HOUSE BILL NO. 182 "An Act relating to motor vehicles; and providing for an effective date." REPRESENTATIVE LISA MURKOWSKI, SPONSOR, spoke in support of the legislation. The legislation establishes a comprehensive motor vehicle act. It is a compilation of work between the automobile manufacturer's alliance, auto dealers in the state of Alaska and consumer protection organizations. She observed that the legislation has had considerable work. She explained that the relationship between auto dealers and manufacturers was addressed along with that of prospective buyers. Guidelines to protect dealers and consumers and a framework for dispute resolution in regards to franchise agreements were established. The legislation addresses uniform procedures relating to transfer, termination and conveyance of franchise agreements, and guidelines for succession in case of the death or incapacity of the individual that holds the dealer franchise. The legislation also includes meaningful provisions for the auto buying public. Dealers are required to make reasonable inquiry as to the condition of used vehicles. Dealers would also be required to do a reasonable inspection of the vehicle under the consumer protection provision on page 18, sec. 45.25.470. Dealers have expressed concern with sec. 45.25.470, which was brought forward by the Department of Law. The courts already construe this provision to be a requirement. Vice-Chair Bunde referred to page 3, section 5. He questioned how the amount for the bond was derived. Representative Murkowski noted that there is currently a bonding requirement under Title VIII. Vice-Chair Bunde asked the rationale for the 18-month requirement on page 13, line 3. Representative Murkowski noted that the 18-month requirement was a compromise between fractions that wanted 12-months and those that wanted 24- months. Representative Davies observed that test-driving provisions were removed [from sec. 45.25.470]. Representative Murkowski reiterated that dealers had expressed concerns regarding [sec. 45.25.470]. Section. 45.25.470 states: If the dealer has information that reasonably should lead the dealer to know of the potential for a material defect in a used motor vehicle, conduct an inspection of the vehicle, including, at a minimum, placing the vehicle on a rack and inspecting under the hood. Representative Davies observed that test-driving provisions had been included in this section. Vice-Chair Bunde MOVED to ADOPT work draft 22-LS0239\R, 4/9/02. There being NO OBJECTION, it was so ordered. STEVE ALLWINE, ALASKA AUTO DEALER'S ASSOCIATION, provided information on the legislation. He noted that the legislation would satisfy their needs with the exception of: Sec. 45.25.470, which deals with the sales of used vehicles. He noted that dealers support the concept of used car inspections, but have not been able to come up with a provision that they think is fair and reasonable. He explained that the section is a "deal breaker" because it is too vague. He felt that the provision would amount to "almost an express warranty." He maintained that most Alaskan dealers do an inspection because it is in their own best interest; dealers live or die by their reputations. He felt that the provision would prove difficult due to its vagueness. He suggested that the provision be withdrawn from the legislation. He stated that dealers would welcome the opportunity to continue work on the provision outside of the legislation. Representative Hudson questioned what was the impetus for the legislation. Mr. Allwine noted that there are not huge issues between consumers and dealers. The legislation came about because Alaska is the only state that does not have regulations that give dealers some protection and guarantees in their relationship with manufacturers. Dealer franchise agreements are arbitrary agreements. Dealers do what the manufacturer says they should do or they do not have an agreement and the franchise can be removed. Dealers also felt that it would be in the best interest of the community to clarify some of the business advisories dealing with advertising and marketing by putting them into statute. The changes would level the playing field and make people who deviate from the advisories accountable. Mr. Allwine noted that the bond was changed from $10 thousand dollars to $50 thousand dollars. The dealers support the provision but would like to see the amount raised to $100 thousand dollars. He observed that $10 thousand dollars does not represent much in a car; $50 thousand dollars would represent a couple of cars. Dealers feel that there needs to be more protection for the consumer and pointed out that the state is a prime target for natural disasters such as floods. In response to a question by Vice-Chair Bunde, Mr. Allwine explained that differences in philosophy between the manufacturer and dealer at a local level and the deal could result in the loss of a business. Dealers are at the mercy of a person that may not represent everything that the manufacturer wants. Mr. Allwine explained that the prohibition against the use of "invoice" came about because of advertising by dealers, which use the term "invoice". The Attorney General has indicated that the term "invoice" is too ambiguous and may not adequately represent the actual net cost of the vehicle. The intent is to eliminate this from the advertising process, which is supported by Mr. Allwine. The "manufacturer suggested retail price" would be used since it is a document that