Legislature(2001 - 2002)
04/11/2002 01:33 PM Senate TRA
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION COMMITTEE
April 11, 2002
1:33 p.m.
MEMBERS PRESENT
Senator John Cowdery, Chair
Senator Jerry Ward, Vice Chair
Senator Robin Taylor
Senator Gary Wilken
Senator Kim Elton
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
SENATE BILL NO. 348
"An Act relating to insurance for and work on certain motor
vehicle repairs; and providing for an effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
SB 348 - No previous action to record.
WITNESS REGISTER
Ms. Annette Deal
Staff to Senator Cowdery
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Introduced SB 348
Ms. Sandy Bass-Core
Coalition Auto Repair Equality (CARE)
POSITION STATEMENT: Opposes SB 348
Mr. Raymond Warner, Legislative Counsel
Certified Auto Parts Association (CAPA)
POSITION STATEMENT: Opposes SB 348
Ms. Eileen Sohile
Keystone Automotive
National Auto Body Parts Association
POSITION STATEMENT: Opposes SB 348
Mr. John George
National Assn. Of Independent Insurers
3328 Fritz Cove Rd.
Juneau, AK 99801
POSITION STATEMENT: Testified on SB 348
Mr. Ralph Seekins
Alaska Auto Dealers Association
Seekins Ford Lincoln Mercury
Fairbanks, AK
POSITION STATEMENT: Supports SB 348
Mr. Brian Keen
NAPA
Anchorage, AK
POSITION STATEMENT: Opposes SB 348
Mr. Bill Holden
General Motors Corporation
Detroit, MI
POSITION STATEMENT: Supports SB 348
Ms. Beth Rose
Consolidated Auto Body
315 Thomas Circle
Anchorage, AK 99508
POSITION STATEMENT: Supports SB 348
Mr. Rick Morrison
Alaska Auto Dealers Association
Anchorage, AK
POSITION STATEMENT: Supports SB 348
Ms. Gail Barnes, Editor
fuelline.com
POSITION STATEMENT: Opposes SB 348
Mr. Matt Thorpe
Anchorage, AK
POSITION STATEMENT: Supports SB 348
Mr. Wayne Spencer
Alaska Sales and Service
Anchorage, AK
POSITION STATEMENT: Supports SB 348
Mr. Stan Petito
Cal Worthington Ford of Alaska
Anchorage, AK
POSITION STATEMENT: Supports SB 348
`
Mr. Ron Jones
CARQUEST Auto Parts
Anchorage, AK
POSITION STATEMENT: Testified on SB 348
Mr. Steve Allwine
Alaska Auto Dealers Association
8725 Mallard St.
Juneau, AK
POSITION STATEMENT: Supports SB 348
ACTION NARRATIVE
TAPE 02-15, SIDE A
CHAIRMAN JOHN COWDERY called the Senate Transportation Committee
meeting to order at 1:33 p.m. Senators Wilken, Ward, Elton and
Chairman Cowdery were present. The committee took up SB 348.
SB 348-MOTOR VEHICLE REPAIRS
MS. ANNETTE DEAL, staff to Senator Cowdery, described the purpose
of the legislation as follows.
SB 348 relates to consumer repairs on individual's vehicles for
crash or collision circumstances. It addresses two types of parts
available, the original manufactured parts and the after market
parts. In the case of motor vehicle repairs, consumers are
sometimes not provided with full information. Some types of
replacement crash parts may be of inferior quality or may void
the warranty for adjacent parts. Alternative parts can also
create unnecessary safety risks from improper fitting, yet some
insurance companies direct the use or installation of parts other
than the original parts. Some replacement crash parts are
comparable to those manufactured or distributed by the original
carmaker. Sometimes professionals have found others to be
inferior in terms of fit, finish and quality. SB 348 guarantees
that there is a warranty for after market crash parts when they
are used in repairs and it also reinforces the consumer's right
to have a choice through the consent language. Therefore, SB 348
gives the consumer a choice, when a vehicle is in its original
manufacture year or three years thereafter, of using after market
parts or the original parts. The vehicle repair shop must
disclose on the invoice when after market parts are used.
CHAIRMAN COWDERY asked what timeframe the bill applies to.
MS. DEAL replied that SB 348 specifies that it applies to the
vehicles manufactured that year and three years after. Consent is
not required of the owner if the vehicle is older than that.
CHAIRMAN COWDERY noted the presence of Senator Taylor. He then
took public testimony.
