Legislature(2023 - 2024)BARNES 124
04/25/2024 01:00 PM House TRANSPORTATION
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Financing Infrastructure in Alaska | |
| HB233 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 141 | TELECONFERENCED | |
| + | SB 127 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | HB 233 | TELECONFERENCED | |
HB 233-RATES: MOTOR VEHICLE WARRANTY WORK
1:59:27 PM
CHAIR MCCABE announced that the final order of business would be
HOUSE BILL NO. 233, "An Act relating to rates and time
allowances for motor vehicle warranty work."
2:00:00 PM
DAVID GOFF, Staff, Representative Frank Tomaszewski, Alaska
State Legislature, introduced HB 233 on behalf of Representative
Tomaszewski, prime sponsor. He read from the sponsor statement
[included in the committee packet], which read as follows:
House Bill 233 makes a key change to the auto warranty
statute by adding time allowances to the schedule of
compensation for warranty work. Thousands of Alaskans
benefit from warranty work every year as part of their
agreement with auto manufacturers from whom they've
purchased their car. By agreeing to sell cars on
behalf of certain manufacturers, auto dealers assume
the responsibility of coordinating the time and labor
spent performing warranty repair work on their cars.
Warranty work differs from regular auto work in that
the manufacturer compensates the dealer directly.
Additionally, qualified dealers do not have the
ability to refuse the work. Auto manufacturers
compensate dealers for warranty work using rates and
time allowances that dictate the maximum amount of
time that the dealer may bill for different repairs.
The rates and time allowances that manufacturers use
to reimburse dealers for warranty work are often much
lower than the rates and time allowances that dealers
and independent mechanics bill customers for non-
warranty work. As a result, dealers are often forced
to pay their mechanics more than they are compensated
by the manufacturer or risk losing their mechanics to
independent auto shops. Across the nation, states have
taken varied approaches to addressing how to ensure
fair payment for dealers by manufacturers. Senate Bill
144 takes an approach used by states like Colorado,
Montana, and Illinois by requiring that manufacturers
compensate dealers for warranty work at the same rates
and time allowances that the dealer charges retail
customers for similar, non-warranty work.
2:03:11 PM
REPRESENTATIVE STUTES asked what prompted the bill.
MR. GOFF replied that staff had visited dealerships within
Fairbanks, and it was brought to their attention that this bill
was brought forward six years ago to the legislature but was
referred back to working with manufacturers and dealers to try
and get something worked out between them, but manufacturers
were not willing to negotiate; therefore, the bill was brought
back to try and achieve some resolution.
REPRESENTATIVE STUTES asked whether the manufacturers or dealers
had any communication about negotiating this situation.
MR. GOFF said he wished to defer to the dealers to respond.
2:04:19 PM
REPRESENTATIVE MCKAY related that he had friends on both sides
of the issue and shared his effort to understand the situation.
He asked whether all major U.S. car manufacturers were involved
in this.
MR. GOFF replied yes, they are all represented and available to
testify.
REPRESENTATIVE MCKAY gave an example of changing a transmission
under perfect conditions, that it takes 8 hours, and they get
paid hourly. In reality, he added, more things may need to
happen, and the job may take ten hours. He asked whether the
real debate was over the two hours.
MR. GOFF agreed that that was correct and confirmed that there
was a difference in the hours the manufacturer says it will take
and actual hours to complete a job.
2:07:34 PM
The committee took an at-ease from 2:07 p.m. to 2:08 p.m.
2:09:08 PM
LES NICHOLS, General Manager, Fairbanks Nissan, presented a
PowerPoint, titled "House Bill 233 Relating to Time Allowances
for Warranty Work" [hard copy included in the committee packet]
and gave a brief overview of the Alaska Auto Dealers Association
(AADA), on which he stated he is also serves as board member.
He proceeded to slide 4, titled "Why do all 50 States Need Auto
Dealer Franchise Protections?," which read as follows [original
punctuation provided]:
In 1978, the United States Supreme Court recognized
the need for motor vehicle dealer franchise laws:
Dealers are, with few exceptions, completely
dependent on the manufacturer for their supply of
cars. When the 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 automobiles,
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."
MR. NICHOLS expressed his gratitude for the resistance and
representatives getting involved in private contracts and he
opined it is the right thing to do.
2:14:20 PM
MR. NICHOLS continued speaking to negotiations, and he proceeded
to slide 5, titled "In 2018 the Alaska Legislature Found," which
read as follows [original punctuation provided]:
LEGISLATIVE FINDINGS AND INTENT.