is on every new vehicle. Representative John Davies referred to page 18. He questioned if Mr. Allwine would recommend substitute language [for section 45.25.470]. Mr. Allwine emphasized that the provision needs considerable work. He stated that they would consider, in separate legislation, a documented disclosure by the seller that could be shared with the consumer. He emphasized that a consumer may not tell a dealer everything that is wrong. The dealer sells the car and "maybe we've inspected it and maybe we've missed something, whose to say that six months down the road this doesn't come up and the consumer we sold it to comes back to us and said this is here, you should have known about it." He maintained that it would border on an expressed warranty or at least be close to an implied warranty, "which is a situation that no vendor should be in." Even new car manufacturers are not required to put a warranty on their vehicles. Vice-Chair Bunde pointed out that if someone is trying to launder a car in Alaska they are not going to disclose the information. He didn't think [a documented disclosure] would have much use. In response to a question by Vice-Chair Bunde, Mr. Allwine explained that federal law requires a sticker on the back of every used car. The sticker lists the components that [a consumer] must concern themselves with on their automobile and how they can protect themselves. The consumer has the right to take the automobile to a technician or mechanic of their choice to have the vehicle inspected. He maintained that the sticker addresses the "buyer beware" part of a used car. He stressed that section [45.25.470] needs so much work that they are not comfortable with the placement of it in statute. He maintained that the provision is too vague and it is not reasonable for merchants to have to face the liability issues that come with the provision. Representative John Davies acknowledged Mr. Allwine's concerns, but pointed out that there has been extensive work on the legislation. He expressed support for the inclusion of a compromise on the issue. Mr. Allwine noted that he received the current version the previous night. He stressed that the dealers have put their information forth and what has been received [back] has been essentially the same every time. He maintained that the provision should stand alone. "It is too important to be left in this piece of legislation. If we leave this in the legislation, we as a dealer group do not feel that we can support the bill." CLYDE (ED) SNIFFEN, JR, ASSISTANT ATTORNEY GENERAL, FAIR BUSINESS PRACTICES, DEPARTMENT OF LAW provided information on the legislation. He observed that the original consumer protection section was 10 pages long and contained "real world things and problems that we have seen in our office". The provisions were reduced to 6 pages, most of which are agreeable to the dealers and have been changed in response to requests by dealers. He responded to comments by Mr. Allwine and noted that the original provision did provide specific information about the inspection process. He observed that the initial proposal stated: "This is what you do in a circumstance; you need to ask these questions; you need to write down this information; you need to tell the consumer what you find out; you need to do a visual inspection, a test drive. We defined what those things were. We also went on to include information about inspecting for dangerous or material defects." The proposal was reduced in response to concerns by dealers. The current version requires dealers to ask if the seller knows what has happened to the car, for the accident and repair history and tell the consumer what they know. He noted that there have been circumstances where dealers have taken a car in trade and told the owner not to tell them anything about the car because if they know about it they will have to disclose the information. Dealers would be required to inspect the car for material defects only if the dealer knows of a potential for that kind of a defect to exist in the vehicle. The information could come to them in a variety of ways. Material defects are defined to only include defects that could affect the safe operation of the car by a reasonable person. He acknowledged that there is a point in time when the consumer must take responsibility for the vehicle purchase. Consumers are cautioned to hire a mechanic to inspect the car. He noted that a car can be sold "as is" even under the proposed legislation. He maintained that implied warranties would not be affected by the legislation. If there is an implied warranty, it already exists, as a matter of state law and the legislation would not make it any different. If a dealer inspects a car and misses something and sells it to a consumer, then the consumer is always going to have implied warranty claims, regardless if there is a duty to inspect under the statute. He stressed that the department has done a fairly good job in trying to limit the responsibility of the dealers under the section to fundamental and basic things. He encouraged the inclusion of the provision. Co-Chair Mulder expressed concern with subsection (2): "If the dealer has information that reasonably should lead the dealer to know…" He asked for a definition of "reasonable". Mr. Sniffen noted that the concept of "reasonable" exists in almost every law in the state. Concepts of negligence are defined by referring to the reasonable person standard. A "reasonable person" is a person that