Legislature(2017 - 2018)BARNES 124
03/21/2017 01:00 PM House TRANSPORTATION
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| Audio | Topic |
|---|---|
| Start | |
| HB136 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 136 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 136-MOTOR VEHICLE DEALER FRANCHISES
1:06:35 PM
CO-CHAIR WOOL announced that the only order of business would be
HOUSE BILL NO. 136, "An Act relating to motor vehicle
franchises, motor vehicle transactions, motor vehicle dealers,
motor vehicle manufacturers, and motor vehicle distributors."
1:07:07 PM
REPRESENTATIVE CLAMAN presented HB 136 as prime sponsor and
related that the legislation was requested by the Alaska
Automobile Dealers Association (Association) to address
franchise agreements between automotive dealers and
manufacturers. Similar legislation was offered during the
Twenty-Ninth Alaska State Legislature, he advised, and the
Association took the legislative concerns into consideration and
requested this modified bill. This legislation brings Alaska's
dealer franchise agreements in line with existing law in other
states and addresses Alaska's specific circumstances, he said.
The issues covered include, franchise termination, inventory
returns, and warranty work in off-road communities. He offered
that automotive sales and services vary greatly from Anchorage
to Kodiak to Nome and a system fair to all Alaska communities
was necessary. He explained that responsible franchise
agreements directly benefit Alaska's consumers and create a
level playing field between the dealers and the manufacturers
which is in Alaska's best interest.
1:08:14 PM
SARAH PERMAN, Staff, Representative Matt Claman, Alaska State
Legislature, advised that this bill recognizes that small Alaska
automotive dealers require assistance in dealing with larger
manufacturers who may not appreciate or understand the
geographic and demographic complexities of Alaska, and pursues
Alaska friendly automobile franchise law. Alaska statutes were
updated in 2002, prior to the 2008 market crash when large
manufacturers' shut down franchises. This legislation offers
the following: "good cause" for termination; updates notice
requirements for franchise termination; sets out required
procedures for dissolving a franchise and returning inventory to
the manufacturer, including the return of vehicles, parts, and
equipment required by the manufacturer; who can provide warranty
work; and addresses the sale, transfer, or exchange of
franchises.
1:10:45 PM
MS. PERMAN advised that Section 1, adds a section to uncodified
law with legislative findings and an overview of the bill. Sec.
2, amends AS 45.25.110(a) and addresses that manufacturers may
not terminate franchise agreements unless they have met notice
requirements, shown good cause, and acted in good faith, or the
dealer has engaged in fraud against consumers. Secs. 3-4
specify reasons to not terminate franchises, and what is
considered "good cause." She deferred to Steve Allwine.
1:11:28 PM
STEVEN ALLWINE, President, Mendenhall Auto Center, Alaska
Automotive Dealers Association, advised he is an automobile
dealer at the Mendenhall Auto Center in Juneau, is a member of
the Board of Directors of the Alaska Auto Dealers Association
(Association), and a member of the board of the National
Automobile Dealers Association. He deferred to Gary Sleeper.
1:11:59 PM
GARY SLEEPER, Attorney, Alaska Automobile Dealers Association
(Association), referred to Sec. 3, and explained that under
existing law, a dealership or franchise can be terminated for
"good cause," except, the statute does not provide definition as
to what constitutes "good cause." Secs. 3-4 add clarity to what
constitutes "good cause," which is advantages to dealers,
manufacturers, and the court systems. For example, he said,
under this legislation, a manufacturer may not terminate a
franchise agreement simply because a dealer owns another
franchise in that some sales and service agreements provide that
if the dealer owns more than one franchise, it can be
terminated; it also provides that the dealer cannot be
terminated because it sells another brand from the same facility
as there are smaller Alaskan cities that are not large enough to
not sell multiple brands out of the same facility; and provides
other common sense provisions and requirements that protect
dealers from termination.
MR. SLEEPER related that under HB 136, the manufacturer is still
committed to terminate a dealer if the dealer does not meet
sales goals, except these goals must now be clearly communicated
by the manufacture. Although the dealer may not be terminated
if the dealer's failure to meet these sales goals was not the
dealer's fault and resulted from market, economic, or other
factors beyond the control of the dealer.
MR. SLEEPER related that another common sense protection is if
the manufacturer did not provide the dealer with an adequate
supply of vehicles because manufacturers may sometimes favor
Lower 48 dealers and provide preferred product lines and then
criticize the Alaska dealers for not meeting sales performance
goals. He related that the bill is not a radical departure
from existing law, it simply adds additional common sense
protections and describes "good cause" for termination of a
franchise.
1:14:49 PM
CO-CHAIR WOOL asked whether the existing statute is the result
of the 2002 legislation.
MR. SLEEPER agreed that it was the 2002 legislation, [and
pointed to [AS 45.25.110(c)], which read as follows:
(c) In this section, "good cause" includes when
the new motor vehicle dealer fails to comply with or
observe a material provision of the franchise
agreement.
MR. SLEEPER explained that that provision is the only guidance
given to the courts and dealers in Alaska when determining what
constitutes "good cause" for termination. He further explained
that the additional language is simply a list of common sense
provisions.
1:15:54 PM
MR. ALLWINE then offered examples as to push back from the
manufacturer in the event a dealer decided to add another
franchise, and also offered an example of sales goals.
1:18:00 PM
CO-CHAIR WOOL referred to Mr. Allwine's example of 150 Ferrari's
registered in Juneau and scattered all over the world, and
opined that the cars were illegally registered ...
MR. ALLWINE interjected that it is legal because an individual
can register (coughing) piece of legislation (coughing)...
CO-CHAIR WOOL opined that if an individual registers a car in
Alaska and drives it in another location ...
MR. ALLWINE interjected that the venders are based in Montana
and actually have an office in Juneau. The venders purchase
these cars, register them in Alaska through their Juneau office,
and export the car because it is no longer a new car to another
country. Alaska's licensing regulations permit that activity,
and he said that the [Department of Motor Vehicles (DMV)] has
stacks of license plates that were returned after DMV mailed
them out, which is an issue that should be addressed at a later
time.
