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