MS. SANDY BASS-CORE, representing the Coalition for Auto Repair
Equality (CARE), informed members that the Coalition represents
companies involved in the auto repair market. Those companies in
Alaska are NAPA, Midas, CARQUEST, [indisc. - paper shuffling].
These companies combined are found in over 130 locations. The
Coalition opposes SB 348 because many similar pieces of
legislation have been amended and include car parts as well. The
Coalition has found that car dealers and auto body shops have
introduced much of this legislation because the car dealer parts
cost twice as much as the after market parts, even though after
market parts are identical. Ms. Bass-Core said, regarding the
warranty issue, in the 1970s, the U.S. Senate passed preemptive
legislation that prohibits warranties from being tied to repair
so if an after market part is used on a vehicle, it cannot
invalidate any of the original equipment manufacturers (OEM)
parts or the car's warranty (Magnuson Bond Act). Eighty percent
of the after market business is repeat business and studies show
that even OEM bumpers do not withstand a 5 mph crash. The
Coalition's main concern is that many of its customers are low-
income people who often live in rural areas and they cannot
afford to pay the car dealer prices or the higher insurance
premium.
CHAIRMAN COWDERY asked Ms. Bass-Core to fax her written testimony
to the committee. He then asked if 80 percent of the after market
business she referred to applies to cars that are three or fewer
years old.
MS. BASS-CORE said that is correct. The Coalition is considering
the newer vehicles, as well as the older vehicles.
CHAIRMAN COWDERY asked if the 80 percent pertains to all cars or
all parts or to the last three of four-year old cars only.
MS. BASS-CORE said the 80 percent of return customers that the
after market has covers all vehicles, not just the older cars.
CHAIRMAN COWDERY asked, "So you don't really know the figure that
we're talking about, you know, all vehicles versus the last three
years that probably 20, 25 year old vehicles still on the road,
so?"
MS. BASS-CORE said the average age of a vehicle is 15 years. Most
people who drive those vehicles don't want to spend money on new
cars.
CHAIRMAN COWDERY thanked Ms. Bass-Core for her testimony and
asked Raymond Warner to testify.
MR. RAYMOND WARNER, legislative counsel to the Certified Auto
Parts Association (CAPA), informed members that he was testifying
on behalf of Jack Ellis, Executive Director of CAPA, the Director
of Public Affairs for the Consumer Federation of America, and
author of The Car Book, prepared in cooperation with the Center
for Auto Safety. Mr. Warner explained that CAPA is a non-profit
organization that oversees testing and inspection programs that
certify the quality of parts used for auto body repairs and gave
the following testimony.
We are here to comment on SB 348 and we appreciate this
opportunity. CAPA is a non-profit organization, which
oversees testing inspection programs that certifies the
quality of parts used for auto body repairs. CAPA's
goal is to promote price and quality competition in the
crash parts industry, thereby reducing the cost of
crash repairs to consumers without sacrificing quality.
We simply establish standards for competitive parts in
order to insure their equivalency to [indisc.] parts
and provide consumers, auto body shops, and insurance
companies with an objective method of evaluating their
functional equivalency.
Car companies spend millions of dollars to discredit
after market parts to scare consumers, [indisc.] body
shops, and intimidate legislatures into protecting
their monopoly with thinly veiled legislation like SB
348. This state-by-state approach has been adopted by
car companies and collision repairers because they were
unsuccessful in achieving the same result on a national
level when they tried to alter federal design caps in
1993. Supporting this legislation will, in effect,
promote a monopoly and destroy the free market that
Alaska consumers have traditionally embraced.
CAPA strongly believes that consumers should have the
right to have their vehicles repaired to pre-accident
condition. We also believe in disclosure, however if
disclosure is important for [indisc.] cosmetic crash
parts, then it should be even more important for
complicated and safety related mechanical parts.
Interestingly, most mechanical auto repair shops are
against this type of disclosure requirement. Consumers
should also have the right to know that the vehicle
warranty is not covered on non-car company parts.
However, time use of an after market part to the
voiding of a new car warranty is definitely fraud
against federal law, as Sandy pointed out.
What is at stake here is consumer protection, inherent
in a truly free and responsible marketplace. What car
companies and body shops are asking this committee to
do is attempt to legislate out of business an industry
which is forcing them to offer competitive parts. Each
year - when this committee endorses this kind of
legislation, we're basically saying that the benchmark
for quality is the car companies and I think all you
need to do is go to your attorney general's office and
find out how many citizens complain about car company
quality and the number of cars that are recalled. Thank
you sir, for giving us this opportunity.
