Legislature(2023 - 2024)BELTZ 105 (TSBldg)
02/19/2024 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB144 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 144 | TELECONFERENCED | |
SB 144-RATES: MOTOR VEHICLE WARRANTY WORK
1:31:22 PM
CHAIR BJORKMAN announced the consideration of SENATE BILL NO.
144, "An Act relating to rates and time allowances for motor
vehicle warranty work."
1:31:31 PM
Chair Bjorkman turned the gavel over to Senator Gray-Jackson at
1:31 p.m.
1:31:46 PM
ACTING CHAIR GRAY-JACKSON took up the gavel and continued the
meeting.
1:32:04 PM
SENATOR MATT CLAMAN, District H, Alaska State Legislature,
Juneau, Alaska, sponsor of SB 144. He read the sponsor statement
for SB 144:
[Original punctuation provided.]
Senate Bill 144
Sponsor Statement Version A
"An Act relating to rates and time allowances for
motor vehicle warranty work."
Senate Bill 144 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.
1:33:34 PM
SENATOR CLAMAN continued reading the sponsor statement for SB
144:
[Original punctuation provided.]
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.
1:33:59 PM
CARLY DENNIS, Staff, Senator Matt Claman, Alaska State
Legislature, Juneau, Alaska, read the sectional analysis for SB
144.
[Original punctuation provided.]
Senate Bill 144
Sectional Analysis Version A
Section 1
AS 45.25.210. Rates for warranty and other work
Amends subsection (b) to state that compensation for
labor must include the rates and time allowances for
warranty work.
Section 2
AS 45.25.210. Rates for warranty and other work
Amends subsection (c) to include time allowances in
the schedule of compensation.
Section 3
AS 45.25.210. Rates for warranty and other work
Adds new section (j) which defines "rates" and "time
allowance" for the purposes for warranty and other
work.
Section 4
AS 45.25.990. Definitions
Amends the definition of "schedule of compensation" to
include parts, rates for labor, and time allowances
for labor.
1:35:02 PM
At ease
1:35:58 PM
ACTING CHAIR GRAY-JACKSON reconvened the meeting and announced
invited testimony.
1:36:18 PM
LES NICHOLS, President, Alaska Auto Dealers Association,
Fairbanks, Alaska, gave a presentation on SB 144.
1:36:44 PM
At ease
1:36:51 PM
ACTING CHAIR GRAY-JACKSON reconvened the meeting.
1:36:54 PM
MR. NICHOLS gave a presentation prepared by the Alaska Auto
Dealers Association on SB 144 titled, "SENATE BILL 144 Relating
to Time Allowances for Warranty Work." He spoke to points on
slide 2:
[Original punctuation provided.]
Alaska Auto Dealers Association
• The AADA is a statewide association of auto dealers,
both franchise new car dealers and independent used
car dealers. We represent our State's auto dealers by
promoting best practices, providing communication on
the state of the automotive industry in Alaska, and
representing dealers' concerns to our elected
officials.
1:37:18 PM
MR. NICHOLS reviewed slide 3:
[Original punctuation provided.]
The Problem
• 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.
1:38:25 PM
MR. NICHOLS advanced to slide 4, depicting data from J.D.
Power's U.S. Initial Quality Study, Brand Ranking, Problems per
100 Vehicles (PP100), for the years 2019 and 2023. He noted
that, in 2019, the best in the industry was Genesis (63 PP100),
followed by Kia (70 PP100). Contrasting this with 2023, he
pointed out that the best in the industry was Dodge (140 PP100).
He noted that this data shows that vehicles are coming off the
assembly line with issues that need to be addressed. He
explained that it is not uncommon for his company to receive
vehicles from the manufacturer that require warranty work. He
also pointed out that in 2019, the highest number was 130 PP100
and contrasted this with the lowest number (140 PP100) in 2023.
He commented that this increase results in more warranty work
being done by automotive shops.
1:39:35 PM
MR. NICHOLS spoke to points on slide 5:
[Original punctuation provided.]
Who Is Affected
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.
Alaskan Consumers The burden of manufactures'
discounts directly raise prices on the Alaskan
consumer.
1:41:32 PM
MR. NICHOLS reviewed slide 6:
[Original punctuation provided.]