CO-CHAIR WOOL asked whether "they look at these numbers" and see
how many cars are "sold in Juneau" but they are not even sold
from Juneau dealers.
MR. ALLWINE said "That is exactly right."
CO-CHAIR WOOL noted that it would appear there would be a manner
in which to determine which cars are actually sold ...
MR. ALLWINE interjected, "You'd think so, but if they don't have
an interest ...
CO-CHAIR WOOL asked whether there would be tax data ...
MR. ALLWINE answered, "They don't want it."
1:19:58 PM
REPRESENTATIVE CLAMAN surmised that Mr. Allwine is a new car
dealer, and asked the brands Mr. Allwine sells at Mendenhall
Auto Sales, his competition in terms of new car sales in Juneau,
and in the event of competition, what brand they sell.
MR. ALLWINE responded that in Juneau, he and his partners are
the last man standing with two stores that sell Chrysler, Jeep,
Subaru, (indisc.), Honda, and Chevrolet. Up until the beginning
of last year there was a standalone Jeep dealer and due to
certain events in 2009, the other dealers either sold or closed.
Recently there was a satellite Ford store based out Kenai, but
he sold his facility and closed the store so his competition is
Seattle, not so much Anchorage.
1:21:41 PM
REPRESENTATIVE NEUMAN surmised that the committee was hearing
from industry as to the legislative intent of the bill.
CO-CHAIR WOOL agreed.
REPRESENTATIVE NEUMAN commented that it is difficult for him to
ask questions regarding legislative intent when the industry is
telling the committee what the bill is supposed to do [difficult
to decipher].
CO-CHAIR WOOL said he understood.
1:22:27 PM
REPRESENTATIVE CLAMAN explained that a companion bill had been
introduced in the other body, and the legislative request came
from the Alaska Automobile Dealers Association (Association).
He related that in the world of simplicity, the Association
knows the legislation as well as anyone, therefore, it appeared
easier to hear directly from them than for "us to try to add
another layer" (coughing) when you've got the people that
performed a lot of the research here in the room.
REPRESENTATIVE NEUMAN said he understood and reiterated that it
was hard for him to ask questions of industry as to the intent
of the legislation.
CO-CHAIR WOOL advised there were individuals from the
manufacturers' side online.
1:23:24 PM
MR. ALLWINE explained that the reason industry [requested the
legislation] is that under federal law, antitrust laws, the
dealers cannot gather or organize as a group and negotiate with
manufacturers.
1:23:53 PM
CO-CHAIR STUTES commented that as an individual, she would think
that Mr. Allwine was certainly capable of having a conversation
with a manufacturer. She asked whether she was correct.
MR. ALLWINE replied that her comment was incorrect and described
that automotive dealer franchise agreements are unilateral
agreements and are "take it or leave it" documents. He
explained that when a dealer agrees to the terms and signs that
document, it receives the franchise, yet the manufacturer can
arbitrarily change those terms at any given point in time. The
agreements require significant investments in capital,
facilities, people, equipment, and the franchise agreements are
in effect for specific periods of time. When the agreement is
up for renewal, the manufacturer can require the dealer to build
a new building and invest additional capital, and the dealer has
no control because there is no negotiation.
1:25:17 PM
The committee took a brief at-ease.
1:25:56 PM
CO-CHAIR WOOL noted that he had gotten off track in asking about
the cars registered in Juneau that leave the country, and asked
that Ms. Perman continue with the sectional analysis.
1:26:33 PM
MS. PERMAN turned to Sec. 5, and described it as cleanup
language that amends AS 45.25.120(a), creates a roadmap for
termination, requires that the manufacturer provide notice of 90
days unless the dealer is insolvent or has failed to conduct
business for seven consecutive days, is convicted of a felony,
or has their license revoked or suspended for more than 30 days,
in which case they must only provide 15 days. In the event the
manufacturer discontinues sale and distribution of a product, it
must provide notice of 180 days.
MS. PERMAN turned to Secs. 6-9, and advised the provisions
further discuss termination. Sec. 6, adds new section 45.25.135
and allows that dealer may terminate the franchise agreement by
providing the manufacturer with a notice of 90 days. Secs. 7-8
repeals and reenacts 45.25.140 and .150 respectively, and
provides termination assistance. Sec. 9, adds new section
45.25.155 and provides no termination assistance for bad
behavior. Sec. 10, repeals and reenacts AS 45.25.160, and
provides guidance as to the successor of the franchise, the
manufacturers may not withhold consent to the sale of a
franchise if the buyer meets the manufacturer's standards and is
capable of being licensed as a new motor dealer in the state or
the manufacturer must provide written grounds for refusal.
1:28:46 PM
MS. PERMAN said that Sec. 11, adds AS 45.25.165 wherein dealers
are not relieved of an obligation to mitigate dealer damages
upon termination. Sec. 12, repeals and reenacts AS 45.25.170,
and provides that the dealer may appoint a successor to the
franchise in circumstances of death or incapacity under certain
conditions, and manufacturers are required to provide specific
written grounds for refusal to honor succession, and failure to
do so within 60 days is considered approval of successor. Sec.
13, repeals and reenacts AS 45.25.180, and provides that a
manufacturer must provide 90 days written notice if establishing
or relocating additional dealers into a dealer's relevant market
area, and the manufacturer must establish good cause for their
actions.
1:30:05 PM
CO-CHAIR WOOL offered the scenario of owning the Chevrolet
dealership in town, and the Chevrolet manufacturer advised that
it was putting another Chevrolet dealership in town, and asked
whether he receives a notice of 90 days under existing law and
this proposed legislation.
MR. SLEEPER advised that under current statute there are
different notice requirements for termination and establishment
...
CO-CHAIR WOOL interjected, establishing a new dealer.
MR. SLEEPER said that it is 90 days, (coughing) was not changed
from existing law.
1:31:27 PM
CO-CHAIR WOOL asked whether that scenario happens often in
Alaska.