CHAIRMAN COWDERY said he would like to point out that no dealer
has ever approached him and that he did not know this issue
existed until he heard of consumer complaints and that he did not
introduce this bill at the request of anyone.
SENATOR WARD asked if the parts that are not manufactured by the
large car manufacturing companies use the same research and
development standards.
MR. WARNER explained that some after market parts are certified
by CAPA and some are not. By and large, the number of parts
certified by CAPA is the smallest percentage, primarily because
there is very little incentive for manufacturers to get their
parts certified if legislation similar to SB 348 is passed. That
legislation does not encourage certification.
SENATOR WARD asked if there would be a "gap" between a fender
manufactured by the Ford Motor Company that was tested and the
same model fender manufactured by a different company in China.
MR. WARNER said the manufacturers of certified parts are required
to participate in a vehicle-testing program in which the part is
installed in a vehicle and tested.
SENATOR WARD clarified that he was wondering if the part made in
China would go through the same kind of testing the original part
did.
MR. WARNER said it would.
SENATOR ELTON said he didn't realize there is such a "blood feud"
between the different parties involved in this issue. He asked
Mr. Warner what in this bill goes beyond simply notifying the
consumer what kind of parts are going to be used.
MR. WARNER said notification to a consumer that an after market
part will be used implies there is something wrong with the after
market part when compared to an original equipment manufactured
part.
SENATOR ELTON said he sees notification as empowering the
consumer to make a choice.
MR. WARNER replied, "When the consumer is told that, for some
reason, one part is different from another and will not serve the
same purpose, that is a clear direction to that consumer that
there is something wrong with the part."
CHAIRMAN COWDERY asked Mr. Warner to fax his testimony to the
committee and asked the next witness to testify.
MS. EILEEN SOHILE, representing Keystone Automotive Industries
and the National Auto Body Parts Association, said that regarding
the question of whether disclosure is discriminatory, SB 348 goes
further than that, it speaks to consent of after market parts.
Keystone's problem with consent is that it is not only for four
to five years, but consent suggests inferiority of after market
parts. She noted that many manufacturers that make parts for
Keystone also make parts for the car companies. Keystone's
manufacturers meet the same standards. There is absolutely no
incentive for consumers to choose Keystone's parts when having a
car repaired as the result of an accident in a body shop because
the consumer is not paying out of pocket. SB 348 will legislate
away the industry in Alaska, even though there is a demand for
after market parts in Alaska.
MS. SOHILE said that Keystone actually offers better warranties
than the car companies. Legislation is not necessary to require
Keystone to provide warranties. She repeated that SB 348 will
stifle competition, suggests there is no room for competition,
and that any safety issues would surround workmanship
(installation) and not the parts.
MR. JOHN GEORGE, representing the National Association of
Independent Insurers (NAII), said that NAII's primary goal is to
keep insurance prices affordable, to have quality repairs done on
automobiles that it will continue to insure, and to keep
customers happy. SB 348 is preferable to the original version,
which was combined with the credit issue. He stated that
insurance is a very competitive business.
CHAIRMAN COWDERY interrupted Mr. George to note that SB 348 will
require the consumer to be notified of the type of parts to be
used, it does not require insurance companies to use certain
types of parts. He pointed out that after market parts cannot be
required in Minnesota and rates have not risen there.
MR. GEORGE said he would have to look at the situation in
Minnesota as a number of factors affect rates. He stated that
Hawaii mandates use of after market parts and if a consumer uses
an original part, the consumer must pay the difference. He said
SB 348 goes a long way in meeting some of the objections NAII had
to an earlier bill.
CHAIRMAN COWDERY said the two bills addressed two different
issues.
SENATOR WARD asked if NAII rates in Hawaii have been lowered
since Hawaii enacted that law.
MR. GEORGE said he believes the rates in Hawaii are actually
coming down.
SENATOR WARD asked if that is the result of the Hawaii
legislation.
MR. GEORGE responded that he is not aware of when that law was
enacted.
SENATOR WARD asked Mr. George to get that information for the
committee.
MR. GEORGE said that there are so many factors that affect
insurance rates, particularly losses, but that he would get
Senator Ward an answer.
SENATOR TAYLOR commented the single biggest factor that affects
rates is the current state of the stock market and reinvestment
of reserves.
MS. DEAL informed committee members that according to the U.S.
