "reasonable  time" is  used to  provide some                                                               
give and take.                                                                                                                  
                                                                                                                                
He  advised  that  federal  antitrust  laws  prohibit  automobile                                                               
dealers  from  getting  together  to  negotiate  with  automobile                                                               
manufacturers. The  only solution is  for dealers to  seek relief                                                               
through statute.                                                                                                                
                                                                                                                                
1:55:24 PM                                                                                                                    
SENATOR STEVENS asked if there is  a chance this could be settled                                                               
without legislation.                                                                                                            
                                                                                                                                
MR. ALLWINE replied these are  not negotiated contracts; they are                                                               
arbitrary, take-it-or-leave-it, agreements  and the manufacturers                                                               
set  the conditions.  "We  don't have  the  ability to  negotiate                                                               
these agreements  and that's the  reason we  have to come  to the                                                               
legislature and look for relief in statute."                                                                                    
                                                                                                                                
SENATOR STEVENS said he sees the rationale.                                                                                     
                                                                                                                                
SENATOR HUGHES asked what has happened in other states.                                                                         
                                                                                                                                
MR. ALLWINE said they provided the  sponsor with a map that shows                                                               
how the different  bill sections apply in other  states. He added                                                               
that to his  knowledge, nothing in the bill is  absolutely new. A                                                               
couple  of  the sections  are  only  addressed  in the  state  of                                                               
Washington and  a lot of  the sections are addressed  in multiple                                                               
states.                                                                                                                         
                                                                                                                                
CHAIR COSTELLO said the map is in the packets.                                                                                  
                                                                                                                                
SENATOR GARDNER  asked which provision  is only addressed  in the                                                               
state of Washington.                                                                                                            
                                                                                                                                
1:57:58 PM                                                                                                                    
MR. ALLWINE said it's the one  on market analysis. The idea is to                                                               
keep  manufacturers  from   arbitrarily  putting  dealerships  in                                                               
locations where  it will make  it less economically  feasible for                                                               
existing  dealers  to  survive.   For  example,  last  week  Fiat                                                               
Chrysler announced it would add 500 dealers throughout the U.S.                                                                 
                                                                                                                                
SENATOR  GARDNER  said  she  is  looking at  what  might  be  the                                                               
unintended  consequences   of  every  provision.   She  expressed                                                               
discomfort with some of the premises and support for others.                                                                    
                                                                                                                                
MR.  TOTH explained  that a  dealer  spends tens  of millions  of                                                               
dollars to  open a facility  and there  is no assurance  that the                                                               
manufacturer won't  put another dealer  in the same  location two                                                               
years later. That splits the market.                                                                                            
                                                                                                                                
CHAIR COSTELLO asked if there has  been an effort to address some                                                               
of these issues at the federal level.                                                                                           
                                                                                                                                
MR. ALLWINE said  he isn't sure anyone wants to  get into federal                                                               
antitrust regulations.  The automobile  industry has had  to play                                                               
by these rules  for almost 100 years.  They are take-it-or-leave-                                                               
it contracts that are managed  and dictated by the manufacturers.                                                               
This has  placed dealers in the  position of having to  ask their                                                               
state legislatures to adopt policy to address the problem.                                                                      
                                                                                                                                
2:04:28 PM                                                                                                                    
MS. MARASIGAN continued the sectional analysis for SB 47.                                                                       
                                                                                                                                
     Section 5                                                                                                                
        Amends AS 45.25.120(a) - Before termination of a                                                                        
     franchise agreement                                                                                                        
     Clarifies termination by manufacturer.                                                                                     
                                                                                                                                
CHAIR COSTELLO asked how this changes the current practice.                                                                     
                                                                                                                                
2:05:52 PM                                                                                                                    
GARY  SLEEPER, Attorney,  Alaska  Automobile Dealer  Association,                                                               
Anchorage, Alaska,  advised that Section 5  isn't substantive. It                                                               
adds  a new  paragraph that  allows  an automobile  dealer to  be                                                               
terminated on  short notice if  the dealer loses  his/her license                                                               
and it makes conforming changes.                                                                                                
                                                                                                                                
SENATOR GARDNER asked what type of license he is referring to.                                                                  
                                                                                                                                
MR. SLEEPER replied it's an occupational license.                                                                               
                                                                                                                                