twelve people in a jury box think should have made a decision one way or another. Unfortunately, there is no way, in some circumstance, to narrow the definition beyond what a reasonable person should have known about a car. Co-Chair Mulder questioned why not include a proscribed list of things and remove the attorneys from the equation. Mr. Sniffen responded that if they could anticipate everything the list would be long, and was not sure if it would accomplish the intent to make sure the consumer knows everything that the dealer should know about a car they took in trade. He emphasized that they are not asking dealers to go out of their way to find out the information. It is information the person providing the car may already have. The provision asks dealers to ask the questions and disclose what they find out. Co-Chair Mulder observed that there is an element of risk from the person that gives the car to the dealer to be honest. Mr. Sniffen pointed out if the consumer fails to disclose the information that the dealer has done his job. He observed that the provision only requires the dealer to ask and make a good faith attempt to find out about the problems. If the consumer is dishonest, the dealer has done his job. Co-Chair Mulder clarified that if the dealer asks and the seller is not honest that the dealer would not be liable. Mr. Sniffen affirmed that the dealer is not liable for the lack of previous owner to disclose information on any defects. Representative Croft observed that everyone is asked to behave responsibly. He noted that concerns were expressed that the original proposal was too detailed but that the current standard is too general. He summarized that the dealer would not be liable unless they have some other reason to know. In response to a question by Representative John Davies, Mr. Sniffen clarified that the original proposal included a more detailed inspection procedure. The inspection procedure required an initial inspection that would be extended if certain things were found. The detailed list raised issues among dealers. Representative Whitaker asked if there is an outpouring of public concern regarding the issue. Mr. Sniffen noted that the number one complaint received by their office pertains to used automobile purchases. "A lot of those complaints are essentially: I bought this car. They told me it was a great car. I drove it for a week and it fell apart on me. What can I do, and we find out later on that perhaps the dealer knew things about the car that they did not disclose to the consumer, that might have affected the decision to purchase." Alaska is one of the only states that do not have an automobile dealer franchise law. There are other states with laws that deal with consumer protection issues and the purchase of used vehicles. The legislation is consistent with some states' laws. Representative Whitaker questioned the number one consumer complaint in other states, which have these types of consumer protection laws. Representative Whitaker concluded that there was no information regarding their effectiveness. Representative Hudson clarified that the "lemon law" would not be affected. Mr. Sniffen observed that lemon laws are only applicable to new cars. RALPH SEEKINS, ALASKA AUTOMOBILE DEALER ASSOCIATION, FAIRBANKS, testified via teleconference in opposition to the inspection provisions in AS 45.25.470. He expressed concern that buyers would lie about the condition of their used cars. He noted that there is an old saying in the industry that "buyers are liars". Vehicle histories are currently kept for 18 to 24 months. The histories are "dumped out" if there is not an update. The requirement would cause dealers to maintain records on previous repairs in order to fulfill future reporting requirements. He referred to provisions of implied warranty and noted that the Uniform Commercial Code (UCC), which was adopted by Alaska, would allow the display of some of the implied warranties. He stressed that the legislation would not disallow the disclaimer of implied warranty under the UCC. He did not disagree with the intent. Every car he takes in trade is reviewed to determine if it will be certified under the manufacture's program. He maintained that a lot of things happen in a new car dealership that might not happen in a used car dealership, which does not have $5 - $6 million dollars invested in their facilities and equipment. He felt that the issue could be beneficial to the buyer and most dealers and expressed the desire to work with the administration and legislature to "be able to place something in here in terms of inspection, from the beginning." He observed that dealers asked for licensing provisions and changes in bonding and advertising. He acknowledged that there is a tendency in certain areas for abuses to exist and stated that they would like to address them up front. Dealers also requested warranty coverage issues to protect buyers from manufacture's policies. Those provisions have been removed to make the legislation easier for people to look at. He suggested that the provision be placed in separate legislation to allow the parties to come to consensus. He noted that anyone that sells less than five vehicles a year is private seller and would not be subject to inspection requirements as automobile dealers. He noted that they had just received model legislation from the National Automobile Association. He emphasized the intent to work on the issue and make it right. Representative John