Legislature(2001 - 2002)

04/19/2001 01:37 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SB 189-MOTOR VEHICLE SALES AND DEALERS                                                                        
CHAIRMAN PHILLIPS announced SB 189 to be up for consideration.                                                                  
MR. RALPH SEEKINS,  Chairman, Alaska Automobile Dealer  Association,                                                            
said he  is a Ford  dealer in  Fairbanks and  Soldotna. He said  the                                                            
Association  has spent  about two  and half  years researching  this                                                            
issue. It came  about because Alaska  is the last state without  any                                                            
effective motor  vehicle franchise  legislation. "When we  looked at                                                            
this, we  didn't want  to just look  at those  things that  affected                                                            
relationships  between manufacturers and dealers,  we also wanted to                                                            
take  a look  at  those things  that  affect  relationships  between                                                            
dealers and manufacturers and the consumer in the end."                                                                         
He said  the National  Automobile  Dealer Association  provides  two                                                            
huge bound volumes of laws  of all the other states. His association                                                            
looked at the  business cases that needed to be addressed  in Alaska                                                            
and used these  volumes to find which  state dealt with it  best. He                                                            
thought  that about 90  percent of  the language  in SB 189  is what                                                            
other states have already done.                                                                                                 
Number 1573                                                                                                                     
MS. SUSAN DUNCAN,  Alaska Automobile Dealers Association,  supported                                                            
Mr. Seekins testimony and reiterated:                                                                                           
     It  sets  up  if  there  are  any  disputes  between   the                                                                 
     manufacturers  and  the Alaska  dealer,  that  it will  be                                                                 
     followed  through the  Alaska Court System.  It brings  in                                                                 
     many   consumer  friendly  provisions   making  sure   for                                                                 
     instance,  advertising   and  high pressure   tactics  are                                                                 
     regulated.  So, when a consumer purchases a vehicle,  they                                                                 
     don't  get  home  with  that vehicle  and  find  that  the                                                                 
     financing  terms are different  than what they understood                                                                  
     them  to be at the  dealer. Again,  it provides licensing                                                                  
     that  identifies  all  the players,  including  the  sales                                                                 
     people. They have a card  with their picture on it and you                                                                 
     know  when you  walk  into that  dealership,  that you're                                                                  
     dealing  with  an employee  at  that dealership.  It  also                                                                 
     provides definitions for  specific terms that might not be                                                                 
     clearly understood  or used in different methods.  It also                                                                 
     provides franchise  protection so that dealers  who invest                                                                 
     a  lot of time  and money can  be assured  they will  have                                                                 
     their  dealership available for  years to come, that  they                                                                 
     can keep  providing the level  of service their customers                                                                  
     depend upon.  This act really covers a lot of  things that                                                                 
     have been missing in the state of Alaska.                                                                                  
SENATOR LEMAN  said he assumed most  of the bill was established  on                                                            
well-established case law.                                                                                                      
MS. DUNCAN responded that was correct.                                                                                          
CHAIRMAN  PHILLIPS asked  if  Alaska Sales  and Service  is part  of                                                            
their organization.                                                                                                             
MS. DUNCAN replied yes.                                                                                                         
MR. RICK  MORRISON, founding-President,  Alaska  Automobile  Dealers                                                            
Association, said  he currently serves on the Board  as Secretary of                                                            
the National Automobile  Dealers Association and is  the Chairman of                                                            
the Anchorage Chamber of  Commerce. He strongly supported SB 189. He                                                            
said in reality, they have  been working on this bill for over seven                                                            
years. He said the dealership  laws are already in every other state                                                            
out  there  and  this bill  has  involved  a  tremendous  amount  of                                                            
research.  "When   you  look  at  this  bill,  it  isn't   just  for                                                            
manufacturers.  This is about protection  for consumers,  protection                                                            
for small business people and protection for the manufacturers."                                                                
MR. MORRISON  said that  there really aren't  any negotiations  with                                                            
the "big  guns." He said,  "It's either you  sign it or you  give it                                                            
back and you're out of business."                                                                                               
He also said that,  "Contracts are what make friends  stay friends."                                                            
TAPE 01-20, SIDE B                                                                                                            
MR. MORRISON  said that this bill  would give dealers and  consumers                                                            
a way  to resolve  differences.  There are provisions  for  contract                                                            
issues, training  and licensing, stocking, disclosures  on damage on                                                            
new vehicles and advertising.  The Customer Satisfaction Index (CFI)                                                            
is the buzzword and has  become very important to the manufacturers.                                                            
He said there  is a misconception  in the news media. Dealers  think                                                            