MS. MARASEGAN continued the sectional analysis of SB 47.                                                                        
                                                                                                                                
     Section 6                                                                                                                
     Amends AS 45.25 and adds new section                                                                                       
     Sec. 45.25.135 Termination by dealer.                                                                                      
                                                                                                                                
She explained  that Section 6  addresses what happens  when there                                                               
is  a  termination, including  the  criteria  for establishing  a                                                               
purchase price and a basic reimbursement mechanism.                                                                             
                                                                                                                                
     Section 7                                                                                                                
     Repeals and reenacts 45.25. 140                                                                                            
      Sec. 45.25.140 clarifies the payment for inventory,                                                                       
     equipment, and other items.                                                                                                
                                                                                                                                
     Section 8                                                                                                                
     Repeals and reenacts 45.25. 150                                                                                            
        Sec. 45.25.150 clarifies payments for dealership                                                                        
     facilities and businesses                                                                                                  
                                                                                                                                
     Section 9                                                                                                                
     Amends AS 45.25 and adds new section                                                                                       
     Sec. 45.25.155 Application of payment provisions                                                                           
                                                                                                                                
MS. MARASEGAN deferred further explanation to Mr. Allwine.                                                                      
                                                                                                                                
CHAIR COSTELLO asked  for an explanation of  the current practice                                                               
and how Sections 7-9 changes that.                                                                                              
                                                                                                                                
MR.  ALLWINE said  this  bill updates  the  list of  manufacturer                                                               
responsibilities that were  placed in statute in  2002. That list                                                               
didn't  reflect  things such  as  technologies  and tooling  that                                                               
dealers  are  required to  have  so  those expenditures  wouldn't                                                               
necessarily be reimbursed in the event of a termination.                                                                        
                                                                                                                                
2:10:45 PM                                                                                                                    
CHAIR COSTELLO  asked him to point  to the map to  indicate which                                                               
states have  adopted similar or  identical language and  which is                                                               
specific to Alaska.                                                                                                             
                                                                                                                                
MR. ALLWINE directed attention to  map 5 - termination assistance                                                               
and map 6 - clarifications for unsold vehicle inventories.                                                                      
                                                                                                                                
SENATOR GARDNER referenced  map 5 and questioned  whether all the                                                               
states  colored  in  red  have  all  the  termination  provisions                                                               
contained in SB 47.                                                                                                             
                                                                                                                                
MR. TOTH replied, "The ones colored in red have this provision."                                                                
                                                                                                                                
SENATOR  GARDNER asked  for verification  that those  states have                                                               
the  provisions in  entirety because  the map  says, "termination                                                               
assistance available in some form."                                                                                             
                                                                                                                                
CHAIR COSTELLO expressed interest in hearing the answer.                                                                        
                                                                                                                                
2:12:41 PM                                                                                                                    
MR.  SLEEPER  responded  that  most  states  have  some  form  of                                                               
termination assistance,  but in Alaska  it is crucial  because of                                                               
the limited resale  market. A dealer who is  terminated will have                                                               
difficulty getting  rid of  his/her inventory.  He said  the bill                                                               
simply  adds   a  couple  of   protections  to   the  termination                                                               
assistance  that   Alaska  currently   has.  The   bill  requires                                                               
manufacturers  to  repurchase loaner  vehicles  in  the event  of                                                               
termination  and it  requires the  manufacturer to  reimburse the                                                               
dealer for required  alterations to their facilities  if a dealer                                                               
is terminated within three years of making those alterations.                                                                   
                                                                                                                                
CHAIR COSTELLO asked which section he is talking about.                                                                         
                                                                                                                                
MR.  SLEEPER directed  attention  to the  new  paragraph (6)  [in                                                               
Section 7] and  the new paragraph (1) in Section  8. He described                                                               
these new termination protections as fair and reasonable.                                                                       
                                                                                                                                
2:16:10 PM                                                                                                                    
MS. MARASIGAN continued the sectional analysis of SB 47.                                                                        
                                                                                                                                
     Section 10                                                                                                               
     AS 45.25.160 is repealed and reenacted                                                                                     
     Sale, transfer or exchange of a franchise.                                                                                 
                                                                                                                                