The Solution
• 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 to
technicians 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.
1:42:29 PM
MR. NICHOLS spoke to points on slide 7:
[Original punctuation provided.]
Important Points
• 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.
1:44:21 PM
DAVID BRIGHT, Attorney, Alliance for Automotive Innovation,
Washington D.C., testified by invitation on SB 144. He began by
explaining that dealers and manufacturers depend on each other
for mutual success. He commented that this has been a successful
partnership for generations and added that today, dealerships
are strong and profitable. He stated that SB 144 would not
support long-term success. He explained that when a consumer has
an issue that is covered by a warranty, the dealerships make the
repair and bill the manufacturer. This process is detailed in
existing statute and specifies the markup rate as well as how
much the manufacturer pays the dealership. He said that SB 144
would require manufacturers to purchase more labor hours from
dealerships than the dealerships are actually performing on the
vehicles when doing warranty work.
1:45:45 PM
MR. BRIGHT explained that, under the current statute, the
manufacturer pays the same hourly rate that is charged to the
public for labor. He stated that the manufacturer knows the
precise number of labor hours they need to purchase because they
have timed each repair that is covered by warranty. He noted
that these times are included in a "time guide". He explained
that this is then multiplied by the dealers hourly rate and the
resulting amount is paid to the dealership. He stated that, by
allowing dealerships to be compensated using third-party time
guides - which are labor time guides used by independent repair
shops. He pointed out that these guides provide time estimates
and do not actually time the procedures. He added that the
repair shops that use third-party time guides do not specialize
in a particular brand, do not have the specialized tools for
particular brands (which can speed up the repairs), and tend to
work on older, higher mileage cars that take longer to repair.
1:46:50 PM
MR. BRIGHT emphasized that the manufacturers have no interest in
undercompensating dealerships for warranty work. He pointed out
that manufacturers have a system in place for dealerships to
request additional time if the work is taking longer than the
time indicated in the guide. Additionally, he explained that
dealerships can request a review of the labor entries if they
feel that the guide is wrong. He opined that the current system
is working well and added that in the previous year, they hired
a private firm to conduct a study of dealer financial
statements. This study found that, on average, dealerships make
a 78 percent gross profit margin on warranty labor work. He
stated that this finding was unsurprising, as warranty labor
work provides a guaranteed source of business that pays the
dealer its retail rate and has no associated marketing costs. He
clarified that manufacturers do not pay technicians directly;
rather they pay dealers and have no control over how the
dealerships then pay their employees. He emphasized that the
manufacturers do not want to pay for unworked labor hours. He
pointed out that SB 144 is not reflective of the national
industry norm, with only four other states having similar laws.
He added that the law in one of these states is currently being
challenged as unconstitutional in federal court. He said that in
2023, 11 states considered the time guide issue and ten chose to
leave it as is. He opined that SB 144 is not necessary for the
profitability of manufacturers and dealerships - who rely on
each other for success.
1:47:00 PM
SENATOR BISHOP joined the meeting
1:48:38 PM
ACTING CHAIR GRAY-JACKSON noted that Senator Bishop joined the
meeting at 1:47 p.m.
1:48:48 PM
SENATOR DUNBAR referenced the J.D. Power data included on slide
4 of Mr. Nichol's presentation. He pointed out that the worst
brand in 2019 had a better score than the best brand in 2023. He
asked how Mr. Bright would explain the dramatic increase in the
number of problems per vehicle.
1:49:39 PM
MR. BRIGHT replied that he had not seen this study and
speculated that the increase was related to the roll-out of
electric vehicles and the microchip shortage. He stressed that
the manufacturer still pays the dealership based on the number
of hours it takes to make repairs - even if there is a high
number of warranty repairs per vehicle.
1:50:21 PM
SENATOR DUNBAR asked if the manufacturer offers specialized
tools and software to independent mechanics.
1:50:45 PM
MR. BRIGHT replied that independent repair shops have access to
the same repair information that dealerships do. He said he
would have to get back to the committee with information
regarding tools.
1:51:06 PM
SENATOR BISHOP asked if Mr. Bright has visited Alaska.
1:51:25 PM
MR. BRIGHT replied that he has been to both Juneau and
Anchorage.