MR. SLEEPER responded that he knows it happened at the Anchorage
Chrysler Center dealership because the statutory protections
that are available to dealers throughout the nation under other
franchise laws, was not available in Alaska. He explained that
the Chrysler Corporation told the Anchorage Chrysler Center
dealership to make some substantial improvements to the
facility, the dealer advised that under these economic
conditions it could not justifiably make the improvements and
asked that Chrysler Corporation give it the Jeep dealership
because that would offer added value, especially in Alaska. The
Chrysler Corporation refused to give it the Jeep dealership
unless it remodeled, the dealership could not afford the remodel
so Chrysler Corporation gave the dealership notice. The dealer
then challenged the Chrysler Corporation in court, but the
Chrysler Corporation was able to open a new dealership and give
the Jeep dealership to the new dealer, over the objection of the
local dealer. He related that this incident highlights the need
for various protections for dealers because manufacturers can
post facility requirements and demand that the dealer improve
the facility, even if it doesn't make economic sense, or it will
terminate the franchise. Although, he said, this occurrence
does not happen frequently.
1:34:54 PM
MS. PERMAN turned to Sec. 14, adds new section AS 45.25.185, and
provides that dealers may file an action in superior court
within 30 days of receiving notice of termination to determine
whether good cause for termination exists. In the event the
manufacturer refuses to approve the sale, dealers have 20 days
from receipt of the notice to file an action. Sec. 15, amends
AS 45.25 by adding four new consumer protection sections: Sec.
45.20.200, provides that the manufacturer shall pay for all
warranty work performed by the dealer if the dealer submitted
claims within 90 days of the completion of the work, the
manufacturer must approve or deny the claim within 15 days of
receipt of the notice and provide written reasons for denial.
Sec. 45.25.210, provides that the manufacturer shall provide the
dealer with a schedule of compensation for warranty work, policy
work, and other services the manufacturer requires, and the
manufacturer may not dictate the average retail percentage
markup. Sec. 45.20.220, provides that if a certified technician
is not available within one business day of delivery, the dealer
may use a non-certified technician to perform repair under the
supervision of a certified technician, the manufacturer will pay
the dealer the same price as if a certified technician had
completed the repair. In the event the vehicle is in a location
off of the road system for more than 100 miles from a certified
dealer, a dealer may arrange for a non-certified technician
where the vehicle is located. Sec. 45.25.230, provides that if
a manufacturer discontinues or reduces the vehicle line to the
extent the franchise is no longer economically viable, the
dealer may consider the termination or reduction of the
franchise agreement.
1:36:42 PM
MS. PERMAN turned to Sec. 16, repeals and reenacts AS 45.25.300,
which relates to unfair practices and particularly unfair
practices that dealers have been forced to take on by
manufacturers including: incentive programs, methods for
delivery, ability to collect document fees, ability of the
manufacturer to withhold accessories, require unreasonable
advertising displays, refuse to offer all models manufactured,
bypass the dealer and sell directly to the client, and require
the dealer to make material alterations to the dealership
facility. Sec. 17, repeals and reenacts AS 45.35.990(19),
defines terminate. Sec. 18, amends AS 45.25.990, defines line
or make and relevant market area. Sec. 19, repeals AS
45.25.110(b) and AS 45.25.110(c), repeals franchise agreement
termination due to death or incapacity, and must provide "good
cause." Sec. 20, adds a new section to uncodified law, to the
applicability section regarding to whom the bill may be
applicable, the effective date, and the definitions. Sec. 21,
adds a new section of uncodified law, transition schedule of
compensation, and definition section.
1:38:04 PM
MS. PERMAN deferred to Mr. Sleeper, in response to
Representative Neuman's question as to whether there was a
difference between a new and established dealer.
MR. SLEEPER explained that a new motor vehicle dealer has a
franchise and other motor vehicle dealers are used car dealers.
This statute only applies to the holder of new motor vehicles
dealer franchise agreement with the manufacturer, he explained.
1:38:58 PM
CO-CHAIR WOOL surmised that the motor vehicles are new and it's
not the dealers that are new.
MR. SLEEPER answered that new motor vehicle is defined and then
...
CO-CHAIR WOOL interjected, dealer of new motor vehicles.
MR. SLEEPER answered in the affirmative.
1:39:17 PM
REPRESENTATIVE NEUMAN related that he was familiar with this
discussion and referred to Sec. 7, inventory and supplies, and
said a large issue with the new vehicles is keeping inventory
and stock on hand. He asked whether there is an industry
standard as to how much inventory and stock the dealer must have
on hand for spare parts for any vehicles.
MR. ALLWINE advised that there is a standard. The Chrysler
Corporation recently introduced the Chrysler Pacifica, so the
manufacturer arbitrarily ships the dealership a specific batch
of parts and components that the manufacturer expects the
dealership will need in the coming six months. The dealership
carries that level of parts and then the market and demands
control that level of parts. Although, he said, in his case he
probably has $1.5 million in just parts and inventory, not
including the vehicles, not including special equipment - just
parts and inventory.
1:40:55 PM
REPRESENTATIVE NEUMAN offered a scenario of a vehicle being
recalled due to a faulty crankshaft, and asked whether Mr.
Allwine was required to keep a set amount of space for those
parts.
MR. ALLWINE answered that recalls are a complex issue because in
many cases it may be as simple as the availability of the part.
He explained that the consumer and dealerships are notified, and
the manufacture advises the dealerships of the availability of
the part, the manufacturer then sends out a secondary mailing to
the consumer, and subject to what the manufacturer made
available to the nationwide dealers determines how the dealer
stocks and what it stocks. He referred to Honda's airbag recall
and he said he probably has 60 of those airbags on the shelf
currently for his consumers in the area, he stocks those and
pays for those airbags out of his pocket. He related that as to
the recovery of that investment, at the point the recall is
executed, the manufacturer reimburses him.
1:42:13 PM
REPRESENTATIVE NEUMAN asked whether he was required to have a
certain amount of recalled parts in stock, and whether he was
required to keep the recalled part on the shelf for a certain
amount of time.
MR. ALLWINE answered that that is entirely possible, it would
depend upon each recall, but that it was not out of the
question.
MR. ALLWINE, in response to Representative Neuman, advised that
the statute was not being changed.
REPRESENTATIVE NEUMAN asked what was changed in Sec. 7.
