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.