1:51:30 PM
SENATOR BISHOP asked if Mr. Bright has visited when it is 50
below.
1:51:38 PM
MR. BRIGHT replied that he visited in January or February.
1:51:46 PM
SENATOR BISHOP asked if Mr. Bright would agree that Alaska is
different than the lower 48.
1:51:50 PM
MR. BRIGHT acknowledged that Alaska is unique but noted that
other states also experience extreme low temperatures.
1:52:09 PM
SENATOR BISHOP shared his belief that Alaska is different and
asked if the manufacturers that Mr. Bright represents have
considered having an exclusion for Alaska.
1:52:28 PM
MR. BRIGHT replied that he did not know what type of exclusion
was being referenced.
SENATOR BISHOP said that a potential exclusion could include a
handicap for Alaska's harsh climate and/or increasing the hours
for jobs.
1:53:01 PM
MR. BRIGHT shared his understanding that this has not been
considered. He explained that there is no evidence that the time
guides are wrong - or that there is any issue with the process
by which dealerships can request additional time when needed.
1:53:17 PM
SENATOR DUNBAR asked if the manufacturer pays for diagnostic
time and questioned how the time guides take into account the
variable time it can take to determine what is wrong with a
particular vehicle.
1:54:19 PM
MR. BRIGHT replied that the time guide takes everything into
account. This includes pulling the car into the lot, setting it
up, figuring out the problems, and technician bathroom breaks.
He noted that the guide is formulated using hand tools rather
than air tools. He explained that any technician who is
qualified to work on the vehicle should be able to meet these
times - and in some instances they may beat them. He noted that
the manufacturer pays for the time listed in the time guide even
if it does not take this long to complete the work. He stated
that this is an objective, measured process and reiterated that
no other time guide repair times are actually timed.
1:55:34 PM
AARON SEEKINS, Customer Relations Manager, Seekins Ford Lincoln,
Fairbanks, Alaska, testified by invitation on SB 144. He said
that Fairbanks experiences extreme weather that results in
special requirements when doing vehicle repairs. He pointed out
that the manufacturer's time guide does not take into account
the time it takes to thaw a vehicle out before work can be done.
He said that the manufacturer does not compensate dealerships
for training technicians. He explained that sending technicians
to attend training costs thousands of dollars. He pointed out
that the warranty labor rate received from the manufacturer is
less than the labor rate received by independent repair shops -
even though their technicians are not trained or certified. This
makes it difficult to offer technicians competitive pay. He said
that his business has a great relationship with the Ford
manufacturer - and both dealership and manufacturer are making a
profit. He emphasized that this is not a profit grab; rather, it
is an attempt to hire certified technicians at a competitive
rate - and be able to compete with independent auto repair
shops. He said more technicians in his facility means he is
better able to take care of Alaskan consumers.
1:58:46 PM
SENATOR BISHOP asked if Mr. Seekins supports SB 144.
1:58:51 PM
MR. SEEKINS replied yes.
1:59:06 PM
MARTEN MARTENSEN, Owner and General Manager, Continental Auto
Group Anchorage, Anchorage, Alaska, testified by invitation on
SB 144. He said that Alaska is unique - with cold temperatures
resulting in more warranty work than any other state. With
respect to technicians and warranty work, he explained that
technicians lose money when they do warranty work. He stated
that technicians are needed by many different industries - and
manufacturers are aware of the issue. He emphasized that
technicians need to be paid a competitive rate and asserted that
the way to keep technicians is to compensate them more for
warranty work. He questioned what manufacturers would do if the
dealerships lost all of the certified technicians able to
perform warranty labor. He suggested that other states are
working toward similar changes and there are many reasons why
they have not been successful.
2:01:47 PM
At ease
2:02:14 PM
ACTING CHAIR GRAY-JACKSON reconvened the meeting.
2:02:32 PM
SUSAN HICKS, Service Director, Gene's Chrysler Dodge Jeep Ram
Fairbanks, Fairbanks, Alaska, testified by invitation on SB 144.