Davies acknowledged Mr. Seekins' desire to "make it right," but observed that the committee substitute was version R and was in its second time through the alphabet. He asked if Mr. Seekins could recommend language to modify the legislation, which they would support. Mr. Seekins noted that the National Automobile Dealer Association was sending additional language that they could take a look at. He emphasized that they do not have a problem with trying to make it better, but stressed that they would like the opportunity to really make it right. He referred to provision (a) (2), which requires that an automobile be placed on a rack and inspected under the hood. He noted that the legislation doesn't require the vehicle to be lifted up; it only has to be put on the rack. He maintained that this is too big a loophole to be addressed in the remaining time. He emphasized that he already inspects vehicles on their appraisals because he doesn't want to get stuck with a vehicle that has been rebuilt. He is willing to make appraisal slips available and to disclose repairs made after his purchase, but "some of the little things in here, just catch us". LIBBY DANNENBURG, ALLIANCE AUTOMOBILE DEALERS, testified via teleconference in support of the legislation. She noted that the Alliance has some remaining concerns, but would not object to the current version. TAPE HFC 02 - 79, Side B  JOHN MECKY, FORD MOTOR COMPANY, testified via teleconference in support of the legislation. He noted that he was available for questions. STAN HURST CHRYSLER testified via teleconference in support of the legislation. He observed that the legislation provides protections to both the dealer and the manufacturer. MARK MUELLER, GENERAL MOTORS, DETROIT, testified via teleconference in support of the legislation and noted that he was available for questions. BOB DUTTON, TOYOTA, testified via teleconference in support. MARY WASHBURN, DIRECTOR, DIVISION OF MOTOR VEHICLES, DEPARTMENT OF ADMINISTRATION, provided information on the legislation. She noted that the previous dealer bond was $10 thousand dollars, which was insufficient. They recommended the bond be raised to $50 thousand dollars, which is an entry level. She noted that $100 thousand dollars would be applicable but that they did not want to exclude anyone from becoming an automobile dealer because of bonding. STEVE CONN, EXECUTIVE DIRECTOR, ALASKA PUBLIC INTEREST RESEARCH GROUP, ANCHORAGE, testified via teleconference. He noted that the original language contained a requirement for dealers to conduct a reasonable inspection of the vehicle including a test drive and visual inspection for material defects. He suggested that the provision be returned to the bill with the deletion of "material defects." After a reasonable inspection of the vehicle including a test drive and visual inspection that whatever information is gathered would be provided in writing to the prospective buyer of the vehicle before the sale. This is the salient component. He emphasized that most consumers believe that the dealer, when he takes on a vehicle, does make a reasonable inspection. Whatever the dealer knows from the seller and a reasonable inspection would be provided to the buyer. He stated that after more than a year of working on the legislation that to "leave the consumer standing at the curb" and to make the legislation only a "deal between the franchisers and the car dealers" would do a major disservice and be an insult to consumers who are looking for enough information to make a good choice. RICK MORRISON, ALASKA AUTOMOBILE DEALERS ASSOCIATION, ANCHORAGE, testified via teleconference in support of the legislation. He noted that the project has been seven years in the making. Alaska is the last state in the nation to have any franchise law protections for automobile dealers and manufacturers. The legislation provides clarity to protect both the dealer and the consumer. In 1973, the Federal Trade Commission (FTC) attempted to address disclosures and inspections on vehicles. The FTC found that the cost to consumers would be too great and the implied or express warranties made the issue so complex that they were unable to come to a solution. The FTC worked on the issue for 11 years and ended with the window sticker now applied. Mr. Morrison observed that the dealer association prefers a $100 thousand dollar bond. He noted that the market area is [a radius of] 14 miles [around an existing new motor vehicle dealer] and maintained that it should be extended to 50 - 100 miles. He referred to page 17, line 24 and observed that no vehicle should be required to be sold with accessories. He explained that accessories must be placed on the car in order to display them for sale. Some can be removed and others cannot. He agreed that a car should be able to be bought with just the factor options, but emphasized that it would be tough to make a particular car available without accessories. They compromised on many areas, but still have concern with portions of the bill. He pointed out that customers could be asked to disclose information relating to a car, but that under privacy laws they cannot share information relating to the seller with the buyer. He observed that, under the Fair Trade Practices law, if a dealer knows something is wrong with the car and it is not passed on to the consumer that they would be at fault. He maintained that the provision would result in frivolous lawsuits. He referred to Section. 