MR. SLEEPER replied that under existing law, Sec. 7 is referred
to as "termination assistance," and it simply includes a couple
of items the manufacturers would be required to buyback. For
example, manufacturers require that dealers buy loaners and
carry a certain inventory. Under current law, if the
manufacturer terminates a dealer with a fleet of loaners, the
manufacturer does not have to buyback the loaners. This bill
language adds loaners to the buyback requirements, and adds
computers, printers, and such, because the dealers are required
to operate sophisticated dealer management systems with the
manufacturer's computers, printers, and hardware. The bill
language also read that if the manufacturer terminates the
dealer, the manufacturer must buyback these additional items,
which is not in current law.
1:43:55 PM
CO-CHAIR STUTES offered confusion as to why the committee should
get between private industries, and described it as a slight
overreach. She referred to the 3/16/17 letter from Curt
Augustine, Alliance of Automobile Manufactures, directed to
Marten Martensen, Alaska Auto Dealers Association, wherein the
discussion is meeting to discuss this legislation, and she asked
whether the parties had gotten together to discuss the
legislation or decided it would be more expedient to appear
before the legislature. She reiterated concern as to getting
involved in private industry because once the legislature opens
this floodgate, where does it stop. While she understands the
dealers need some type of accommodating agreement with the
manufacturers, she noted her problem in seeing the legislature's
responsibility to ensure that accommodation.
1:45:35 PM
MR. SLEEPER read an excerpt from a 1978 United States Supreme
Court decision, as follows:
Dealers are, with few exceptions, completely dependent
on the manufacturer for their supply of cars. When a
dealer has invested to the extent required to secure a
franchise, he becomes in a real sense the economic
captive of his manufacturer. The substantial
investment of his own personal funds by the dealer in
the business, the inability to convert easily the
facilities to other uses, the dependence upon a single
manufacturer for supply of vehicles, and the
difficulty of obtaining a franchise from another
manufacturer, all contribute toward making the dealer
an easy prey for domination by the factory. On the
other hand, from the standpoint of the automobile
manufacturer, any single dealer is expendable. The
faults of the factory dealer system are directly
attributable to the superior market position of the
manufacturer.
1:46:38 PM
MR. SLEEPER pointed out that the excerpt was the United States
Supreme Court's statement of the overall problem. When
discussing contracts between parties, he described, it is
envisioned that one person makes an offer, the other person
makes an acceptation, and they negotiate over the terms. In the
United States there is no negotiation over these contracts,
these franchise agreements are a "take it or leave it
agreement," and the same agreement is used by every manufacturer
in every state with no negotiation. All 50 states have
recognized that because these are contracts of adhesion, the
government does need to intervene. He related that under
current Alaska law a provision read as follows:
The terms and conditions in agreement -- in agreement
between a manufacturer and a new motor vehicle dealer
in this state, including a motor franchise agreement,
that are inconsistent with the law of this state do
not have any force or effect in this state.
1:47:42 PM
MR. SLEEPER reiterated that that is how all 50 states are
protecting these dealers because these are "take it or leave it"
contracts. These state statutes protect dealers and in many
instances protect the consumer, and that consumer protections
are written into the bill language. He referred to a series of
maps [included in the committee packets], and acknowledged that
the Alliance of Automobile Manufacturers (Alliance) believes
this is a radical departure from existing law, that Alaska is
making new law, and so forth. Thus, a series of maps were
prepared depicting how Alaska is behind the curve, that the
provisions are common in every state depicted in red - a state
with a franchise statute providing termination assistance that
currently requires warranty reimbursement at resale rates. He
related that these adhesion contracts are a major reason it is
important for the legislature to get between the manufacturers
and the dealers because the only protections are when state
legislatures determine that the laws of that state are
inconsistent with (indisc.) contract that the law controls.
1:49:58 PM
CO-CHAIR STUTES referred to the discussion of franchise and
wondered whether it was same when buying a McDonald's franchise,
and offered a scenario of McDonald's requiring a franchise to
purchase the golden arches, and if the dealer did not abide,
McDonald's would take the franchise away. She advised there is
one car dealership in her district and the dealer loves the
franchise, and that she could not quite get past the overreach.
MR. SLEEPER reiterated that the reason all 50 states have the
franchise statutes is due to the relationship between the
automobile dealers and manufacturers. He pointed out that there
is incredible overreach and disparate bargaining power between
the manufacturers and the automobile dealers. Although, he said
he does not know whether the McDonald's franchises have
statutory protection, but just because they do not have it does
not mean they need protection. He stated that the franchise
agreements "literally say, this is what they say, as long as we
adopt the same contract in every state, so if you want to amend
our franchise agreement after you've signed it, we can amend it
as long as we amend it in all 50 states." While that may work
in 49 states with good franchise protection, Alaska's dealers do
not have that protection. For example, he pointed out, a
manufacturer can tell an Alaska dealer to order 10 two-wheel
drive convertibles if they want to receive three four-wheel
drive vehicles, and that sort of heavy handling can't be done in
the other 49 states. He then offered examples of dealers in
Alaska being treated with a heavy hand.
1:53:56 PM
REPRESENTATIVE KOPP related that there appears to be some
anomalies in "our free market" with manufacturers and automobile
dealers that are difficult for free market minded people to get
their heads around and why this issue is so different. He asked
where the public money was involved - so why was the legislature
involved, and whether McDonald's and other franchises would come
to the legislature for some type of protection. Except, he
pointed out, those franchises are not, which then says that
possibly there is something unique happening in this situation.
1:55:10 PM
MR. ALLWINE responded that car dealers are all free market
people in a unique situation. He explained that on the
manufacturer side, various levels can dictate to the dealers
such as at the business center level, and in the event the
interests, bonus plans, and/or personnel change, the "whole game
can change for us, it changes on a whim." He related that they
have worked on this bill for two years, on August 25, 2016, the
Alaska Auto Dealers Association (Association) directed a letter
to the Alliance of Automobile Manufacturers (Alliance) with zero
response, and that the Association has tried on multiple
occasions to have a discussion with the Alliance regarding this
bill. He related that a couple of weeks ago the Senate
companion bill was heard, and after the hearing, Ross Good,
representative from Fiat-Chrysler and he promised each other
that if there was no communication, that they would communicate.