With respect to compensation for diagnostic work, she said that
the dealership is given a set amount of time - 30 hours per day
- for warranty work. She emphasized that the dealership uses
this time up quickly, and anything above and beyond this
requires manufacturer approval. She suggested that the time
spent doing diagnostic work is not paid for once the daily limit
is reached. She said that the manufacturer's time guides do not
compensate for the time it takes to warm up vehicles that have
been outside in -50 degree weather. Until the vehicle warms up,
no work can be done. She pointed out that the time guides do not
compensate for the removal and replacement of parts that is
required in order to reach the spot where the work that needs to
be done. She gave an example of a warranty repair job that would
take 9.5 hours and contrasted that with the 29.5 hours paid by
independent repair shops and questioned the fairness of this
disparity. She pointed out that, if the independent repair shop
makes a repair with a part that has a warranty, and the repair
fails, the dealership must then perform work at a discounted
rate.
2:04:52 PM
MS. HICKS agreed that the manufacturer supplies specialty tools
for warranty work. However, she explained that the dealership
must pay for all specialty tools received. She said that her
dealership was recently required to replace a battery lift table
- even though their previous table was fully functional. She
indicated that this was an unnecessary $16 thousand purchase.
She emphasized that they have spent a large amount of money on
special tools - and they do not have the option to opt out of
these purchases. The tools are sent from the manufacturer and
the dealership is billed for them. In addition, technician
training is paid for by the dealership. She stated that all of
these - plus advisor and support staff pay and the fee to have a
warranty agency look over all documentation - come out of the 78
percent profit margin. She questioned how the manufacturer time
guides can be considered correct when they do not account for
these costs.
2:06:37 PM
ACTING CHAIR GRAY-JACKSON asked how often the dealership
receives reports on how long it takes to inspect vehicles.
2:06:46 PM
MS. HICKS replied that it is not a matter of receiving reports;
she explained that each repair has a labor operation associated
with it - the labor operation specifies the amount of labor time
the manufacturer will pay for. She said that these can change
day to day and month to month - and the dealership is not
notified about these changes. Changes are discovered when the
report is run.
2:07:32 PM
ACTING CHAIR GRAY-JACKSON commented that she is learning a great
deal about warranty work.
2:08:05 PM
LUKE KINCAIDE, Master Technician, Gene's Chrysler Dodge Jeep Ram
Fairbanks, Fairbanks, Alaska, testified by invitation on SB 144.
He gave several examples of how Alaska's unique environment
impacts the warranty work being done. This includes the
manufacturer paying for 42 minutes of work (from the time the
vehicle is brought in off the lot to completion). However, in
some cases, it may take hours for vehicles to thaw in order to
get to the part in question. This extra time is not taken into
account. He explained that cold temperatures also impact
software updates. He added that there are different times given
for different vehicle models, despite the parts being the same.
He questioned the reasoning behind these differences. He noted
that those who have been through the training and are qualified
are expected to be able to meet the lower time standards.
2:10:42 PM
SENATOR DUNBAR asked if the software received from the
manufacturer is a physical product or if it is cloud-based.
MR. KINCAIDE replied that it is partially cloud based. He
explained that they connect the vehicle to the computer via the
internet and can access the proprietary software for the update
that they then program into the vehicle.
SENATOR DUNBAR asked if slower internet speeds are an issue.
MR. KINCAIDE replied that the software updates download at the
current internet speed.
SENATOR DUNBAR commented that Alaska most likely takes longer
than other states to download these updates.
2:11:42 PM
ACTING CHAIR GRAY-JACKSON opened public testimony on SB 144.
2:12:01 PM
NICOLINA HERNANDEZ, Regional Director of State Government
Affairs, Toyota Motors North America, Sacramento, California,
testified in opposition to SB 144. She said that dealerships are
considered partners and proper reimbursement for warranty work
is a priority. She added that this work is important for driver
safety and builds trust in the brand. She offered information on
what is included in the labor reimbursement for Toyota. She
expressed concern that SB 144 ignores the time it actually takes
to make repairs by establishing an incentive for dealerships to
increase prices. She commented that SB 144 addresses a problem
that does not exist. She explained that Toyota time allowances
approximate the amount of time a repair should take while SB 144
ignores the actual time the technician spends on repairs. She
said that this would result in higher prices for drivers. With
respect to work that takes longer to perform due to weather or
for other reasons, she explained the process for requesting
additional time. She reiterated that it is important for
technicians to be properly reimbursed for their time. She said
that while the manufacturer is sympathetic to the competitive
pay concerns, technician pay is a dealership human resources
issue not a manufacturer mandate. She surmised that SB 144 would
increase costs to the industry and the consumer by 40-50
percent. She said that Toyota is committed to supporting its
dealer partners and would like to find solutions that put
Alaskan consumers first.