She highlighted that subsection (f)  addresses the right of first                                                               
refusal if  a dealer  is selling  to a  family member.  She noted                                                               
that this matter also comes up in later sections.                                                                               
                                                                                                                                
SENATOR GARDNER  questioned the notion that  a manufacturer could                                                               
not approve  the sale  of a  franchise to  someone who  meets the                                                               
standards for a legitimate purchase.                                                                                            
                                                                                                                                
MR.  ALLWINE said  manufacturers have  exercised that  option and                                                               
the dealer's expenditures to find and  vet a suitable buyer are a                                                               
sunk cost.  The bill  says a dealer  has the right  to sell  to a                                                               
qualified buyer of his/her choosing.                                                                                            
                                                                                                                                
SENATOR GARDNER observed that the language  at the top of page 11                                                               
still  seems to  allow the  manufacturer to  refuse to  approve a                                                               
sale.                                                                                                                           
                                                                                                                                
MR. ALLWINE said  that's correct but the  manufacturer would have                                                               
to provide a material reason for the refusal.                                                                                   
                                                                                                                                
CHAIR  COSTELLO asked  what happens  in the  event that  a dealer                                                               
passes away.                                                                                                                    
                                                                                                                                
MR.  ALLWINE explained  that most  manufacturers  ask dealers  to                                                               
have a succession plan, but  there is no guarantee currently that                                                               
the successor would be approved  "once they got beyond a specific                                                               
timeline."                                                                                                                      
                                                                                                                                
2:21:48 PM                                                                                                                    
MS. MARASIGAN continued the sectional analysis of SB 47.                                                                        
                                                                                                                                
     Section 11                                                                                                               
     Amends AS 45.25 by adding a new section                                                                                    
     AS 45.25.165 mitigation of damages                                                                                         
                                                                                                                                
     Section 12                                                                                                               
     Repeals and reenacts AS 45.25.170                                                                                          
     Succession                                                                                                                 
                                                                                                                                
SENATOR GARDNER asked  if a manufacturer has  to mitigate damages                                                               
if there is good cause for the termination.                                                                                     
                                                                                                                                
MR.  ALLWINE explained  that a  dealer is  effectively terminated                                                               
once the  manufacturer declines  an applicant  and at  that point                                                               
the buyback provisions apply.                                                                                                   
                                                                                                                                
SENATOR GARDNER asked  for clarification that it  did not include                                                               
the dealer's expense of vetting a qualified applicant.                                                                          
                                                                                                                                
MR. ALLWINE deferred the question to Mr. Sleeper.                                                                               
                                                                                                                                
SENATOR GARDNER asked  the sponsor or Mr. Sleeper  to clarify the                                                               
definition of damages.                                                                                                          
                                                                                                                                
MR. SLEEPER explained  that Section 11 says a  dealer has certain                                                               
buyback rights if the franchise  is terminated by a manufacturer,                                                               
but the  dealer is obligated  to mitigate damages  when possible.                                                               
For example, a dealer is supposed  to sell the loaner vehicles if                                                               
it is reasonable to do so.                                                                                                      
                                                                                                                                
MS. MARISEGAN continued the sectional analysis of SB                                                                            
                                                                                                                                
     Section 13                                                                                                               
     Repeal and reenact AS 45.25.180                                                                                            
     New or relocated dealership                                                                                                
                                                                                                                                
MR. TOTH  added that Section 13  sets out the ground  rules for a                                                               
manufacturer  to bring  in a  new  dealership or  to relocate  an                                                               
existing dealership. It's basically what the market will bear.                                                                  
                                                                                                                                
CHAIR COSTELLO asked  if he's saying that  manufacturers don't do                                                               
a   market  analysis   before   establishing   or  relocating   a                                                               
dealership.                                                                                                                     
                                                                                                                                
2:27:32 PM                                                                                                                    
MR. SLEEPER explained  that under current law  a manufacturer has                                                               
to establish  good cause  before opening a  new dealership  in an                                                               
existing dealer's  market area. That statute  allows the superior                                                               
court  to determine  whether or  not  good cause  exists, and  it                                                               
provides guidance. SB  47 adds to that list of  factors the court                                                               
should take  into consideration when  it makes a finding  of good                                                               
cause. He highlighted that several  of the additions are designed                                                               
to  protect consumers  and ensure  adequate competition.  He read                                                               
excerpts of subsection (c), paragraphs  (3), (6), (7), and (8) on                                                               
pages  14-15,  none  of  which  are  contained  in  the  existing                                                               
statute.                                                                                                                        
                                                                                                                                