On March 17, 2017, he called Mr. Good and advised he had not yet
heard from anyone, and exactly two hours later he received the
3/16/17 letter Co-Chair Stutes referred to. He stated, "I
guarantee you that letter wasn't written on March 16, 2017, and
it wasn't a coincidence that it showed up on March 17, 2017 in
an email." The Alliance has been non-cooperative and non-
responsive on these issues, he stressed, and pointed out that
the letter requested a detailed list of the Association's
concerns, and he said "We already have it in detail, 29 pages."
1:58:05 PM
CO-CHAIR WOOL noted that these issues appeared to be inter-
industry disagreements which the legislature hoped could be
resolved using existing statute.
1:58:56 PM
REPRESENTATIVE CLAMAN noted that as of 2002, there was the sense
that the market wasn't working well for Alaskans, and the
perspective of the dealers is that the statute still needs work.
He related that as sponsor of this bill he hears the committee's
comments as to whether the bill needs to go all that far, what's
wrong with the status quo, and to identify the problems with the
status quo. He said he would look carefully at the perceived
problems with existing statutes that may need improvement.
2:00:46 PM
REPRESENTATIVE KOPP asked how this legislation would impact
consumers.
MR. ALLWINE answered that one of the biggest sections in the
legislation deals with warranties and recalls, which is the
single most important area as far as impact to consumers. He
referred to consumers living 100 miles off-road or on an island,
and advised it would allow dealers the ability to facilitate
repairs in remote locations in a manner that would benefit a
consumer. Current statutes do not give dealers enough control
in assisting consumers, whether it is for the recall or a
warranty repair. He then offered a recall example wherein a
person living in Ketchikan had a Chrysler vehicle recalled, and
the Chrysler manufacturer paid for the ferry in both directions.
Except, when the gentleman had another Chrysler vehicle subject
to a recall, the Chrysler manufacturer wasn't interested in
reimbursing him for the ferry. He pointed out that the
manufacturers are inconsistent in their decisions. The
gentleman contacted the Better Business Bureau twice, and Mr.
Allwine had to respond twice, then the gentleman wrote to the
Attorney General's Office, and Mr. Allwine responded that it was
not in his purview. Mr. Allwine explained that this legislation
would assist in those situations because it would allow dealers
to facilitate those issues in an effective manner.
2:02:55 PM
REPRESENTATIVE KOPP referred to repairs and warranty, and said
the manufacturer manufactures all of the parts for repairs and
warranties, and asked whether it sells those parts directly to
the dealers at a market rate, or whether there other things it
can do with those parts that are problematic as far as "filling
into a part shop cheaper than to the dealers."
MR. ALLWINE responded that different manufacturers sell to their
dealers at varying markups, such as General Motors, in addition
to selling certain things to their dealers inconsistently, it
also sells to outlying parts houses at rates that are sometimes
less than what their dealers are buying. He related that a
General Motors dealer cannot buy a Chevrolet engine from General
Motors, they have to go to another Chevrolet dealer, and he is a
Chevrolet dealer. There are significant inconsistencies
existing within the industry which demonstrates why this
legislation was put forth in that it is not just with a single
manufacturer, but rather a number of manufacturers, and they all
have a different take.
2:04:35 PM
MR. SLEEPER added that, currently if a certified technician is
not available for warranty work, the person must wait to have
the worked performed. In the event another technician was
available that could do the work and be supervised by a
certified technician, it is the dealers' belief that that
practice should be allowed and reimbursed by the manufacturer,
he said. This issue is corrected with the language in HB 136,
he explained, in the event a person lived 100-miles from a
service facility, any facility could fix it as long as they were
supervised by the manufacturer's representative, which is the
dealer. He explained that the manufacturer requires that the
dealers perform warranty work and the manufacturer specifies the
price the dealer can charge for that warranty work. He then
referred to the rights of contracts and parties, and asked where
else does the buyer dictate the price the seller can charge,
except in this business. Warranty work is expensive, he
expressed, because dealers must have special tools, send their
service technicians out for schooling, and such, and according
to the manufacturer, the dealer can only charge 70 percent and
limits the amount of time spent on the repair to bring the cost
down for the manufacturer. Capitalism and economic principles
were previously discussed, and he pointed out that when that
cost is shifted to the manufacturer and the dealer can't charge
a fair rate for the warranty work, that extra cost gets made up
in the non-warranty work performed for consumers. He explained
that in the event a manufacturer wanted to move into a new
location and open a new store, there are four or five new
provisions that specifically direct the court to consider the
competition, the effect on the consumer, what it would do for
pricing, and to make certain it did not result in a monopoly.
2:08:29 PM
CO-CHAIR WOOL asked whether warranty work was only dealer
authorized work and he could only go to that dealer and not shop
around for the best price.
MR. SLEEPER opined that any dealer in the authorized service
centers could perform the work.
CO-CHAIR WOOL clarified his question and said that as far as
being a dealer that performs warranty work, a lot of the
dealer's business is probably warranty work at a reduced rate,
which is similar to a doctor taking Medicaid patients wherein
the doctor receives a discount in reimbursement but also
receives a large amount of patients.
MR. ALLWINE responded that the nationwide reality, not just in
Alaska, is that approximately 30 percent of his work is warranty
work and the bulk of the work is retail work for his customers.
He explained that prior to the massive recalls, manufacturers
had always advised the dealers that the manufacturers would not
be a prime part of the dealer's business, and that the dealers
needed to cultivate their retail consumers, which is the bases
under which dealers operate.
2:10:13 PM
REPRESENTATIVE SULLIVAN-LEONARD noted that manufacturing
entities operate primarily in the Eastern United States and many
of the dealerships are all across this state, and asked how the
Federal Trade Commission is then overseeing how the agreements
are made between the manufacturers and the dealerships. She
opined that part of this discussion is state oversight, but also
federal oversight, and she asked for a description of the
federal umbrella ...