(a) The legislature finds that
(1) the distribution and sale of motor vehicles in the
state affects the general economy of the state and the
interests and welfare of the residents of the state;
(2) providing warranty service for new motor vehicles
is a matter of substantial concern to the residents of
the state;
(3) the maintenance of fair competition among new
motor vehicle dealers is in the public interest;
(4) maintaining strong and sound new motor vehicle
dealerships in the state is essential to providing the
consuming public with continuing and reliable services
necessary for their motor vehicles; and
(5) strong and sound new motor vehicle dealerships
with active service departments will provide stable
employment opportunities to the residents of the
state.
(b) The legislature declares that this Act is
remedial, and, to the extent permitted by the
Constitution of the State of Alaska and the United
States Constitution, it is the intent of the
legislature that the provisions of this Act apply to
all franchise agreements between manufacturers and new
motor vehicle dealers.
2:16:31 PM
MR. NICHOLS continued on slide 6, titled "The Problem," which
read as follows [original punctuation provided]:
• Manufacturers help themselves to a massive self-
decided discount on the time they will pay dealers and
our employees for their warranty repairs.
• Automotive News February 27, 2023
• 'Mr. White previously worked as a field service
manager for Ford and stated that manufacturers
aggressively discount labor time estimates.'
• Technicians are avoiding working for dealerships
because they are paid for more hours for the same work
when they work for an independent repair facility.
• Their discounts shift the expense of warranty
repairs from the manufacturer, directly to Alaskan
consumers, employees, and businesses.
2:17:41 PM
CHAIR MCCABE offered his belief that the problem was that for
warranty work, mechanics are paid a flat rate, and essentially,
the mechanics suffer.
MR. NICHOLS concurred and said that he could provide a
breakdown.
CHAIR MCCABE observed that there were extra steps a mechanic
must take in doing a particular job that added to the time on
that job.
MR. NICHOLS agreed that that can be a factor but there are other
factors, and he gave examples.
2:20:05 PM
MR. NICHOLS continued the discussion while slide 7 was shown,
which featured a J.D. Power 2019 and 2023 U.S. Initial Quality
Study (IQS). Two line charts representing each year listed
multiple car manufactures and problems per 100 vehicles.
2:23:15 PM
REPRESENTATIVE MINA asked what the colors on the graphs signify.
MR. NICHOLS replied he was not sure but that the gray in the
middle was the average of the industry. He proceeded to slide
8, titled "Cost Shifting by Manufacturers to Alaskan Consumers."
The slide featured a 2020 Ram 1500 engine replacement job and
what the job cost Alaska customers versus what the manufacturer
warranty pays. He gave an analysis of the numbers listed on the
slide.
2:28:30 PM
MR. NICHOLS moved to slide 9, titled "Who Is Affected," which
read as follows [original punctuation provided]:
Automobile Manufacturers take these discounts out of
the hands of Alaskan employees, Alaskan businesses,
and the Alaskan economy to unfairly pad their bottom
line.
Alaskan Employees technicians are unable to bill
full hours for their work, resulting in lower pay for
them and their support staff, including service
writers and service managers.
Alaskan Businesses Fairbanks lost Buick, Cadillac,
Daewoo, Hyundai, Kia (twice), Mazda, Mercedes, and VW.
Juneau lost Chevy(once) Ford, Mazda, VW. Ketchikan
lost Subaru, Ford, and Chevrolet. Kenai lost
Chevrolet, Kodiak lost Ford. Anchorage lost Mitsubishi
and Volvo.
Alaskan Consumers The burden of manufactures'
discounts directly raise prices on the Alaskan
consumer.
2:30:20 PM
REPRESENTATIVE MINA asked what percentage of employees are
moving to independent facilities versus moving out of state.
MR. NICHOLS replied that there is some data he did not have, but
he related an example of a store shutting down and the impacts
it would cause. He noted that the oil and mining industries and
the Department of Transportation and Public Facilities (DOT&PF)
all desire mechanics, as mechanics are in high demand.
2:34:45 PM
MR. NICHOLS continued on slide 10, titled "Solution," which read
as follows [original punctuation provided]:
• This bill would require manufacturers to pay the
same number of hours for a repair that a customer
would be charged for non-warranty work by using an
industry-wide time guide rather than their discounted
time guide.
• This bill would provide protection to Alaskans by
requiring manufacturers to pay equal compensation for
doing warranty work versus non-warranty customer work.