General Accounting Office (GAO), consumer approval is required in
several states, Hawaii being one. She stated, "...and I have
another chart from the U.S. GAO again, from November 2000, and
things could have changed in the last year and a half, but Hawaii
seems to require disclosure statements, they seem to - consumer
consent is required, an estimate. There are several factors. In
fact they're one of the more stringent states on this graph that
I have of all 50 states. Once again, this is from November 2000
so it may not be completely current but it is from the U.S. GAO,
which I consider a pretty reliable source so..."
MR. GEORGE offered to get more information for committee members.
CHAIRMAN COWDERY repeated that he did not intend to take action
on SB 348 at this meeting.
MR. GEORGE said it is true that the investment rate that
insurance companies get plays a major factor in the companies'
profitability. A company can underwrite at more than a 100
percent loss ratio if investment returns are high. Now that they
are not getting high returns, they must get money to pay the
claims from the premiums. He noted the insurance companies are
not allowed to invest great amounts in the stock market. The
Division of Insurance determines what they can invest in. Even
so, their investment returns are lower than they were previously.
SENATOR ELTON said the previous witness said that after market
parts can be warranted and that SB 348 requires that if the
insured requests the insurer must provide a warranty for after
market crash parts. He stated if, in fact, some after market
crash parts are under warranty that it does not seem like an
onerous requirement on the insurance company to require a
warranty for the part.
MR. GEORGE said a pass-through warranty is one in which an
insurance company specifies that a body shop use a part that has
a warranty and so Senator Elton's argument makes sense. But if he
means the insurance company actually warrants a part, that is a
little more complicated as insurance companies are not in that
business. He noted he is not arguing with that portion of the
bill.
MR. GEORGE then stated the previous testifier mentioned that some
after market parts manufacturers also make original parts. He
pointed out that most manufacturers outsource their parts, so
just because a part is not stamped from a machine owned by Ford,
for example, does not make that part better or worse. He stated
that one has to look at the individual part.
CHAIRMAN COWDERY said he understands that, but a lot of parts do
not have a stamp of approval from the original manufacturer.
MR. GEORGE said the stamp is not as important as the actual
quality of the part.
MR. RALPH SEEKINS, owner of Seekins Ford Lincoln Mercury in
Fairbanks and Seekins Ford in Soldotna, informed members that he
has been in the body shop business for 25 years in Fairbanks and
it appears to him that the committee is on the right track in
protecting the consumer by establishing standards to the original
manufacturer's quality. He stated that the manufacturers
prescribe, for example on a fender, a metallurgical standard, not
just a "fit" standard. One can buy two fenders that look the same
but one will rust three times faster than the other. For that
reason, Seekins tries to stick to the standard of the original
manufacturer. He noted that all SB 348 requires is that a
standard must be met and guaranteed to the owner of the vehicle.
When automobile dealers repair a vehicle, they are required to
put on the receipt whether the part is new, re-manufactured, or
used. He does not see any problem with also requiring body repair
shops to also note the use of after market parts. After market
crash parts are less expensive, but his shop knows that many
times those parts do not meet standards. He repeated that SB 348
is an attempt to set a standard that the consumer can depend on,
and if there is any question that the standard is not being met,
the consumer has absolute knowledge up front. He stated the
Automobile Association of Alaska supports SB 348.
SENATOR ELTON asked if any insurance companies will not do
business with Seekins because his company does not use after
market parts.
MR. SEEKINS said he does not have that problem. However, at one
time, one of the insurers asked his company to use after market
parts because it would be cheaper and he said he would not do
that unless the insurance company provided a letter saying it so
instructed the owner. The insurance company then backed off. He
said in the insurance industry, the primary objective of
adjusters is to lower the cost of repairs so without some kind of
standard as to what kinds of parts are put on a vehicle, body
shops can be put in a position where they are forced to use a
lower quality part. He repeated SB 348 allows the use of parts
without a warranty but the consumer must be notified in writing.
MR. BRIAN KEENE, sales manager for NAPA, Anchorage, said that
NAPA sees SB 348 as a threat to NAPA. He discussed NAPA's
business throughout Alaska, which includes sales in major fishing
villages, and how SB 348 will affect everyone. He noted the issue
is not a war between the auto dealers and after market industry,
it is about the consumer. NAPA's car parts always meet or exceed
OEM standards. NAPA feels SB 348 will have a negative impact on
the working class.
MR. BILL HOLDEN, General Motors, Detroit, stated that General
Motors supports SB 348. General Motors believes customers should
always have their vehicles repaired to their original condition.