CHAIR COSTELLO  referenced map  20 and  questioned why  just four                                                               
states have statutes that address relocating a dealership.                                                                      
                                                                                                                                
MR. SLEEPER  clarified that map  20 is only referencing  the item                                                               
in subsection (c)(10)  on page 15. It asks the  court to consider                                                               
whether  the  manufacturer  has considered  whether  to  allow  a                                                               
dealer  to establish  a satellite  location. He  added that  many                                                               
states have  a similar list of  the other factors, but  just four                                                               
states have considered the factors in subsection (c)(10).                                                                       
                                                                                                                                
CHAIR COSTELLO noted that is on page 15, lines 15-17.                                                                           
                                                                                                                                
MR. SLEEPER agreed.                                                                                                             
                                                                                                                                
2:31:51 PM                                                                                                                    
SENATOR GARDNER asked  if the maps generally reflect  that red is                                                               
desirable  for  dealerships and  the  color  for Alaska  reflects                                                               
passage of SB 47 as currently written.                                                                                          
                                                                                                                                
MR. SLEEPER  explained that the  maps were prepared based  on the                                                               
Alliance comments that  Alaska dealers were asking  for a radical                                                               
departure from existing  law in Lower 48 states.  The red colored                                                               
states have  passed laws that  are substantially similar  to what                                                               
is  proposed in  SB  47.  He directed  attention  to  map 6  that                                                               
reflects 15 states  that have a substantially  similar statute to                                                               
what is  proposed in  the bill. The  other colorations  tell what                                                               
the variations might be.                                                                                                        
                                                                                                                                
MS. MARISEGAN continued the sectional analysis of SB 47.                                                                        
                                                                                                                                
     Section 14                                                                                                               
     Amends AS 45.25 by adding a new section                                                                                    
     Sec. 45.25.185 Court Actions                                                                                               
                                                                                                                                
She explained that this sets a  time certain limit for someone to                                                               
bring  a court  action. She  checked with  the court  liaison and                                                               
learned  that  this  provision  is found  in  other  sections  of                                                               
statute and wouldn't impact the court.                                                                                          
                                                                                                                                
     Section 15                                                                                                               
     Amends AS 45.25 by adding new sections                                                                                     
     Sec. 45.25.200 Payment and approval of claims                                                                              
     Sec. 45.25.210 Rates for warranty and other work                                                                           
        Sec. 45.25.220 Performance and reimbursement of                                                                         
     certain repairs                                                                                                            
     Sec. 45.25.230 Discontinuation or reduction of line.                                                                       
                                                                                                                                
MS.  MARASIGAN opined  that the  section on  consumer protections                                                               
merits discussion.                                                                                                              
                                                                                                                                
CHAIR  COSTELLO  asked  if manufacturers  were  involved  in  the                                                               
drafting of the bill.                                                                                                           
                                                                                                                                
MS. MARASIGAN said not to her knowledge.                                                                                        
                                                                                                                                
MR. ALLWINE referenced  the recent letter from  the Alliance that                                                               
alluded to the fact that the  sponsor withdrew his support of the                                                               
bill last year and suggested  that the dealer association and the                                                               
alliance ought  to get  together. He related  that on  August 25,                                                               
2016 former president Toth sent a  letter to the Alliance but did                                                               
not receive a  response. He also advised that the  bill last year                                                               
was  withdrawn because  the dealers  association  thought it  was                                                               
more important for the legislature to focus on the budget.                                                                      
                                                                                                                                
2:37:16 PM                                                                                                                    
SENATOR MEYER  recalled that  the sponsor  last year  was Senator                                                               
Coghill.                                                                                                                        
                                                                                                                                
MR. ALLWINE agreed.                                                                                                             
                                                                                                                                
SENATOR MEYER  asked if  the committee  could get  a copy  of the                                                               
letter that Mr. Toth sent to the Alliance.                                                                                      
                                                                                                                                
MR. ALLWINE agreed to provide a copy.                                                                                           
                                                                                                                                
