Legislature(2017 - 2018)BELTZ 105 (TSBldg)
03/09/2017 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearings | |
| SB56 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SB 56 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 56-PRODUCT WARRANTIES & REQUIRED UPDATES
2:38:00 PM
CHAIR COSTELLO reconvened the meeting and announced the
consideration of SB 56.
2:38:29 PM
SENATOR CATHY GIESSEL, sponsor of SB 56, introduced the bill
speaking to the following sponsor statement:
Senate Bill 56 proposes fair treatment to Alaskan
consumers and businesses. Heavy equipment is expensive
and complicated. Most resource companies, contractors,
and many other consumers are dependent on the
availability of equipment to keep Alaskans employed
and businesses running.
Our state's remote locations and transportation
challenges, coupled with high shipping costs, often
can result in high costs to local dealers and
distributors when delivering warranty and update
services for a manufacturer's defective or deficient
products. Many of these services are not reimbursed by
the manufacturers who require this high cost work.
This results in our local businesses, or their
customers, absorbing expenses for shipping,
transportation, and labor that should be paid by the
company that manufactures the defective or deficient
products, provides the warranty, and requires the
updates.
Senate Bill 56 protects buyers of heavy equipment. If,
during the term of a warranty or, if earlier, within
one year after the date equipment is delivered to a
buyer, the manufacturer or dealer is unable to repair
equipment after a reasonable number of attempts, the
bill requires a refund or replacement of the
equipment.
Senate Bill 56 also would ensure that local dealers
and distributors of heavy equipment, machinery, and
tools used for construction, maintenance, resources
development and similar activities are adequately
compensated when providing required warranty service
and manufacturer's required updates on the products
they sell.
Senate Bill 56 builds on existing state law pertaining
to boats, and all-terrain vehicles (ATVs). The
legislation provides clarity, and certainty, for the
consumers that use and the manufacturers and dealers
that provide the equipment that keeps Alaska's heavy
equipment industries running. Senate Bill 56 would not
apply to vehicles licensed for use on roads, boats,
and ATVs; those items are covered under a separate and
current statute.
Senate Bill 56 protects consumers and balances the
interests of local dealers to be adequately made whole
for meeting their obligations to customers, while
setting clear guidelines for manufacturers of heavy
equipment products.
SENATOR GIESSEL said her staff, Mr. Gialopsos, is available to
take the committee through a sectional analysis if the chair
wishes.
2:44:10 PM
AKIS GIALOPSOS, Staff, Senator Cathy Giessel, provided a
sectional analysis for SB 56 speaking to the following prepared
document:
Section 1: Enacts 45.45.772 - 45.45.788, which outline
the obligations and duties of manufacturers,
contractors, dealers, and distributors when providing
"required services" which include warranty work,
corrective work on defective products, and updates
required by manufacturers. For simplification of this
sectional, the word "dealer" is used instead of
"dealer or distributor," the phrase that appears in
the bill.
Sec. 45.45.772 Requires a dealer to provide any
manufacturer's warranty in effect at the time of sale
to the purchaser. Outlines the obligations of each
party when a contractor provides warranty service on
behalf of the manufacturer.
Sec. 45.45.773 Requires a dealer to explain the
warranty coverage, including disclaimers, and
limitations; prohibits a dealer from making a
representation about a warranty that is not made in
the warranty; and requires the dealer to provide
manuals to the purchaser.
Sec. 45.45.774 Requires the dealer to provide warranty
service and to make all claims for warranty
reimbursement in the manner established by the
manufacturer.
Sec. 45.45.775 Prohibits a manufacturer from
restricting the nature or extent of labor or parts
that are needed to perform the work in accordance with
generally accepted standards.
Sec. 45.45.776 Requires the manufacturer to follow the
process outlined in this bill and standard industry
claim procedures when paying a dealer for required
services.
Sec. 45.45.777 Establishes the minimum compensation
for work performed by a dealer on behalf of a
manufacturer. Specifies the minimum rate and time for
labor costs. Also requires the manufacturer to pay for
transportation and lodging costs if the dealer has to
send an employee to the field to perform the work.
Sec. 45.45.778 Requires a manufacturer to reimburse a
dealer for parts used at the manufacturer's full
suggested retail price.
Sec. 45.45.779 If a part needed that is not in the
dealer's inventory, requires the manufacturer to pay
the cost to send the item, as soon as possible, to the
purchaser's choice of either the dealer that sold the
product or the dealer closest to the purchaser.