This issue is about the inferiority of the after market parts. In
the past, many consumers did not know that their vehicles were
being repaired with inferior parts. A few cases stand out, one
being a 1999 lawsuit over after market parts for $1.2 billion
against State Farm. The judge imposed a $730 million punitive
damage award under the Consumer Fraud and Deceptions Trade
Practices Act on the basis that State Farm's internal documents
showed that the insurers knew the after market parts were not of
like kind and quality. Also, a Consumer Reports article
(February, 1999) tells consumers to stay away from after market
parts. The article discussed CAPA's certification process. He
urged committee members to read the article, which provides a
third party warning to consumers to stay well away from after
market parts. He also pointed out that there is no OEM
manufacturer that takes and either re-labels, re-brands, or sells
anything other than an OEM part. As an example, he stated that GM
built Buick Century cars in China some years ago. The metal for
those parts was shipped to China because GM could not get the
right grade of metal there to make the parts. Also, legislators
in other states asked GM to do an evaluation of GM parts versus
CAPA parts. A follow-up article written in Collision Week
(February 29, 2000 edition) said:
After recent evaluation of CAPA certified parts
conducted by General Motors, the company concluded that
the CAPA parts fall short of the GM requirements when
tested against genuine GM parts. It went on to say
tests were conducted for material content, and dent
resistance, protective coatings, welds and adhesives…
Now I'll go so far as to say that you can say we did
the test so it's probably biased, okay? But that still
doesn't give cause, you know, what I just mentioned
before about State Farm being sued.
MR. HOLDEN said in virtually every state that enacted some form
of consumer protection legislation the insurance in the after
market crash parts interested had lobbied against the bill. The
primary point they tried to drive home was that such legislation
would cause an increase in auto insurance premiums. However
history has shown just the opposite to be true. In almost every
state where some form of consumer protection legislation has been
enacted there have been auto insurance premium rate reductions
over the past three to five years. He noted this was from a
study made in 2000 so may not be up to date.
MR. HOLDEN concluded that when GM builds a new car they have to
meet federally mandated vehicle safety standards. He did not
believe that anybody else would create a standard for after
market crash parts higher that OEM.
SENATOR WARD asked if GM contracts out for the production of any
parts and, if so, whether any of those companies supply the same
parts through this other mechanism.
MR. HOLDEN said yes, for tires, spark plugs, shocks and things
that can be bought in a NAPA parts store, and companies like
Champion may even come to GM and offer up their standards being
the threshold. Those are after market parts that GM considers to
be "hard parts" or "mechanical parts." However, SB 348 refers to
after market crash parts used to repair a vehicle back to its
original condition. In those situations, GM is the only one that
writes the standard and has the criteria for it. GM has asked for
changes to the legislation so that it will never have to share
proprietary rights associated with those. In addition, after a
part has been made in an assembly plant and the car goes out of
production, there is a time period between then and the time that
it then leaves a further level of GM support. A division of GM in
Pittsburgh takes the old parts and remanufactures new parts from
them on virtually the same dies and using the same metal. If the
time period is longer, for example 20 years, and the Pittsburgh
plant cannot be used, any plant it does use must follow GM
criteria and GM stamping. It cannot use that stamping to ever
print out another part used or labeled as another brand other
than OEM. That is written into people's contracts.
CHAIRMAN COWDERY asked Mr. Holden to fax his comments to the
committee. He then asked Ms. Rose to testify.
TAPE 02-15, SIDE B
MS. BETH ROSE informed members she is testifying on behalf of
Kenny Miller who is ill. She noted Mr. Miller was the manager of
Consolidated Body Works and he owned his own body business for
many years. She said she and her husband took over Consolidated
Body Works.
CHAIRMAN COWDERY asked Ms. Rose if Consolidated Body Works is an
independent company.
MS. ROSE said it is and that they only do auto body repair work
and collision repair. She continued by saying that five or six
years ago, Mr. Miller ordered two fenders that she showed
members. Mr. Miller scuffed up a section of one of the fenders (a
CAPA certified part) and applied some of the materials used on
roads to prevent accidents. At the end of the day the part had
rusted.
CHAIRMAN COWDERY asked what kind of a car the part was made for.
MS. ROSE said the part was made for an F-150 Ford light pick-up.
She noted Mr. Miller took a small pry tool and popped the welds
to see if they would withstand his prying. None of the welds
popped. He also put some zinc oxide on the regular parts. It has
been sitting in her body shop for years and has never rusted. She
noted this part was built to last.