CHAIR COSTELLO asked Ms. Marasigan to continue.                                                                                 
                                                                                                                                
MS. MARASIGAN advised that one of  the reasons for Section 15 was                                                               
based on discussions about the cost  to dealers when they have to                                                               
ship a vehicle to another location to get warranty work done.                                                                   
                                                                                                                                
SENATOR HUGHES  said she experienced  that problem last  year and                                                               
is pleased the bill is addressing that issue.                                                                                   
                                                                                                                                
CHAIR COSTELLO asked Mr. Sniffen  to expand on the explanation of                                                               
the need for Section 15.                                                                                                        
                                                                                                                                
2:39:31 PM                                                                                                                    
ED   SNIFFEN,  Assistant   Attorney   General,  Civil   Division,                                                               
Department of  Law, Anchorage, Alaska,  said Section 15  seems to                                                               
address the relationship between  the manufacturer and the dealer                                                               
with  respect to  getting warranty  claims paid  in a  reasonable                                                               
time.  He opined  that these  claims are  fairly transparent  for                                                               
consumers but how the dealer is reimbursed is not as clear.                                                                     
                                                                                                                                
MS. MARASIGAN continued the sectional review of SB 47.                                                                          
                                                                                                                                
     Section 16                                                                                                               
     Repeals and reenacts 45.25.300                                                                                             
    Unfair     practices;     addresses    practices     by                                                                     
     manufacturers.                                                                                                             
                                                                                                                                
MS. MARASIGAN suggested Mr. Toth could provide specific details.                                                                
                                                                                                                                
MR. TOTH explained  that the intent of this section  is to ensure                                                               
that all incentives are available  to all dealerships, regardless                                                               
of the  size or location of  the dealership or the  population of                                                               
the community where the dealership is located.                                                                                  
                                                                                                                                
CHAIR COSTELLO  observed that  the language on  page 23,  line 6,                                                               
talks  about  renovations,  which  is  a  little  different  than                                                               
incentives.                                                                                                                     
                                                                                                                                
MR. ALLWINE  explained that  certain manufacturers  offer dealers                                                               
the opportunity to  earn back the cost of  a completed renovation                                                               
based on  future car  sales. Dealers  in Anchorage  and Fairbanks                                                               
sell  enough  cars   to  benefit  from  that   program,  but  his                                                               
dealership in Juneau doesn't sell  the volume required to recover                                                               
any  of  that money.  This  puts  most  dealers  in Alaska  at  a                                                               
disadvantage.                                                                                                                   
                                                                                                                                
SENATOR GARDNER  asked if he's  saying that under  this provision                                                               
there couldn't be quantity discounts.                                                                                           
                                                                                                                                
MR.  ALLWINE replied  it would  be unfair  if quantity  discounts                                                               
weren't offered to all dealers on an equal basis.                                                                               
                                                                                                                                
CHAIR COSTELLO directed  attention to page 23, line  6, and asked                                                               
how "unreasonably require" would be measured.                                                                                   
                                                                                                                                
MR.  ALLWINE  cited the  example  of  Mercedes Benz  requiring  a                                                               
dealer to  replace their showroom  flooring because  the existing                                                               
tile did  not meet the  manufacturer's standards. It  didn't help                                                               
the dealer's business at all.  He related his personal experience                                                               
with Subaru requiring  a particular type of floor  even though it                                                               
is  impractical in  Juneau. Three  months after  he finished  the                                                               
project Subaru  notified him  that they  no longer  required that                                                               
type of flooring.                                                                                                               
                                                                                                                                
2:47:39 PM                                                                                                                    
MS. MARASIGAN continued the sectional review of SB 47.                                                                          
                                                                                                                                
     Section 17                                                                                                               
     Repeal and reenacts AS 45.35.990 (19)                                                                                      
     Defines terminate.                                                                                                         
                                                                                                                                
     Section 18                                                                                                               
     Amends AS 45.25.990                                                                                                        
     Defines line or make and relevant market area                                                                              
                                                                                                                                
     Section 19                                                                                                               
     Repeals AS 45.25.110(b) and 45.25.110(c)                                                                                   
        Franchise agreement termination due to death or                                                                         
     incapacity; Good cause                                                                                                     
                                                                                                                                