45.25.470: "If the dealer has information that reasonably should lead the dealer to know…" He maintained that the provision is vague and open ended. He observed that if a car was serviced five years previously and recommendations were made for repairs, but the customer did not return, then they records would have been downloaded and deleted in 24 months. The dealer could be at fault if the car is subsequently sold through the dealer [and the problem was not identified]. He maintained that dealers would have to charge the consumer for a warranty or express warranty. He observed that he allows consumers to return cars in 3 days or exchange the car for any car of equal value within 30 days. He does not support page 18, lines 16 - 28. He maintained that the section is onerous and would cause more difficulties for the consumer than it would solve. In response to a question by Representative Davies, Mr. Morrison suggested the use of a substitute process. He noted that there could be a safety inspection of all vehicles. There could be a standard for all vehicles that are on the street. If there were an inspection than the customer that is trading the vehicle could sign a form developed by the state, which would be transferred to the buyer. He stressed that both ideas would need additional consideration and pointed out that the devil is in the details. Representative John Davies asked if repair records would be given to a consumer who has a vehicle identification number on a car that they are considering for purchase. Mr. Morrison stated that he would supply repair information but not the names of the owner. He observed that he could only store two years of information. He does not charge for the service. In response to a question by Vice-Chair Bunde, Representative Murkowski acknowledged that the provision under AS 45.25.470 has been a concern of dealers. She observed that it addresses the number one consumer complaint. She maintained that the provision fits within the bill and emphasized that the intent was to make the impact as minimal as possible while still protecting the consumer. She acknowledged that a separate vehicle could be used, but spoke in support of retaining the provision. She stated that removal of the consumer protection provision would not be a "deal breaker" but emphasized their importance. Representative Lancaster MOVED to Delete Sec. 45.25.470 page 18. Representative John Davies OBJECTED. He stressed that the section retains a significant balance in terms of consumer protection. He observed that the issue has been discussed for up to seven years. He expressed disappointment that those in opposition have not been willing to put "their" version on the table. He thought that the current language, which has been worked and compromised on, should go forward, if those in opposition to the provision are not willing to put alternative language on the table. He thought that it would follow the reasonable persons standards. Representative Croft pointed out that the legislation is balanced in terms of the significant protections for manufacturers and dealers, but that adoption of the amendment would withdraw protection for the public. He acknowledged that there could be arguments about the specifics of the obligation to inspect, but felt that there should be a reasonable requirement to inspect the car being sold. The only requirement would be the FTC sticker. Representative John Davies spoke against the amendment. He noted that the section is the only piece in the legislation that addresses what is the number one consumer complaint. He pointed out that no compromise is possible; nobody is willing to "roll up their sleeves and put it down on the table." He felt that the process was somewhat disingenuous and spoke in support or retaining some consumer protection in the legislation. Vice-Chair Bunde suggested that retention of the provision might encourage further work. Representative Lancaster spoke in support of the legislation. He observed that the industry has requested time to look at revisions. Representative Whitaker spoke in support of the amendment. He stressed the difficulty of regulating truth telling in relationship to the selling and buying of cars. Representative John Davies suggested that the use of another piece of legislation could be a dodge. He stressed that retention of the provision would provide incentive for additional legislation. He emphasized that the provision would send a message regarding the standard of care, justice and truth. He stressed that there should be at least one standard for public protection. He maintained that the legislation would be unbalanced with the [withdrawal of section 45.25.470]. A roll call vote was taken on the motion. IN FAVOR: Lancaster, Moses, Whitaker, Hudson, Williams, Mulder OPPOSED: Bunde, Croft, Davies, Moses Representative Foster was absent from the vote. The MOTION PASSED (6-4). Co-Chair Williams MOVED to report CSHB 182 (FIN) out of Committee with the accompanying fiscal note. Representative Croft OBJECTED. He stressed that the time should be taken to craft a provision on a reasonable inspection. A roll call vote was taken on the motion. IN FAVOR: Bunde, Harris, Hudson, Lancaster, Moses, Whitaker, Williams, Mulder OPPOSED: Croft, Davies Representative Foster was absent from the vote. The MOTION PASSED (8-2). CSHB 182 (FIN) was REPORTED out of Committee with a "do pass" recommendation and a new with zero fiscal note by the Department of Administration and a previously published fiscal note: LAW (#1).