CHAIRMAN COWDERY asked which part is heavier.
MS. ROSE said the original is definitely heavier and estimated
that it weighs 5 more pounds. She noted the heavier fender is
also safer in the case of an accident.
CHAIRMAN COWDERY informed members that Ms. Rose brought the parts
to Juneau at her own expense. He asked her to leave the parts for
future committees to see.
MS. ROSE said that Mr. Miller wanted legislators to look at the
I-CAR Advantage section on page 2. That section describes how
energy is absorbed during a crash. She said that her employees
have told her that air bag deployment is at risk in the case of
an accident. She has not found evidence of that in the current
studies but air bags have not been mandatory on vehicles for very
long. She said her employees will not put after market crash
parts on because they are very concerned about liability. She
talked to her insurance agent about using after market parts. The
agent said the insurance company would defend the auto body shop
if there was an accident but the auto body shop would be the
party held negligible.
CHAIRMAN COWDERY asked Ms. Rose to tell committee members about
the difference in hoods and the deployment timing of the air
bags.
2:26 p.m.
MS. ROSE said she was told when a car is in a front end
collision, an after market part used as a bumper will throw the
timing off of the air bag deployment. She said the driver's body
will hit the steering wheel at which point the air bag will
inflate and throw the driver backward at 200 mph in some cases.
She said she really takes issue with the people who say that body
shops do not want to disclose that they are using after market
parts. She said she is testifying because she wants consumers to
know and wants to get legislation in place. She said she also
takes offense at the remark that profit margins would be much
better for the body shops. She said that is not true. Body shops
make a certain percentage off of the parts and it is not very
much. She said it might make a difference in a business that uses
a lot of parts, such as an insurance company.
CHAIRMAN COWDERY asked if body shops make more on labor.
MS. ROSE said that is correct. She added that the comment that
low-income people suffer from inferior parts being put on their
cars to be irksome because it is those people who have to buy the
second hand cars and have to put up with inferior parts.
SENATOR ELTON asked Ms. Rose if insurance companies have
contacted her and applied pressure to use after market parts.
MS. ROSE replied, "Absolutely and small shops and medium-sized
shops are on the line. Many of the small shops can't afford to
always say no. We're in a good fortunate position. We have an
excellent working relationship with State Farm, Geico, USAA and
other good, reputable companies. But we always have problems with
several companies that I'm not - you know, I don't like to be
mean. They come in there and they just think that they can tell
us what to do - you will use after market parts - and we say
oops, sorry, bye."
SENATOR ELTON asked if those insurance companies then take their
business elsewhere.
MS. ROSE said that is correct and that she gets the jobs when
they come back because the paint starts to come off of the
bumper.
CHAIRMAN COWDERY noted that Senator Leman was present.
MS. ROSE repeated that smaller shops have a more difficult time.
She added that there is a place for after market parts. Her shop
uses their radiators all of the time but her shop is very careful
about which ones it uses because structural integrity and safety
cannot be compromised.
CHAIRMAN COWDERY asked Ms. Rose to explain how an after market
part can affect other original parts in a vehicle.
MS. ROSE answered that her example of the front end collision in
a car with an after market bumper shows that if a part in the
front is compromised and collapses, it will not provide as much
protection for the parts that are behind it.
CHAIRMAN COWDERY asked Ms. Rose if her body shop repairs
suspension damage as the result of a collision.
MS. ROSE said it does but she is not sure which after market
parts her shop would use for that type of damage.
CHAIRMAN COWDERY asked if a customer needed a right front fender
for a 2001 Dodge, whether her auto body shop could get that part
from an auto parts store in a timely manner.
MS. ROSE said she believes so but did not know for sure because
they did not deal with them.
SENATOR WARD asked Ms. Rose if she was saying that if someone
replaced the front portion of a car with non-factory certified
parts, that the driver runs a great risk of crashing into the
steering wheel faster than the air bag would inflate.
MS. ROSE had been told the air bag would inflate but the driver's
body would come forward more quickly.
SENATOR WARD asked if anyone on the teleconference system had
further information about the air bag problem.
MR. HOLDEN said that GM has done tests but he did not know
whether it produced any conclusive evidence.
MS. SOHILE commented that she has not had a report filed in 50
years of business regarding air bags deploying before they are
supposed to because of use of after market parts. The Insurance
Institute for Highway Safety recently did a crash test on hoods,
and the after market hood crumpled in the exact same fashion as
the car company hood and the air bag deployed in the exact same
way. She offered to forward a copy of those test results to the
committee.