     Section 20                                                                                                               
     Adds a new section to uncodified Law.                                                                                      
      This is an applicability section, effective date and                                                                      
     definitions.                                                                                                               
                                                                                                                                
     Section 21                                                                                                               
     Adds a new section to uncodified law.                                                                                      
                                                                                                                                
2:49:13 PM                                                                                                                    
At ease from 2:49 p.m. to 2:50 p.m.                                                                                             
                                                                                                                                
CHAIR COSTELLO reconvened the meeting  and asked Mr. Toth and Mr.                                                               
Allwine to provide their public testimony.                                                                                      
                                                                                                                                
2:50:47 PM                                                                                                                    
MR. TOTH  advised that the Alaska  Automobile Dealers Association                                                               
is a volunteer organization, whereas  most states have paid staff                                                               
to  keep current  with changes  in the  industry. He  provided an                                                               
example to  demonstrate how this  can be  costly to a  dealer. He                                                               
said the  amendments that Alaska  dealers are requesting  are law                                                               
in  most other  states and  there  haven't been  problems. SB  47                                                               
simply provides an opportunity for  Alaska to catch up and allows                                                               
dealers to take better care of their employees and customers.                                                                   
                                                                                                                                
2:53:00 PM                                                                                                                    
MR.  ALLWINE said  he has  been in  the car  business his  entire                                                               
adult life and his perspective is  that car dealers in this state                                                               
are heavily vested  in the welfare of  their employees, community                                                               
and the state. All but one  dealership in Alaska are family owned                                                               
and operated  organizations and what  the dealers are  asking for                                                               
is important. He  acknowledged that the bill is  long but pointed                                                               
out that  it has  been 15  years since  these statutes  have been                                                               
amended.                                                                                                                        
                                                                                                                                
2:55:38 PM                                                                                                                    
DAVID BRIGHT, Attorney, Auto Alliance,  advised that the Alliance                                                               
represents 12  manufacturers of cars  and light trucks and  he is                                                               
speaking  in strong  opposition  to SB  47. It  is  an effort  to                                                               
rewrite   existing  contracts   between  manufacturers   and  car                                                               
dealers. He said  manufacturers have a vested  interest in seeing                                                               
that their dealers  succeed. Many of these  relationships go back                                                               
years and  it would be  preferable to  work out any  disputes "in                                                               
the family" rather than in the legislature.                                                                                     
                                                                                                                                
He  said these  franchise contracts  are take-it-or-leave-it  for                                                               
the simple  reason that  everyone needs to  be treated  the same.                                                               
The only way that can happen is  with a form contract. He said he                                                               
finds  the  statement baffling  that  this  discussion is  needed                                                               
because  of   federal  antitrust  law.  For   years  dealers  and                                                               
manufacturers have  negotiated these franchise  contracts through                                                               
dealer councils.  These are groups  of dealers that  get together                                                               
with a manufacturer to discuss  problems and potential changes in                                                               
franchise  contracts  in  the future.  That  is  the  negotiation                                                               
process and to  say there is no negotiation  or that negotiations                                                               
must go through the legislature is inaccurate.                                                                                  
                                                                                                                                
MR.  BRIGHT  stated  disagreement  with  the  previous  testimony                                                               
regarding termination assistance. He  argued that it is extremely                                                               
uncommon  to  require   a  manufacturer  to  pay   a  dealer  who                                                               
terminates  a franchise  agreement the  same amount  as when  the                                                               
manufacturer  terminates   the  agreement.  He   emphasized  that                                                               
termination assistance  and many  other provisions  in SB  47 are                                                               
extraordinarily  aggressive and  take outlier  positions on  many                                                               
topics. He  maintained that the  bill does not conform  Alaska to                                                               
the rest  of the country. Rather,  it would give Alaska  the most                                                               
anti-manufacturer,  anti-consumer, over-aggressive  franchise law                                                               
in the nation.                                                                                                                  
                                                                                                                                
3:01:06 PM                                                                                                                    
MR. BRIGHT highlighted additional areas of disagreement.                                                                        
                                                                                                                                