Sec. 45.45.780 Requires the manufacturer to pay or
disapprove a claim within 30 days or it is considered
approved and accrues a penalty of 1.5% per month.
Sec. 45.45.781 Requires a manufacturer's claim
disapproval to be in writing and issued within 30 days
of receipt of the claim.
"Lemon Law" Provisions:
Sec. 45.45.782 Requires the manufacturer or dealer to
repair a product defect that is covered under warranty
when reported by the purchaser.
Sec. 45.45.783 If a product cannot be repaired after a
"reasonable number" of attempts during the term of the
warranty or one year after purchase, whichever comes
first, requires the manufacturer to either replace the
product with a new comparable product or refund an
amount equal to the full purchase price minus a
"reasonable amount" for the period that the purchaser
was able to use the product. The purchaser can choose
whether to get a new product or refund. Outlines how
to calculate the "reasonable amount" for a refund.
Sec. 45.45.784 Establishes a process for the purchaser
to make a claim under 45.45.783. The purchaser must
make a written claim by certified mail to the
manufacturer within 60 days of the end of the term of
the warranty or one year after the purchase date,
whichever comes first. Outlines what must be in that
written claim. Allows the manufacturer to make a final
attempt to fix the item within 30 days.
Sec. 45.45.785 States that the manufacturer does not
have to replace/refund if the claimed product defect
is either not a defect or resulted from alteration,
abuse or neglect by a person who is not an authorized
dealer.
Sec. 45.45.786 Creates a rebuttable presumption that
if the product has been in the shop for repairs three
separate times or for 30 days during the warranty
period or first year of ownership, whichever is
shorter, a "reasonable number of attempts" to fix the
product has been made.
Definitions for language enacted in this bill:
Sec. 45.45.787 Defines what products are covered by
this legislation.
Sec. 45.45.788 Establishes what qualifies as a
"warranty service."
Section 2: Amends the definition of "merchandise" in
AS 45.45.790 to include "covered products" - a term
used in this bill.
Section 3: Adds definitions to AS 45.45.790 for terms
used in this legislation.
Section 4: Adds violations to the provisions in
Section 1 to the list of unfair methods of competition
and unfair or deceptive acts or practices found in AS
45.50.471.
Section [5]: Applicability - specifies that this bill
applies to agreements entered into on and after the
effective date of this act.
2:54:01 PM
SENATOR STEVENS asked if passing this bill might result in a
manufacturer such as Caterpillar deciding it isn't worth doing
business in Alaska.
SENATOR GIESSEL clarified that the vendor travels to the
locations, not the manufacturer. She posed the hypothetical
scenario of a vendor in Anchorage who is required to either
travel to the remote location to provide warranty service or
ship the equipment back to Anchorage for repair. Right now, the
vendor is required to do that to cover the warranty, but the
manufacturer may decline to pay the vendor's full costs. The
Alaska vendor assumes the extra costs. SB 56 seeks to remedy
that; the manufacturer must agree to cover the full costs.
SENATOR STEVENS voiced concern about potential harm if
manufacturers decided not to do business in Alaska if they had
to cover what could be enormous additional costs.
SENATOR GIESSEL suggested that he ask the vendors who are online
to offer their perspective, but she believes it is unlikely that
the bill would cause a company like Caterpillar to stop doing
business in Alaska.
2:57:48 PM
SENATOR GARDNER said she too shares that concern. It may be an
unintended consequence that Alaskans would have to buy equipment
in Seattle and the warranty would only be valid in the state of
Washington.
She referred to Sec. 45.45.787 on page 7 that refers to the
products that are covered under the bill. She asked, if this is
a good idea, why not apply it to all products sold in Alaska?
MR. GIALOPSOS explained that this legislation was introduced at
the request of some of the affected stakeholders that
specifically work with off the road system manufacturing and
dealer issues. The language is based on the legislation that
passed in 2009 when all-terrain vehicles, boats, snow machines
and other off-road vehicles were brought under coverage for
warranty service in remote regions. The legislative intent in
2009 was clear that there was a delineation between items
registered for operation on a road and those that are
specifically purposed for off-road use.
SENATOR GARDNER continued to question limiting the coverage to
items involved in resource development or construction. She
pointed out that it could be similarly expensive to get warranty
work done on a commercial refrigerator that was shipped to Cold
Bay, for example.