that about  85 percent of  their customers  were very or  completely                                                            
satisfied.  A Gallup poll showed that  75 percent of customers  were                                                            
completely  satisfied. The  news media thought  five percent  of the                                                            
customers would  be unhappy with dealers.  He hoped this  bill would                                                            
help clear some of that up.                                                                                                     
MR. MORRISON  reiterated that  about 90 - 95  percent of what  is in                                                            
this  bill  is boilerplate  from  other  states.  A few  things  are                                                            
different. One  of them is the training aspect and  a stronger parts                                                            
and warranty section.                                                                                                           
He said  there  is a question  from  DMV about  whether dealers  are                                                            
bonded  and he  said they  are  currently required  to  get a  state                                                            
license with a bond for  $10,000, which is very inadequate. They are                                                            
asking to change it to $100,000 - $200,000.                                                                                     
MR. MORRISON  said they  have had  some difficulty  with "the  small                                                            
corner lots,"  which are set  up very easily  and sell junk  cars or                                                            
cars without disclosing  what is wrong with them.  A tougher bonding                                                            
process  would help  ensure that people  who get  into the  business                                                            
have the means to back it up.                                                                                                   
Another  thing that  has come up  is hazardous  waste and  hazardous                                                            
waste disposal.  Right now  manufacturers are  not liable for  parts                                                            
that  dealers  take off  under  warranty.  Dealers are  100  percent                                                            
responsible  for it,  but  this bill  says that  manufacturers  must                                                            
assist them in the process.                                                                                                     
MR. STEVE CONN, Executive  Director, Alaska Public Interest Research                                                            
Group (AKPIRG), opposed  SB 189. He said there were many interesting                                                            
provisions in this bill  and he wouldn't try to address them all. He                                                            
thought this was a bill  that was written for the automobile dealers                                                            
with a very limited amount  of concern for the consumer. The attempt                                                            
to  establish  a  Motor  Dealer's  Advisory  Board  falls  short  of                                                            
protecting  the consumer who deserves  more than just a seat  at the                                                            
table. He said:                                                                                                                 
     The  consumer guides  the economy and  the system and  the                                                                 
     market. At the end of the  day, it's the consumer's needs,                                                                 
     even  the unorganized  consumer, it's  his and her buying                                                                  
     dollar that makes things  happen. This idea that the motor                                                                 
     dealer should  be lent state authority and then  should be                                                                 
     positioned  so that  they can  vet, in  essence, consumer                                                                  
     related   laws  that   have   to  do  with   industry   is                                                                 
     unacceptable by any stretch of the imagination.                                                                            
     The further  concern for the  fly-by-night, of course,  is                                                                 
     the concern  that all professions have. However,  it would                                                                 
     seem  that  this bill  is  tilted  towards  protection  of                                                                 
     extant dealerships  and would be in many ways  restrictive                                                                 
     of new entrants  into the market. There is a jointly  held                                                                 
     concern on  the part of the dealers and the consumers  for                                                                 
     protection  of the consumers,  if for no other reason,  to                                                                 
     enhance  the credibility  of the  established profession.                                                                  
     That  could be  best dealt with,  of course,  if we  could                                                                 
     garner the  support of the Motor Vehicles Association  and                                                                 
     enhancing the budget of  the Department of Law in the area                                                                 
     of consumer protection.                                                                                                    
     Further, a bill of this  nature that tries to address both                                                                 
     the  evident  needs  of  the  dealerships  vis-à-vis   the                                                                 
     manufacturers, the relationship  between the consumers and                                                                 
     the  dealers and  many  things in  between would  be  best                                                                 
     dealt  with  had  there  been   and  if there   were  real                                                                 
     collaboration  between  consumer organizations  and  those                                                                 
     representing  the dealerships.  Our door is open to  those                                                                 
     forms  of  collaboration  and I  would  strongly suggest,                                                                  
     particularly  given the history of this bill on  the House                                                                 
     side where  it's been sent back to committee for  a little                                                                 
     bit  of reworking, that  an opportunity  be taken to  have                                                                 
     that  sort of discussion  and collaboration.  It may  very                                                                 
     well  be that a  bill that  is truly satisfactory  to  the                                                                 
     dealerships  and to  the consumers  can  evolve from  this                                                                 
     bill, but as it presently  stands, it is a bill written by                                                                 
     the  dealerships for  the dealerships,  with some concern                                                                  
     placed   as  to  others,   some   legislation  replacing,                                                                  