2:14:58 PM
SENATOR BISHOP asked what Toyota's net profit was in 2023 in the
United States.
2:15:05 PM
MS. HERNANDEZ replied that she does not have this information to
hand.
2:15:12 PM
SENATOR BISHOP asked if Toyota has sent test mechanics to Alaska
and attempted to perform work in the winter weather conditions
in order to time how long it would take - and then compared this
data with what Alaskan technicians are reporting.
2:15:51 PM
MS. HERNANDEZ replied that she does not have this information
and offered to supply it to the committee at a later time. She
reiterated that, if the repair took longer due to weather
conditions, this would be paid for by going through the appeals
process.
SENATOR BISHOP requested that the answers to his questions be
submitted to the committee once they become available.
2:16:38 PM
SENATOR DUNBAR asked if warranties are set based on state law or
if they are standard across the nation. He also asked if vehicle
prices are the same nationwide.
2:17:13 PM
MS. HERNANDEZ replied that she does not have this information
and deferred to Mr. Bright. She also offered to provide this
information at a later time.
2:18:21 PM
SENATOR DUNBAR reiterated his question for Mr. Bright.
MR. BRIGHT answered that the industry norm is a single wholesale
price for all dealers nationwide.
SENATOR DUNBAR noted that Ms. Hernandez covers the western
United States and asked if this includes Colorado and Montana.
MS. HERNANDEZ replied no.
SENATOR DUNBAR asked if Toyota has stopped selling cars in
Colorado or Montana.
MS. HERNANDEZ replied not to her knowledge.
SENATOR DUNBAR asked for clarification that the dealers in
Colorado and Montana receive the same wholesale price as dealers
in other states.
MS. HERNANDEZ replied that this is her understanding.
2:19:33 PM
LUKE KINCAIDE returned to offer a comparison of industry
standard and manufacturer time guides. He explained that
industry standard time guides are within 10-12 percent of each
other with respect to the time allotted for job completion. He
pointed out that the times in the industry standard guides are
substantially more than those set forth in the manufacturer time
guides. He said that he is aware of multiple master technicians
who have attempted to complete jobs within the manufacturer's
time guide limits and were not successful. He explained the
process of diagnosing an engine issue, which often requires the
technician to remove various parts in order to discover the root
cause of the failure. As a result, the actual time spent to
complete a repair might be 12 hours (including the time required
to remove and replace overlying parts), but the manufacturer
only authorizes 9 hours of work (for the work done on the root
of the problem).
2:21:24 PM
ACTING CHAIR GRAY-JACKSON closed public testimony and held SB
144 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB144 ver A.PDF |
SL&C 2/19/2024 1:30:00 PM SL&C 2/26/2024 1:30:00 PM |
SB 144 |
| SB144 Sponsor Statement v. A.pdf |
SL&C 2/19/2024 1:30:00 PM SL&C 2/26/2024 1:30:00 PM |
SB 144 |
| SB144 Sectional Analysis ver A.pdf |
SL&C 2/19/2024 1:30:00 PM SL&C 2/26/2024 1:30:00 PM |
SB 144 |
| SB144 Fiscal Note-VAR-EXE 02.16.24.pdf |
SL&C 2/19/2024 1:30:00 PM SL&C 2/26/2024 1:30:00 PM |
SB 144 |
| SB144 Supporting Documents- AADA Presentation-Service Times 02.19.24.pdf |
SL&C 2/19/2024 1:30:00 PM SL&C 2/26/2024 1:30:00 PM |
SB 144 |
| SB144 Public Testimony Received as of 2.15.24.pdf |
SL&C 2/19/2024 1:30:00 PM SL&C 2/26/2024 1:30:00 PM |
SB 144 |
| SB144 Supporting Documents-Alaska_NADA Auto Retailing State Data Sheet.pdf |
SL&C 2/19/2024 1:30:00 PM SL&C 2/26/2024 1:30:00 PM |
SB 144 |