2:11:09 PM
MR. SLEEPER answered that because it is a matter of contract in
general, the federal government defers to state franchise laws
to govern the dealer/manufacturer relationship. The Federal
Trade Commission comes in to govern the relationship between
dealers and consumers, he explained.
2:12:07 PM
DAVID BRIGHT, Attorney, Alliance of Automobile Manufacturers,
advised that he is an attorney for the Alliance of Automobile
Manufacturers (Alliance) representing 12 manufacturers of cars
and light trucks and combined, produces roughly 70 percent of
the cars sold in the United States every year. He pointed out
that this bill rewrites existing contracts between business
partners, and as such there is no compelling public purpose here
or reason for the legislature's involvement. During this
hearing, the contracts have been discussed as contracts of
adhesion or somehow nefarious strong-arm type of contracts, and
simply stated that is not the case, he said. The manufacturers
must offer the same deal to all dealers and the only manner in
which to do that is to use form contracts. The alternative, he
pointed out, would be to negotiate with each individual dealer
resulting in different deals for each dealer, and given the
attention the current law and this bill gives to unfair
practices or discriminating against dealers, he could not
imagine that would be the outcome Alaska dealers would prefer
over the uniform contracts, he said. The uniform contracts, he
described, are not just handed out as edicts from "on high," as
dealers do have a means to influence those contracts, as well as
the rest of the business between the manufacturer and the
dealer, through "dealer councils." Mr. Bright likened the
dealer council as almost legislative bodies (indisc.) sample of
different dealers able to give input to the manufacturer on the
franchise contract and any programs or incentives the
manufacturer may be running, and those dealers advise as to
certain pitfalls and issues the manufacturer may not have
considered. Those dealer councils are productive and viable
ways for manufacturers and dealers to communicate and work out
their differences, he said.
2:14:45 PM
MR. BRIGHT related that in terms of this bill generally, he
submitted that this bill does not catch Alaska up to the rest of
the country, but rather this language makes Alaska an outlier by
adopting extreme versions of almost every single idea [in the
bill]. He referred to Map 5, addressing that most of the states
in the country have termination assistance, and he said he
agreed, but definitely not by what is contemplated in this bill.
This legislation would require payment for "even the dealer who
quits the business," wherein the rest of the country generally
accepts what happens when the manufacturer is the entity
terminating a dealer, he related. For example, an entity
generally would not give the same severance package to someone
who quit working, as opposed to some asked to leave. He
referred to Maps 8-9, reimbursements for parts and signs, and
noted there is an important distinction because in only seven
states in the country do they follow the model suggested in HB
136, the manufacturer reimburse for items recommended or
required. Typically, he said, other states are reimbursed only
what the manufacture required as opposed to recommended because
expanding the scope of the liability to include simple
recommendations would stifle what the manufacturer may suggest
to the dealer that should be helpful for everyone. The
manufacturer certainly does not intend to expose itself to
liability upon making a simple recommendation, he explained. He
referred to Map 23, regarding warranty audits wherein a
manufacturer reviews what it had already paid car dealers for
warranty work in order to be certain the claims and payments
were proper. Alaska already would be a bit of an outlier for
the fact it limits that audit period to six months, he related,
but then it adds another wrinkle which is that a manufacturer
may audit six months back but it can only do that once per year.
Thereby, allowing a six month period where the manufacturer
cannot review or "do anything" which, he described, is an
invitation for sloppiness and a free for all. He noted that he
had submitted a separate document explaining his issues with the
bill.
2:17:55 PM
MR. BRIGHT referred to "intra-brand competition", and advised
that Sec. 10 will make it harder for manufacturers to prevent
one dealer from buying up all of the dealerships in an area.
Wherein, he pointed out, that problem will be exacerbated by
Sec. 13, which then makes it harder for the manufacturer to
create new dealerships. Consumers benefit from dealers
competing against each other for their business in terms of the
services offered and the prices charged, he related, and it is
not in the consumer's interest to have not have intra-brand
competition for consumers.
2:18:47 PM
MR. BRIGHT then referred to Sec. 15, and explained that the
section creates upward pressure on retail prices by directing
the manufacturer to reimburse at whatever rate the dealer
charges to the consumer, not at a pre-arranged bulk rate. This
bill, he described, is a bit of an outlier in that it limits the
manufacturer's ability to pushback on what is, or is not, a
reasonable retail rate. For example, the bill read that if a
dealer was not the most expensive in "this area," then it was a
reasonable rate, and that is not common, he stated. The
language also read that the manufacture cannot surcharge to
recoup its increased costs generated from an Alaska specific
law, and the manufacturer has no ability to push back on the
height of those rates, he explained.
MR. BRIGHT referred to "document fee" in the industry, and
explained that a manufacturer will run some type of program,
such as a "friends and family" program or a recent (indisc.)
program, and the manufacturer was simply putting cash on the
hood and meant it to go directly to the consumer. Typically, he
said, when the manufacturer runs this program, the program is
optional and dealers are not required to participate. (Indisc.)
line in the agreement, he said, "If you do participate, you
can't charge more than 'X' amount of dollars in document fees,"
such as titling fees, registration fees, and such. Without the
ability to put a cap on that, he stressed, the money the
manufacturer intended to go to the consumer may well be eaten up
by these document fees, and that is not good for the consumer.
He described that this is a complex and esoteric area of law and
the language and issues matter quite a bit, and because it is so
complicated it takes quite a bit of time to go through these
bills and negotiate. The Alliance, he related, has not yet had
the opportunity to sit down and negotiate with the Association
on this bill, and it is prepare to do so. However, he pointed
out, given the complexity and length of the bill, there is
simply no time to do that until the interim session of the
legislature.
2:22:00 PM
MR. BRIGHT related that there is no need to rush this bill
through the legislature as harm comes from rushing. The
language is complex, he reiterated, there is collateral damage
to the manufacturers as well as Alaskan consumers and,
therefore, the Alliance requests more time to negotiate the
bill.
2:22:45 PM
CO-CHAIR STUTES asked whether there had been consumer protection
problems with existing law.
MR. BRIGHT answered that he was not familiar with any consumer
protection issues that may have arisen.