1) Section  10 that  addresses sale or  transfer of  a dealership                                                               
and  prohibits the  right of  first refusal  and Section  13 that                                                               
addresses new or  relocated dealerships. He cited a  study by the                                                               
Phoenix  Group  and  extrapolated  that SB  47  incentivizes  one                                                               
dealer to consolidate all the  dealerships in an area, which will                                                               
ultimately raise prices  for consumers. He argued  that the right                                                               
of  first refusal  isn't a  heavy-handed tactic.  If manufactures                                                               
can't  use  it,  diversity  for  consumers  is  not  ensured.  He                                                               
explained that  when a  manufacturer exercises  a right  of first                                                               
refusal, the selling dealer is  reimbursed for the sale price and                                                               
the dealer's expenditures associated  with that sale. The selling                                                               
dealer  is not  harmed.  However, consumers  could  be harmed  by                                                               
subsection  (d) in  Section 13  because it  has the  potential to                                                               
solidify  an  existing dealer  in  an  existing market  area.  He                                                               
emphasized that this bill helps  dealers and harms both consumers                                                               
and manufacturers.                                                                                                              
                                                                                                                                
2) Consumers  are also potentially harmed  if manufacturers can't                                                               
cap document fees under affinity programs.                                                                                      
                                                                                                                                
3)  The bill  requires the  manufacturer  to pay  the dealer  the                                                               
retail rate  for warranty work.  Retail rate is defined  to focus                                                               
on high  margin items  and exclude low  margin items,  which puts                                                               
upward pressure on prices. He  explained that when a manufacturer                                                               
believes a dealer  has an unreasonably high retail  rate there is                                                               
some back and  forth. By contrast, SB 47  defines unreasonable as                                                               
the  highest retail  rate of  any of  that brand  or any  similar                                                               
competing brand.  One dealer can  be unreasonable and  by default                                                               
everyone  else  is reasonable.  The  audit  provision for  dealer                                                               
warranty claims is also outside the  norm. The bill allows a six-                                                               
month-look-back  audit  once  a year.  Theoretically  that  means                                                               
there is a six-month window where  there is no opportunity for an                                                               
audit.                                                                                                                          
                                                                                                                                
SENATOR GARDNER asked where that provision is in the bill.                                                                      
                                                                                                                                
MR. BRIGHT  said the audits  are addressed  on page 18,  line 18.                                                               
The language regarding  an unreasonable rate appears  on page 20,                                                               
line 18.                                                                                                                        
                                                                                                                                
CHAIR  COSTELLO  noted that  the  committee  will adjourn  in  20                                                               
minutes and eight more people want to testify.                                                                                  
                                                                                                                                
MR. BRIGHT  concluded that  he would  be happy  to work  with car                                                               
dealers on a  reasonable compromise but given  the extreme nature                                                               
of the bill it doesn't seem possible.                                                                                           
                                                                                                                                
CHAIR  COSTELLO  expressed appreciation  that  he  stated on  the                                                               
record that he is willing to work on a compromise.                                                                              
                                                                                                                                
3:12:48 PM                                                                                                                    
SENATOR  HUGHES asked  him to  explain  in writing  why after  15                                                               
years  there hasn't  been some  sort  of compromise  and what  is                                                               
different today.                                                                                                                
                                                                                                                                
MR.  BRIGHT  clarified   that  this  has  not   been  an  ongoing                                                               
negotiation for 15  years. The first time he  heard concerns from                                                               
Alaska  car  dealers was  when  legislation  was introduced  last                                                               
year. Some of the issues in the bill have arisen recently.                                                                      
                                                                                                                                
SENATOR MEYER  asked if  he heard the  testimony that  the Alaska                                                               
dealer association  sent a  letter last August  and didn't  get a                                                               
response.                                                                                                                       
                                                                                                                                
MR. BRIGHT said  he has no knowledge of the  letter, but the Auto                                                               
Alliance  has reached  out and  will continue  to talk  to Alaska                                                               
dealers.                                                                                                                        
                                                                                                                                
SENATOR  MEYER asked  if he  could provide  documentation of  any                                                               
efforts to reach out to dealers.                                                                                                
                                                                                                                                
3:15:09 PM                                                                                                                    
SENATOR GARDNER asked if manufacturers  would support the Alaska-                                                               
centric provision allowing  dealers to work with  a local service                                                               
technician  to do  warranty  work  if the  car  that needed  work                                                               
wasn't located in a community that  has the correct dealer, or in                                                               
some circumstances any dealer.                                                                                                  
                                                                                                                                