• This bill would create a level playing field for the
Alaskan consumer by preventing the manufacturer from
inflating the cost of repairs on consumers by
discounting time from dealers and our service
employees.
MR. NICHOLS advanced to slide 11, titled "Important Points,"
which read as follows [original punctuation provided]:
• Manufacturers believe they deserve a discount for
volume work.
• They have very sophisticated methods to extract
discounts
• They are not our biggest customers, the Alaskan
consumers are.
• They claim this is a "money grab" by Dealers when we
try and level the playing field, but not so when they
are taking money from Alaskan workers, businesses, and
consumers.
• Manufacturers know that the contracts they offer are
contracts of adhesion where the parties are of such
disproportionate bargaining power that the party of
weaker bargaining power could not have negotiated for
variation in the terms of the contract.
• Manufacturers know their contracts have to be
addressed by State Legislatures in order to be
compliant with federal anti-trust laws. • They know
these protections can only be provided by state law.
2:39:12 PM
MR. NICHOLS concluded on slide 12, which read as follows
[original punctuation provided]:
"the simple fact is that auto manufacturers retain to
this day a massive economic power advantage over their
franchised dealers, resulting from market structure,
manufacturer behavior, and intrusion in the market by
the federal antitrust statutes. And manufacturers
often use this excess power to overreach and act
opportunistically in their relationships with their
dealers, to the detriment of dealers and ultimately
consumers.
The state franchise laws that have been enacted
operate to counteract these anomalies and to afford
the dealers a reasonable opportunity to negotiate
their economic relationships."
The National Automobile Dealers Association also
explained the compelling need for state franchise laws
in its recent comments to the FTC
MR. NICHOLS added that they are "descent negotiators" and want
their rights given back. He encouraged questions from committee
members.
2:42:41 PM
CHAIR MCCABE welcomed invited testifiers.
2:43:39 PM
SUSAN HICKS, Service Director, Fairbanks Chrysler, stated that
manufacturers' warranty repair times are not based on real world
scenarios, and she related contents of an article published in
relation to her statement. She gave examples of extra time a
repair job can take due to various reasons. Her dealership, she
said, has had major losses because the technicians could not
make a realistic living. She opined that passage of the bill
would make Alaska dealerships more competitive and could create
a substantial economic impact. She asked, "Could your family
survive if you worked eight hours a day but only got paid for
four?
2:47:57 PM
JOSH GEIER, Service Manager, Seekins Ford Lincoln, noted the
discrepancies with "these studies," and offered a case in point
of a repair job in relation to the actual time it takes to
accomplish it. He stressed that the standard times they are
pushing for are more realistic.
2:50:19 PM
ERIC CONNICK, General Manager, Lithia Kia of Anchorage, stated
that he spoke in support of his team and technicians and gave
examples of their day-to-day hardships. He pointed out some of
his manufacturer's warranty policies and that the only people
who would benefit from the bill are the dealers. He said that
the more technicians he hires, the better people he can employ
and retain. He gave an example of a customer purchasing a car
from him and what he brings in money-wise, and he reiterated how
much they need the legislature's help.
2:53:27 PM
JERRY HEADSTROM, Master Technician, Continental Honda, expressed
the need to get paid for fair labor, and he offered examples of
past repair jobs in relation to time and wages. He briefly read
through retail labor time requirements. He noted that the
retail labor guides are fair, and he offered to answer questions
from committee members.
2:58:04 PM
TODD NOVAK, Service Manager, Anchorage Chrysler, emphasized that
there was a significant technician supply deficit in Alaska, and
he gave examples of customers who attempted to get their
vehicles fixed but could not, due to lack of technicians. He
provided examples of possible technicians not wanting to work
for manufacturers due to the warranty times, and he opined that
the bill would eliminate that barrier.
3:00:16 PM
REPRESENTATIVE VANCE said she looked at other states' bills and
inquired about data of any changes in manufacturer markup on
vehicles and the economics of it. She asked for the "cause and
effect" and said she did not want to get in the middle of
contracts.
3:02:00 PM
CHAIR MCCABE noted the time and welcomed follow-ups or closing
comments.
3:02:20 PM
REPRESENTATIVE STUTES asked whether it was true that the
manufacturers also require actual building or remodeling of the
premises.
MR. NICHOLS agreed that was correct and a contributing factor.
He gave an example of a dealership being required to build a
whole new facility and the ramifications if it did not.
3:04:39 PM
CHAIR MCCABE announced that HB 233 was held over.