MR. GIALOPSOS said the individuals who will testify can talk
about the relationship between a dealer of industrial commercial
pieces of equipment versus a home appliance from a big box store
that provides a direct, through-the-manufacturer warranty. Those
purchases are different for several reasons, one of which is the
exclusivity clause for some franchise holders and dealers. He
said it was the sponsor's intent to narrowly tailor the
legislation to cover the products it does.
SENATOR GARDNER asked if the provisions in subsections (b), (c),
(d), and (e) that start on page 3, line 1, are the same in other
parts of the country or unique to Alaska.
MR. GIALOPSOS deferred the question to the Department of Law.
CHAIR COSTELLO indicated the question would be held until later.
SENATOR GARDNER reviewed the provision in subsection (e) on page
3, lines 17-20, that requires the manufacturer to reimburse a
dealer or distributor for transportation and lodging costs to
travel to a location to perform required service. She said a lot
of her questions are about whether this is done in other states
or is unique to Alaska.
3:03:49 PM
SENATOR GIESSEL responded that it is impossible to compare the
challenges associated with doing business in a remote area of
Indiana, for example, versus the challenges of doing business in
remote areas of Alaska that can only be reached by air. "It is
in fact true that Alaska is different."
SENATOR GARDNER referred to Sec. 45.45.785 on page 6 that talks
about exceptions. She asked if a manufacturer would to need send
somebody to Cold Bay, for example, to show that an alleged
defect either is not a defect or is the result of an alteration
by somebody who is not the dealer or distributor.
MR. GIALOPSOS deferred the question to the people online waiting
to testify. They can recount specific case studies, he said.
3:05:27 PM
At ease
3:06:22 PM
CHAIR COSTELLO reconvened the meeting and asked Mr. Sniffen to
respond to Senator Gardner's questions.
3:06:43 PM
ED SNIFFEN, Deputy Attorney General, Civil Division, Regulatory
Affairs & Public Advocacy (RAPA), Department of Law, Anchorage,
Alaska, said he is not aware of what other states do with lemon
laws for large construction equipment. He agreed with Mr.
Gialopsos that some of the dealers who are online to testify may
have a more comprehensive understanding of how other states
handle this.
3:07:26 PM
SENATOR HUGHES referred to the list of products that are covered
starting on page 7, line 7. She asked if the Department of
Transportation and Public Facilities (DOTPF) will benefit from
the bill, resulting in a cost savings to the state.
SENATOR GIESSEL offered to follow up after doing research about
whether DOTPF purchases equipment through a local vendor or goes
directly to the manufacturer.
SENATOR HUGHES said if the department does deal with local
vendors, the list should be reviewed to ensure it is complete.
CHAIR COSTELLO asked Mr. Sniffen why contract law fails to
address the concerns that prompted the sponsor to introduce the
bill.
MR. SNIFFEN said most of these franchise relationships start
with contract negotiations and over time it becomes something
like an adhesion contract where the dealer doesn't have a lot of
bargaining power. That's why states like Alaska have auto
franchise laws.
SENATOR STEVENS asked if a manufacturer could declare that a
warranty is not covered in distant or remote locations.
MR. SNIFFEN said that would be difficult to do for a
manufacturer that sells equipment into a state knowing that it
is likely it will be transported to a remote area. Warranties
generally follow the equipment and unless there is a clearly
stated exception, the manufacturer would probably be required to
provide that service.
SENATOR STEVENS observed that it is simple economics; if it
costs too much to do business you find a way not to do it. He
said he agrees with Senator Gardner's comment about unintended
consequences but Mr. Sniffen doesn't seem to agree.
MR. SNIFFEN clarified that he is saying the manufacturer might
adjust the warranty after getting stuck with a large bill. He
added, "It's hard to say what the consequences of this
legislation might be."
3:12:50 PM
SENATOR HUGHES asked the estimated annual dollar amount that
dealers are paying for unreimbursed warranty work.
SENATOR GIESSEL suggested the franchise dealers answer the
question. She added that she has anecdotal evidence that they do
not pass those unreimbursed costs on to the consumer. "They
absorb that cost as Alaskan businesses themselves, and therein
lies the problem."
3:13:36 PM
At ease
3:13:55 PM
CHAIR COSTELLO reconvened the meeting and asked Mr. Sniffen if
lemon laws are in current statute.
MR. SNIFFEN replied Alaska has two lemon laws. The 2009 ATV
lemon law that was predicated on the existing automobile lemon
law. Alaska also has a distributorship law in Title 45 that
protects distributors of all products from certain practices of
manufacturers.