MS. BASS-CORE informed members that CARE participated in the
USGAO report on after market parts. The report concluded there
were few problems with after market parts. She offered to forward
a copy of that report to members. She said NAPA and CARQUEST have
their parts manufactured by Dana and Federal-Mogul Corporation,
which also make GM parts. Dana Corporation's first customer is
GM and NAPA is their second. Dana Corporation will not turn out
a bad product. She said the inferiority that is implied by
anyone present of after market parts would have to say that the
OEM part would also be inferior because it was made by the same
company.
MR. SEEKINS said Federal-Mogul Corporation produces original
manufactured hard parts such as bearings and gears not crash
parts.
MS. SOHILE said there are manufactures that produce after market
crash parts who also produce parts for the car companies.
CHAIRMAN COWDERY said the State Farm Insurance case is being
appealed. However, the court thought it was reasonable when a
person got an insurance policy that person could expect to have
the automobile repaired to the condition prior to the accident
with the same warranties intact. It was Chairman Cowdery's
opinion the case was lost because of the lack of notification to
the consumers. Consumers should be notified if after market
parts are to be used.
MR. RICK MORRISON, Alaska Auto Dealers Association, said that SB
348 is not about one product being better than the other product
it is about customer choice, competition and knowledge. Over 30
years in the auto industry, he had seen bulletins from
manufacturers about after market parts. Manufacturers presented
bulletins warning about rejected parts that returned to the
market with problems not easily detected.
His daughter's car had needed new fenders and OEM fenders were
not available so after market fenders were installed. After two
years the front of the fenders were rusted to the point they had
to be replaced. The installation work had been of excellent
quality but the quality of the metal in the fender was poor. In
his experience after market parts had to be replaced more often
that OEM parts.
MR. MORRISON informed committee members that manufacturers are
required by law to produce an OEM part for up to ten years and
make them available. Dealers are required to disclose to the
customer whether they are using and OEM or an after market part
and are required by the manufacturers to use OEM parts on
warranty work. Alaska Auto Dealers Association supports SB 348
because it is about disclosure. Consumers don't know that non-
factory parts are being put in their cars and they need to be
informed.
MS. GAIL BARNES, Editor, fuelline.com, said she was a behind the
scenes advocate for the clean repair industry but not to the
desecration of manufacturers of other parts. The archive files
on fuelline.com contain many cases relating to repair parts.
MS. BARNES said SB 348 requires the collision repair shop to be
responsible for the parts they install. It doesn't spell out
what like kind and quality is therefore putting the burden on the
collision repair businesses. The body shops have begun to
educate their customers and they don't need this liability. If
they are directed by an insured to use after market parts and
they agree they take full responsibility.
CHAIRMAN COWDERY said this is a contract between the insurer and
the consumer. If body shops get consent that ends the future
liability.
UNIDENTIFIED SPEAKER said he had talked to Chairman Cowdery's
staff about paragraph C. He said what they were probably
intending to do was ask the repair shops to provide a copy of the
manufacturers warranty rather than to create a warranty from the
repair shop in paragraph C.
CHAIRMAN COWDERY said they were aware of that and it would be
changed in a committee substitute.
MR. MATT THORPE said a manufacturer has a standard they would
like to be meet and even though they don't manufacture that exact
product, they have a standard for their customers. The purpose
behind the bill is to let the consumer know exactly what they are
receiving so they can make an informed choice.
MR. WAYNE SPENCER, Alaska Sales and Service, a General Motors
Dealership in Anchorage, said he had worked there for 23 years,
had been a manager in the body shop for 12 years, and was
experienced with after market sheet metal parts. Alaska Sales
and Service would prefer to use OEM parts because they are a
superior produce but when asked by a customer to use after market
parts they will install them because they feel it is the
customer's decision how they want it repaired. They support SB
348 because it is making the consumer aware of their options.
MR. STAN PETITO, Cal Worthington Ford of Alaska, said SB 348 is a
good bill. The customer pays for the insurance and repairs and
they are the ones that should make the decisions. He felt
putting the limitation of the first year and the following three
years of manufacture may create an issue because the insurance
companies will place weight on that. When a car is older than
that the insurance company will dictate what pat they want
installed, whether it be a used or an after market part. There
should not be a limitation on that, the choice should be up to
the consumer.