     effectively  speaking,  common law, but  so many problems                                                                  
     that  I would hope the  bill is not  passed forward  until                                                                 
     there is a moment to pause  and reflect to assure that the                                                                 
     needs of the  consumer, the driver of this market,  no pun                                                                 
     intended,  and  his and  her concerns  about  today's  and                                                                 
     tomorrow's  automobile  market find  their  way into  this                                                                 
     legislation.  The consumers also  guide the Department  of                                                                 
     Law in the  development of useful and productive  laws and                                                                 
     regulations  pertaining  to the sale  and repair of  motor                                                                 
CHAIRMAN  PHILLIPS asked him  to have his  suggestions prepared  and                                                            
submitted by next Monday.                                                                                                       
Number 1400                                                                                                                     
SENATOR  LEMAN   asked  Mr.  Conn  to  look  at  page   41  and  the                                                            
"Requirement  of  Principle  Place  of  Business."  He asked  if  he                                                            
thought the specific  requirement that an office be  a permanent and                                                            
enclosed building  unduly restricted  either other small  businesses                                                            
or consumers.                                                                                                                   
MR. STAN  HEARST, Anchorage  Daimler Chrysler  Dealer, said  that 49                                                            
other  states   have  passed   legislation   similar  to  this   and                                                            
conceptually   he  agrees  that  certain   rights  granted   through                                                            
contracts between  dealer and manufacturers should  be codified, but                                                            
he takes  exception to  the number  of issues  where this bill  goes                                                            
beyond  existing  legislation in  other  states. Wording  is  overly                                                            
burdensome  and restrictive  and would ultimately  increase  cost to                                                            
the consumer.  He hoped a subcommittee  could work with dealers  and                                                            
manufacturers to develop a workable bill.                                                                                       
MR. HEARST pointed out several significant problems:                                                                            
     Initially,  the bill equates  warranty work with extended                                                                  
     service   contracts  and  they  put  the  same  sorts   of                                                                 
     restrictions  on  the  manufacturers  as  it  pertains  to                                                                 
     warranty  work that's  in the services  contracts. Let  me                                                                 
     just  give you  a little  history  with regards  to  those                                                                 
     businesses.  A manufacturer of any kind issues  a warranty                                                                 
     and  it's really a  marketing tool,  because it makes  the                                                                 
     consumer  feel more confident  about buying a product.  If                                                                 
     something  goes wrong, the manufacturer stands  behind it.                                                                 
     So, it really  comes part and parcel with the  sale of the                                                                 
     Extended   service  contracts   is  a  separate  business                                                                  
     altogether   and  manufacturers  offer  extended  service                                                                  
     contracts,  but independents are in that market,  as well.                                                                 
     The two are  totally separate businesses. Dealers  have no                                                                 
     obligation  to enter  into  an extended  service business                                                                  
     with a manufacturer.  They can go anywhere and  enter into                                                                 
     a  partnership   with  an  independent  extended  service                                                                  
     contract company.                                                                                                          
     This bill,  because it equates extended service  contracts                                                                 
     as warranty  places restrictions  on the manufacturer  and                                                                 
     obligations  on the  manufacturer that  are not placed  on                                                                 
     independent offerers of  extended warranty contracts. As a                                                                 
     result,  this bill, if  it were to  pass, would basically                                                                  
     take  four major  competitors  out  of the  market.  Those                                                                 
     major  competitors being  Daimler Chrysler,  Ford, GM  and                                                                 
     Toyota  - out of  that extended service  contract market,                                                                  
     because   it   greatly   increases   the   cost   to   the                                                                 
     manufacturers and as a result,  the manufacturers won't be                                                                 
     able  to  successfully  compete  with  the  independents.                                                                  
     That's bad for the consumers,  because when you have fewer                                                                 
     competitors  in the market, naturally  the price is  going                                                                 
     to go  up, because there  is less supply.  So, that's  bad                                                                 
     for everybody around…                                                                                                      
MR. HEARST said that several provisions actually hurt the dealers:                                                              
     There's   a  provision  that  tries  to  eliminate   price                                                                 
     discrimination,   but what  it  does  is also  eliminates                                                                  
     various  programs that the manufacturers  provides to  the                                                                 
     dealers  -  cash payments  to  dealers  that  the dealers                                                                  
     really  want. We  in the industry  call  these stair  step                                                                 
     programs where  there's an objective that is set  and it's                                                                 
     based  upon the dealer's size.  So that small dealers  get                                                                 
     smaller   objectives   and  larger  dealers   get  larger                                                                  
