Legislature(2001 - 2002)
04/19/2001 01:37 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ 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
vehicles.
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
product.
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
programs.
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
eliminated…
MR. HEARST said that other provisions are impossible to comply
with:
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
out.
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
consistency.
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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