2:23:13 PM
ED SNIFFEN, JR., Senior Assistant Attorney General,
Commercial/Fair Business Section, Civil Division (Anchorage),
Department of Law (DOL), responded that the attorney general
receives a number of consumer complaints related to automobile
issues and warranty work, but he could not recall whether any of
the complaints were specifically related to issues addressed by
this legislation.
CO-CHAIR STUTES related that it was odd Mr. Bright stated that
he would have to wait until the interim to have any type of
conversation [with the Association], and asked the reason.
MR. BRIGHT replied that his role at the Alliance is to fly
around the country and meet with auto dealer associations and
negotiate these bills, it takes several hours to get through a
four or five issue bill for both sides to solve and work out
agreed upon language, and this is a large and complex bill with
many wrinkles.
CO-CHAIR STUTES expressed her confusion as to the difference it
makes as to whether or not the legislature is, or is not, in
session to have this conversation.
MR. BRIGHT opined that whether the legislature was in session
was not important, the point was how long the process would take
and he understood there were legislative deadlines. He advised
that he did not expect it would be possible to finish a
negotiation in time to meet the legislature's deadlines.
2:26:38 PM
MR. BRIGHT, in response to Representative Kopp, agreed to
provide a recap of the issues he highlighted in his testimony
today.
CO-CHAIR WOOL asked whether Mr. Bright's job was to travel
around the country dealing with individual states and dealer
associations within those states to negotiate an agreement with
the various dealer associations.
MR. BRIGHT clarified that his role is limited to negotiating
legislative language, and not to negotiate the actual franchise
contract itself. He offered to submit a typical franchise
agreement to review, and reiterated that he represents the
industry and not a specific company. He said his negotiations
are all with state automobile dealers associations as well as
legislators interested in safe franchise laws and legislation.
2:28:14 PM
CO-CHAIR WOOL related that the franchise agreement would be
interesting to see because everyone is familiar with the
dealer's side, but probably consumers do not give a lot of
consideration to the intricacies between the manufacturer and
the dealership, and take it for granted because the dealerships
appear to be "hunky dory."
CO-CHAIR WOOL noted that the discussion had been around
contracts the dealers must sign, yet the manufacturers can
change the contract unilaterally later down the line and the
dealers have to accept the change.
MR. BRIGHT pointed to the need to offer the same deal to
everyone and the only way to do so was to use those form
contracts. In the event those form contracts need to be
updated, a vote or negotiation does not take place and "it is
just a simple every so often a manufacture needs to update the
contracts," and there must be no discrimination amongst dealers,
he said.
2:30:10 PM
REPRESENTATIVE CLAMAN noted the 5-6 page Alliance analysis of
the problematic issues in HB 136, which appeared to be more
extensive than Mr. Bright's testimony. He asked whether Mr.
Bright based his testimony on the Alliance's sectional analysis
in response to the provisions in the bill.
MR. BRIGHT answered yes, but in the interest of time he did not
want to go through every column highlighted in that document,
and that his testimony was largely excerpted from that document.
REPRESENTATIVE CLAMAN surmised that this document reflects the
Alliance's objections. Representative Claman requested three
good model states to review that Mr. Bright broadly believes
have done a good job of striking a good balance between the
consumer, dealer, and manufacturers' interests, recognizing that
those three interests may not always be aligned.
MR. BRIGHT responded that it was difficult to provide an exact
answer, and that recently the Alliance negotiated well in
Indiana and Michigan. Typically, he explained, when he meets
with dealer associations to hammer out agreeable compromises,
rather than reinventing the wheel, they identify certain states
that have performed certain concepts well and try to borrow from
those concepts. It is difficult to make the entire code
perfect, he pointed out, which is why was difficult to point to
one specific perfect state.
2:33:16 PM
CO-CHAIR STUTES asked that when the manufacturers have to make
adjustments to the contracts every three or four years whether
the adjustments are made without the dealers' knowledge, or any
type of conversation with the dealers.
MR. BRIGHT answered that, typically, it is not so much that
these contracts are being modified, they are just being renewed
once every five years, more or less, and it is not common to
have significant changes made to these boilerplate contracts,
they are just meant to be renewed as opposed to amended.
Potentially, he related, the most surprising thing the committee
will find in the contract is that, unlike McDonald's or other
typical fast food franchises, the dealers do not pay any type of
fee to the manufactures to obtain the franchise or to keep the
franchise.
2:35:00 PM
CO-CHAIR WOOL related that in previous conversations a dealer
mentioned that the manufacturer had required the dealer to paint
the floor in the shop to its specifications, and he thought that
that was too much of a detailed request to put in front of the
legislature. He commented that painting the shop floor was not
something in a contract, but yet it was required of the dealer.
MR. BRIGHT answered that perhaps the dealer was discussing a
facilities incentive program, sometimes there are side
agreements wherein a manufacturer makes an offer to the dealer
that if the dealer would make the following changes to their
facility, the dealer would be eligible for "X" incentive.
Again, he reiterated, that is meant to help the dealers renovate
their facilities, keep the facilities modern, and provide a
strong representation of the brand to the consumer. The
franchise contract itself may make reference to dealers keeping
their facility up to snuff, but typically the franchise contract
does not discuss paint schemes and such. As manufacturers, he
added, the only way to get to the consumer is through the
dealer, and as such it cares about the presentation of the brand
to the consumer, and at the same time, if the dealer is not
successful, the manufacturer is not successful. The
manufacturers, he related, do not look at this as an adversarial
process, but rather as two business partners who have worked
together for decades, who keep their business affairs out of the
public view by not causing a scene in the legislature, and work
it out amongst themselves.
2:37:41 PM
CO-CHAIR STUTES offered that if [the manufacturer] suggested the
dealership put in new floors or paint their facility and the
dealer chose not to, whether that would trigger a revocation of
the franchise.
MR. BRIGHT opined that, generally, the dealers believe that
anyone in the franchise may have a requirement to meet certain
minimal considerations, but he could not imagine anyone being
terminated solely for not repainting the floors from one color
to another color. Typically, he said, when he talks to his
members about problems they've had on the facilities front, it
has been stores that are not simply out of date, but almost
dilapidated.