     objectives.  So, it's functionally available to  everyone.                                                                 
     If  the dealer meets  that objective,  they get graduated                                                                  
     cash payments  depending upon  the volume of the vehicles                                                                  
     they sell.  I don't think the  dealers want to make  those                                                                 
     programs illegal,  because most of the dealers  like those                                                                 
     There's  another provision, AS  25.25.402, which makes  it                                                                 
     unlawful  for dealers  to do a contract  where they  waive                                                                 
     their  rights.  That  also eliminates  the  ability  of  a                                                                 
     dealer to settle [indisc.]  with the manufacturer. To give                                                                 
     you   an  example  of   how  that  would   work,  if   the                                                                 
     manufacturer  wants to  put another dealer  in the market                                                                  
     and the  neighboring dealer objects  to that as this  bill                                                                 
     would  allow,  and  we  don't   want  to  go through   the                                                                 
     administrative  battle,  sometimes we'll  work out a  deal                                                                 
     where  we can put another dealer  in and we'll give  you a                                                                 
     point   somewhere  else.   That  language   is  basically                                                                  
MR. HEARST said that other provisions are impossible to comply                                                                  
     One  pertains   to  distribution  or  the  allocation   of                                                                 
     vehicles.  We allocate  vehicles  nation-wide.  We have  a                                                                 
     computer  system that  is designed to  try and distribute                                                                  
     those  vehicles fairly.  It's based  upon what  we call  a                                                                 
     turn  and earn  system. The more  you sell,  the more  you                                                                 
     get. We  really can't think of  a fairer way of doing  it.                                                                 
     Most  of the  manufacturers allocate  on  the same basis.                                                                  
     What  this provision  would do would,  in essence, make  a                                                                 
     prima  fascia case that if one  dealer received a vehicle                                                                  
     subsequent  to another dealer,  and the dealer who didn't                                                                  
     get  the vehicle  first, that  dealer would  have a  prima                                                                 
     fascia case that we unfairly  distributed the vehicles not                                                                 
     taking  into account  whether the dealer  who did not  get                                                                 
     the   vehicle  first   had   already  gone   through   his                                                                 
     allocation, had not sold  as many cars as the other dealer                                                                 
     and that sort  of thing. Since our computers are  designed                                                                 
     that way,  it would cost us literally millions  of dollars                                                                 
     to change the programs. We couldn't comply with that.                                                                      
     Another  provision in the bill  would also require that  a                                                                 
     manufacturer not consider  vehicles that are in transit as                                                                 
     part  of  the  dealer's  inventory.  Again,  it  would  be                                                                 
     impossible for us to comply  with that, because we look at                                                                 
     what  a  dealer has  in  his  inventory,  what he  has  in                                                                 
     transit,  to determine  how many  more vehicles  he  would                                                                 
     need.  So,  that would  be  extremely  difficult,  if  not                                                                 
     impossible, for us to comply with.                                                                                         
     There  are  a  couple of  provisions  in  there  that  are                                                                 
     unconstitutional.   One  requires  that  we  don't charge                                                                  
     dealers  in  Alaska  any  more  than  we  charge  dealers                                                                  
     anywhere  else  in  the  country.   We do  have  regional                                                                  
     marketing  programs  that are based  upon the  needs of  a                                                                 
     particular market. We'll  give discounts on vehicles where                                                                 
     as  in other markets,  we'll give  discounts on different                                                                  
     vehicles,  but clearly,  that  would be  a restriction  on                                                                 
     interstate  commerce. Likewise, the provision  with regard                                                                 
     to  destination  charges  we  think is  unconstitutional,                                                                  
     again, a violation of the interstate commerce clause.                                                                      
     So,  that just  gives you  an idea  of some  of the  major                                                                 
     problems  there are  in the bill  that need  to be worked                                                                  
CHAIRMAN PHILLIPS asked  Mr. Hearst to submit his suggestions to the                                                            
committee by Monday.                                                                                                            
MR. MARK MUELLER,  General Motors, said that Mr. Hurst  covered most                                                            
of their concerns. He said  he had met with his Alaskan dealers last                                                            
week and  the spirit was  very cooperative.  He was invited  back to                                                            
try and work  out a lot of details.  An area that Mr. Hearst  didn't                                                            
discuss was brokers and Internet.                                                                                               
     We, the manufacturers have  developed our own Internet web                                                                 
     sites  and are trying  to drive customers  to the dealers                                                                  
     through sales  and the service departments. We  have a lot                                                                 
     of third parties  trying to get into our business  and try                                                                 
     to  take business  away from  our dealers  and our Alaska                                                                  