3:15:45 PM                                                                                                                    
ROSS   GOOD,   Fiat   Chrysler  Automobile   Group,   said   yes.                                                               
Manufacturers  realized   last  year  that   that  Alaska-centric                                                               
problem needed  an Alaska-centric  solution. He  said he  too had                                                               
not seen  the letter from the  Alaska dealers but was  willing to                                                               
work with  dealers on  some of  the issues.  However, it  takes a                                                               
willing partner and FCA hasn't found that to be the case.                                                                       
                                                                                                                                
MR.  GOOD  said he  has  a  good  working relationship  with  Mr.                                                               
Allwine and is a little embarrassed  to have a family fight spill                                                               
over  to  the  legislature.  "We're  all  sophisticated  business                                                               
people; we should be able to work this out in discussions."                                                                     
                                                                                                                                
He advised that manufacturers  can't provide individual contracts                                                               
for  dealers  and then  treat  everyone  the same.  The  standard                                                               
contracts are  done with  everyone's best  interest in  mind. The                                                               
idea that a contract needs to  be written to favor one group over                                                               
another is a little distasteful.                                                                                                
                                                                                                                                
CHAIR COSTELLO suggested anyone  who is interested should provide                                                               
their testimony in  writing. The bill would be  held in committee                                                               
with public testimony open.                                                                                                     
                                                                                                                                
3:19:00 PM                                                                                                                    
MARTEN  MARTENSEN, partner,  Continental  Auto Group,  Anchorage,                                                               
Alaska, said  this issue is  before the legislature  because this                                                               
seems  to  be the  logical  course  to  take. He  questioned  the                                                               
testimony  that the  manufacturers are  willing to  negotiate. He                                                               
spoke of signing  the manufacturer's form contract  17 years ago,                                                               
of spending  millions of dollars  on the facility, and  of having                                                               
no  recourse when  he was  presented with  renewal contracts.  He                                                               
maintained  that  manufacturers  only  care  about  selling  cars                                                               
whereas dealers care  about their customers who  are buying cars.                                                               
He  described  the disagreement  as  Alaska  versus Detroit.  The                                                               
dealers are  open to  negotiation but  that's unlikely  to happen                                                               
because the parties are too far apart.                                                                                          
                                                                                                                                
3:22:33 PM                                                                                                                    
SENATOR GARDNER asked, "How long is a contract?"                                                                                
                                                                                                                                
MR. MARTENSEN replied  they vary by the manufacturer;  he's had a                                                               
five-year contract and another with  Volvo hasn't been renewed in                                                               
20 years.                                                                                                                       
                                                                                                                                
3:23:13 PM                                                                                                                    
RALPH  SEEKINS, owner,  Seekins Ford-Lincoln,  Fairbanks, Alaska,                                                               
discussed  his experience  dealing with  different manufacturers;                                                               
what  dealers have  done over  the last  three years  to look  at                                                               
where  the   existing  statute   can  be   improved;  intra-brand                                                               
competition;  assertions   about  document  fees,   and  warranty                                                               
repairs. He  offered to  serve as  a resource -  based on  his 47                                                               
years  of experience  in  the industry,  to  explain why  certain                                                               
provisions are included in the bill.                                                                                            
                                                                                                                                
CHAIR  COSTELLO held  SB 47  in committee  with public  testimony                                                               
open.                                                                                                                           

Document Name Date/Time Subjects
SB 47 - Fiscal Note.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 - Opposition Background - Alliance Review.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 - Opposition Background - Alliance Testimony.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Bill Text Version D.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Letter of Support Alaska Sales and Service.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Letter of Support Continental.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Letter of Support Lithia South Anchorage.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Letter of Support Lithia.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Letter of Support Mendenhall Auto.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Letter of Support Seekins Ford.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Sponsor Statement version D.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Support Materials National Automobile Dealer's Association graphic.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Support Matierals AK Auto Dealers Why Franchise Laws.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Letter of Support Nissan Fairbanks .pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Sectional Summary Version D.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 Support Materials AADA State-by-State Comparison Maps.pdf SL&C 2/23/2017 1:30:00 PM
SB 47
SB 47 - Opposition Letter - Global Automakers.pdf SL&C 2/23/2017 1:30:00 PM
SB 47