2:39:05 PM
REPRESENTATIVE CLAMAN asked Mr. Sleeper which states the
committee should review in continuing to review this legislation
(coughing).
MR. SLEEPER advised that the legislation was modeled after
Washington law, and suggested Oregon and New York franchise
laws. He referred to the maps and related that wherever a color
was shown on the map it meant that that state had adopted a
franchise statute dealing specifically with something in that
franchise contract. All of these states, he said, due to the
provisions in the contract that allow the manufacturer to
dictate remodeling, have had to step forward and provide their
dealers statutory protection. He reiterated that these contract
are not unilaterally negotiated, the manufacturers say that
these sales and service agreements are "take it or leave it."
The state legislatures then step in and protection for the
dealers and consumers.
2:42:20 PM
CO-CHAIR WOOL noted there had been some question as to state
involvement between two private entities, contract negotiations,
the 2002 franchise statutes in Alaska and other states, and he
asked Mr. Sniffen for is thoughts.
MR. SNIFFEN responded that the administration does not have a
position on this bill one way or the other, but he had heard
testimony worthy of clarification. He referred to testimony
that the state's current franchise law does not provide many
standards when it comes to establishing or terminating an
existing dealership, and what it means to terminate for cause.
Currently, he explained, Alaska law does address that issue but
it does so in a cumbersome manner, such that under AS 45.25.180,
if an existing dealership had a concern with a manufacturer
putting a new dealership into the area, it could file an action
with the court and the court was given some guidance on how to
determine whether or not good cause existed. The law spells out
that the court is to look at whether or not the new dealership
was warranted by economic and market conditions, whether or not
the investment made by the existing dealership would be
jeopardized, and so forth. He referred to previous testimony as
to whether or not a manufacturers could coerce a dealer to do
things such as paint the floors or change the facilities and
just do that on their own, and he explained that currently under
AS 45.25.300, a manufacturer cannot require a motor vehicle
dealer to engage in any unreasonable substantial alterations,
and if there isn't a sufficient supply of new motor vehicles.
Current law, he pointed out, is certainly not as detailed as the
proposed legislation and this bill would add more clarification
and detail.
2:45:23 PM
MR. SNIFFEN turned to the consumer side and said he agreed with
the dealers in that there are a couple of good consumer benefits
in this bill such as, allowing non-certified technicians in
certain circumstances to perform repairs is a good fix for
consumers. The new 100-mile rule allowing a non-certified
[technician] to perform repairs in an area where a certified-
technician does not exist certainly does makes sense in Alaska.
Although, he noted, there are concerns with other consequences
of this bill and referred to the effect of intra-brand
competition. He put forth that this bill would essentially make
it "very, very difficult for a manufacturer" to put a new
dealership in an area with an existing dealer, it would cement
in place all of the dealers in the state pretty much right now,
and make it difficult for new dealers to come in. Under this
bill, he explained, the existing dealers would have the first
shot of refusal to not to put in a new dealership and that they
would just open up a satellite dealership. That may be good or
bad, the Department of Law (DOL) does not take a position on
that, but that is just one consequence of this legislation. He
related that his office has not been a fan of document fees for
a long time, although they are allowed in certain circumstances.
In the event a promotion is offered to a consumer, that would
limit those fees and pass that (indisc.) on to the consumer,
this proposed statute would say, "No, you could still add on
some more document fees. So, the consumer that is buying this
vehicle in some other area that accepts this promotion, but pay
a lesser amount than Alaskan consumers that might have to pay
more if those kinds of fees were added on." Again, he said,
those might be necessary fees, the dealers may have that added
expenses to justify those fees, therefore, the DOL does not take
a position as to whether it is good or bad but that is one of
the consequences.
2:47:28 PM
MR. SNIFFEN related that overall, there are franchise statutes
in other states and a recognition that this is in the public
interests, including the United States Supreme Court wherein it
recognized the issues, in the quote read by Mr. Sleeper, from
the seminal United States Supreme Court case. Alaska has
existing franchise law and whether this particular law is better
or worse is something for the committee to decide, but it
certainly is more comprehensive than most of the franchise laws
he is has read, he said.
2:48:06 PM
REPRESENTATIVE NEUMAN asked whether he had received any
complaints as to dealers or manufacturers on this issue.
MR. SNIFFEN reiterated, not that he could recall in recent
history, and advised that he was involved in passing the
existing franchise law in 2002, wherein Representatives Lisa
Murkowski and Andrew Halcro headed up discussion groups with
manufacturers and dealers, and at that time there were some
complaints which created the current franchise law. Other than
through this legislative process, he said he has not been aware
of any adverse consequences from the issues this legislation
addresses.
2:48:55 PM
REPRESENTATIVE NEUMAN referred to the issue of a new dealership
coming to town with an existing dealership, and asked whether
there was anything in the legislation that would prevent an even
playing field for a new dealership.
MR. SNIFFEN opined that this bill would certainly give the
existing automobile dealers more ammunition to resist the
infiltration of a new dealer into the state. Although, he said,
he did not see anything in the law that would differentiate
among them once they were established.
2:50:14 PM
CO-CHAIR STUTES referred to the maps and said that it appears
Alaska's franchise laws are quite similar to Washington for the
most part, and asked whether she was correct.
MR. SNIFFEN replied that the proposed legislation would bring
Alaska closer to Washington than Alaska's current franchise law,
although, it probably does more than Washington. He explained
that he had not performed a side-by-side comparison of the two
states and was uncertain.
2:51:03 PM
MR. SLEEPER explained that the maps show what Alaska would look
like, in some cases, if the bill passed the legislature and
there will be some cases where Alaska law already mirrors
Washington.
CO-CHAIR STUTES asked whether Mr. Sleeper had anything to show
what Alaska looks like currently.
MR. SLEEPER answered no, [through the maps] they tried to show a
[comparison] to the other states.
2:51:57 PM
CO-CHAIR WOOL surmised this is if the bill were to pass, this is
how Alaska would stack up, and it doesn't show where Alaska
stacks up currently.
MR. SLEEPER replied that in some cases it does because there is
the protection ...
[HB 136 was held over.]