     dealers.  We want to be able  to provide that service  and                                                                 
     have  spent a lot of  time and money  on the Internet  and                                                                 
     broker areas…                                                                                                              
CHAIRMAN PHILLIPS requested his suggestions by Monday.                                                                          
Number 800                                                                                                                      
MR. MORRISON  said he appreciated  Mr. Conn's comments, but  he said                                                            
it was  not the intent  to have the consumer's  issues addressed  in                                                            
the Dealer Advisory Board  for the state. The consumer interests are                                                            
best taken  care of in the Attorney  General's Office or  the Better                                                            
Business Bureau.  The intent behind  the design of the Board  is for                                                            
state issues, manufacturers issues and things like that.                                                                        
He also said regarding  Mr. Hearst's concerns about the warranty and                                                            
the  service  contract  difficulties,  that they  are  only  seeking                                                            
He said the  National Automobile Society  is against the  stair step                                                            
programs that sell vehicles  wholesale to one dealer cheaper than it                                                            
does to  the dealer across  the street from  him. He said that  most                                                            
manufacturers  have a good allocation system set up,  although there                                                            
have been some difficulties  in the past where franchises were given                                                            
for money under the table. This bill makes it clearer.                                                                          
The  vehicle  inventory  issue  does  not  change  a manufacturer's                                                             
computer program, but changes  when the vehicles are counted. It's a                                                            
simple process.  He said  that just about  every manufacturer  has a                                                            
one  price  for destination  charge  to  all  states in  the  United                                                            
States. Most  of them include  Alaska, but  the bill is saying,  "If                                                            
they are going  to have the same price  for a destination  charge in                                                            
Detroit  where  a car  is made,  and  the  same price  for  southern                                                            
California,  it should  be the same  price in  Anchorage, Alaska  or                                                            
Fairbanks or Juneau or any place in Alaska at the same time."                                                                   
CHAIRMAN PHILLIPS  asked him to send  his comments to the  committee                                                            
by Monday.                                                                                                                      
MR. SNIFFEN said he would  also provide written comments, but he had                                                            
"anti-trust flags going off all over my head."                                                                                  
At  first, Mr.  Sniffen  thought this  bill  did nothing  more  than                                                            
protect  automobile dealers  from territory  infringement,  erecting                                                            
all kinds  of barriers  to entry  and exist from  the market.  After                                                            
some research,  he found all  kinds of cases  that say this  kind of                                                            
legislation  is O.K. if it's  properly done.  "Don't be fooled  into                                                            
thinking  that  this  bill exists  anywhere  else  in  the  country,                                                            
because it does  not. This bill cherry picks sort  of a selection of                                                            
laws from other  states that are favorable to dealers  and it really                                                            
doesn't have a lot of the  other more negative parts of other laws…"                                                            
He concluded,  "This is really an over reaching bill  and I think it                                                            
needs to be limited in little, but significant ways."                                                                           
MR. SNIFFEN thought  the retroactive effect provisions  brought up a                                                            
whole lot  of very serious  questions about  impairment of  contract                                                            
analysis, an  issue is being challenged  in other states  right now.                                                            
MS. MARY  MARSHBURN, Department  of Motor  Vehicles, said that  they                                                            
currently  register  only  dealers and  it  is a  relatively  simple                                                            
process and needs improving. She said:                                                                                          
     The bill does  make some improvement; however,  in reading                                                                 
     the bill,  we find there a number  of provisions that  are                                                                 
     ambiguous.   Several   provisions  conflict   with   other                                                                 
     statutes and need clarification.                                                                                           
     We  are  concerned,  as  well,  with  the  Motor  Vehicle                                                                  
     Advisory  Board and the insertion  of the Commissioner  of                                                                 
     Administration   into   the  mediation   process  between                                                                  
     manufacturers   and  the  distributors.   We,  too,   have                                                                 
     concerns,  and believe Senator  Leman raised the question                                                                  
     about  the principle place of  business issue. Obviously,                                                                  
     it  is a policy  call, but  it would  restrict businesses                                                                  
     that do not have a permanently  enclosed structure. Again,                                                                 
     we  believe  there is  improvement  needed in  the dealer                                                                  
     licensing  law,  but  there   are some   areas  that  need                                                                 
     clarification  in this bill and  we will send those  down.                                                                 
She added that  $10,000 bonding is  totally inadequate for  any sort                                                            
of an automobile issue and should be raised.                                                                                    
CHAIRMAN  PHILLIPS  announced  that they  would  hold  the bill  for                                                            
further work.                                                                                                                   

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