MR. RON JONES, CARQUEST Auto Parts, was concerned about placing
the liability on the body shops. He said this was an insurance
issue and let "the buyer beware." People should buy their
insurance from a company that is going to use OEM parts. If the
company states otherwise the customer may pay a smaller premium
but should possibly expect less results.
MR. STEVE ALLWINE, Alaska Auto Dealers Association, said the
Alaska Auto Dealers Association supports SB 348. He explained
while original equipment fenders, after market fenders that may
be provided by NAPA and CAPA certified fenders had been discussed
there is another distribution line that had not been discussed,
the independent marketers. Independent marketers may not be in
the United States, they could be in Canada, the Philippines or
Korea. They market actively to body shops and insurers. SB 348
will protect consumers from this provider.
MR. ALLWINE explained he sells crash parts to body shops. The
independent body shop's reputation is paramount and it is in
their best interest to provide the best quality part they can.
"As far as the independent body shops go I can tell you
unequivocally that I don't know of any of them that would have
objections to this bill at all. They go to great links to get
original equipment parts, crash parts, for vehicles." If the
CAPA product is of equivalent quality then they should provide an
adequate warranty.
CHAIRMAN COWDERY asked if Mr. Allwine agreed that consent by the
customer would take the major liability off the shoulders of the
insurance company.
MR. ALLWINE agreed if they had informed the customer and they
consented to the part.
CHAIRMAN COWDERY said he would not move the bill out of committee
because of the issues that had been brought up. They would wait
for written testimony and asked the committee member if there
were any suggestions for amendments.
SENATOR WARD asked Mr. Allwine if he was under the impression
there are some companies that go on-line and order a part from
China or Mexico and utilize that part as part of an insurance
repair and the customer is not aware.
MR. ALLWINE said Senator Ward raised a point that he had not
considered. He was marketed through his fax machine on a
continual basis and this raised and excellent point about
potential Internet marketing.
SENATOR WARD said this would only correct the problem with
insurance companies.
TAPE 02-16, SIDE A
SENATOR TAYLOR said they had all heard of "Chop shops" and that
cars get stolen for the purpose of marketing their parts. That
is an original manufactured part.
MR. ALLWINE said that was correct but that could be a problem
when they are forced to disclose the origin of the part.
CHAIRMAN COWDERY said during the drafting of the bill it was
suggested they include a provision for cars totaled by an
insurance company. The totaled car must be labeled in some way
and future insurers must be notified. This provision may be
included in a SB 348 committee substitute.
SENATOR TAYLOR said in the landmark decision Avery vs. State Farm
the insurance giant was found guilty of consumer fraud and breach
of contract, which led to a 1.2 billion dollar lawsuit. It is on
appeal and a decision should be available during the summer of
2002. Another insurance company lawsuit involved Country
Companies Insurance and again it was consumer fraud and breach of
contract for its practice of mandating the use of after market
crash parts in the repair of their insured vehicles. They were
enjoined from continuing that policy and enjoined from utilizing
CAPA. Senator Taylor read; "The 600 million dollar punitive
damage award in the State Farm case was to deter other insurance
companies from cheating their insureds the same way State Farm
did." There are pending cases against other insurance companies
doing the same thing today.
SENATOR TAYLOR read a statement by the plaintiff's lawyer in the
State Farm case, Elizabeth Cabraser:
State Farm breached its contract with policyholders for
writing estimates for the cheapest parts not parts that
would restore their insured's vehicles to pre-loss
condition. The insure company relied on a computer to
determine the cheapest part. She said a decision State
Farm based on cost efficiency that in seeking the
cheapest part State Farm committed fraud against it's
policyholders as they had promised to insure and to
repair the vehicles to the like or same condition.
Actually, the words are State Farm promised its
policyholders of like kind and quality. She said when
State Farm gave a cheaper part the insurance company
saved 130 million by doing this.
CHAIRMAN COWDERY said it was under appeal to the Illinois State
Supreme Court but there was some unusually strong language from
the judges regarding the appeal.
SENATOR TAYLOR commented on Alaska Airlines' 737 model 200 series
having brake problems. There were several different times where
the brakes froze up or were grabbing and jerking on landings. He
wrote directly to the FAA and filed a complaint. He later read
where Alaska Airlines received the highest fine ever levied
against a United States carrier. Upon examination of the
aircraft by Boeing, they found Mexican parts had been used. The
brake part did not have the quality of the Boeing part.
CHAIRMAN COWDERY adjourned the meeting at 3:15 p.m.
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