CHAIR COSTELLO observed that the committee heard similar
legislation last week; the legislature is being asked to set the
guidelines in certain areas because it doesn't appear that the
contracts are addressing the issues.
MR. SNIFFEN said this bill does not have the retroactive
provision that SB 47 has. It would only apply to new contracts.
3:16:23 PM
CHAIR COSTELLO opened public testimony on SB 56.
3:16:37 PM
CHRIS GERONDALE, Construction Machinery Industrial, LLC,
Anchorage, Alaska, testified in support of SB 56. He stated that
his family has been in the construction and heavy equipment
industry in Alaska since the 1930s. He works in the family
business and also does contract work for other heavy equipment
contractors and several mines in Southeast Alaska. He said that
he can see this issue from both sides.
He discussed heavy equipment warranties and product updates and
noted that in both instances the manufacturer is not required to
cover all labor or freight associated with these repairs. SB 56
would require manufacturers to cover a higher percentage of
those costs. This will be particularly helpful for small
contractors, farmers, loggers, and placer miners.
MR. GERONDALE explained the process when there is a failure and
the equipment is under warranty. First, the end user has to pay
the airfare, travel labor, and travel costs to get the problem
diagnosed. Once diagnosed, the part is ordered on a stock order,
which can take four weeks or 15-20 percent of the construction
season in Alaska. To speed the process the end user often elects
to pay for expedited freight. Once the part arrives, the end
user will again have to pay the costs to have the mechanic come
back out and fix the piece of equipment. He estimated that on a
$4,000-$5,000 warranty work order, the manufacturer may only
cover $500.
Product updates are similarly problematic. The costs can easily
be $3,000-$4,000 on a repair that only takes two hours, which is
what the manufacturer will cover plus maybe $450 in travel
costs. The balance is put on the vendor or the end user.
MR. GERONDALE said the only opposition to SB 56 that he has
heard comes from the manufacturers. They argue that the
additional cost will increase the price of equipment, but the
reality is that the end user already assumes the burden of the
additional costs. SB 56 puts some of the burden back on the
manufacturer that built a piece of equipment that needs to be
repaired.
Responding to the concern expressed that manufacturers may stop
doing business in Alaska, he pointed out that boat and ATV
manufacturers did not pull out after the ATV lemon law was
enacted in 2009.
3:22:13 PM
SENATOR GARDNER asked where product updates are covered in the
bill.
MR. GERONDALE deferred the question to Steve Seward.
3:22:44 PM
At ease
3:22:48 PM
CHAIR COSTELLO reconvened the meeting.
3:23:10 PM
STEVE SEWARD, Attorney for Construction Machinery Industrial,
LLC, Seattle, Washington, directed attention to page 8, line 12.
It is part of the definition of required services.
3:23:52 PM
JIM HALLORAN, Caterpillar Inc., Peoria, Illinois, said he wanted
to make three points. First, N.C. Machinery and Caterpillar have
had an agreement in place since 1926 and there has not been an
issue. Second, because Caterpillar's agreements are global, he
disputes the statement that Alaska is unique. Third, he
maintained that Caterpillar's contracts are working and have
allowed the company to service its Alaska customers for over 90
years.
SENATOR STEVENS asked how much of the burden would go back on
the manufacturers if the bill were to pass.
MR. HALLORAN explained that Caterpillar pays for parts. They do
not pay for time and travel, but they will discount the price of
the machine to cover things like that. The dealer appreciates
that unique twist because they can use the money as they see fit
if warranty service isn't required. For example, it could be
used to provide an incentive for the customer to purchase the
machine.
3:27:01 PM
NICK YAKSICH, Senior Vice President, Association of Equipment
Manufacturers (AEM), stated that AEM represents over 950
companies that manufacture off-road highway equipment. He made
four points and reinforced Mr. Halloran's comments. First, they
work with and support the dealer and manufacturer as a
partnership to ensure customer satisfaction. Second, he has yet
to hear any specific problems that have arisen with dealers in
Alaska. In any event, they would prefer to work directly with
the dealer to resolve an issue. Third, this bill infringes on
the private contractual relationship between the manufacturer
and the dealer. Fourth, they would prefer to work directly with
the dealer and outside the legislative process to find a
solution to ultimately serve the customer.
3:28:43 PM
CHAIR COSTELLO held SB 56 in committee with public testimony
open.