SB 273-MOTOR VEHICLE SALES  CHAIR HUGGINS announced SB 273 to be up for consideration. SENATOR COWDERY, sponsor, advised members of a proposed amendment to the bill, to amend Section 1, page 1, line 11, to delete "for sales in this state" and add, after "vehicle", the phrase "pursuant to which the dealer's area of responsibility is located within the State of Alaska". He deferred to his staff for an explanation. SENATOR FRENCH objected for discussion purposes. RYAN MAKINSTER, Staff to Senator John Cowdery, Alaska State Legislature, explained that in 2004, HB 272 was passed with regard to unscrupulous advertising or sales practices. Some people were selling slightly used cars as new, or were ambiguously claiming that they were new cars. In that bill and some other legislation, AS 08.66.015 was changed, becoming more far-reaching than intended. The legislation had "current model" to deal with this problem, Mr. Makinster noted. However, many people trade in vehicles soon after buying them. The language prohibited sale of a current-model vehicle for any reason unless it had a manufacturer's certificate of origin. Under current law, a vehicle would have to be held by a dealer until the next year's model was introduced. He said this law isn't being enforced. It would be a bad business practice for dealerships and, according to the Department of Law (DOL), would hurt the consumer overall. For example, Mr. Makinster said, a serviceman going overseas wouldn't be able to turn in a car because no dealership would want to pay for that car and have it sit on the lot until the next year's model came out. He explained that SB 273 therefore removes "current model" from statute. Thus a new vehicle can be sold only if in possession of the certificate of origin and if the dealer has the manufacturer's sales and service agreement. "So basically a manufacturer-dealer can only sell new cars," he added. "A used- car dealer, under no circumstance, can sell a new car." He said this protects the consumer because it doesn't allow a used-car dealer to purport that a used car is new. 2:08:12 PM CHAIR HUGGINS asked whether registration provides the primary evidence that a car isn't new. MR. MAKINSTER said the manufacturer's certificate of origin remains with the car until registered; it is then relinquished to the state's department of motor vehicles and the car automatically becomes a used car. That is how it occurs in most states. Some states, however, have more ambiguous statutes. CHAIR HUGGINS requested clarification about what would change. MR. MAKINSTER answered that it wouldn't change anything being done right now. The statute as written isn't being enforced, which is why DOL has requested this change. If it were enforced, a vehicle might have to sit on a dealer's lot until the next model year came out. 2:10:21 PM SENATOR COWDERY related his understanding that the attorney general's office said, if this were enforced, there would be about a $5,000 fine for every transaction. MR. MAKINSTER concurred, but clarified that the fine would apply to every attempt to sell, which could attach even to advertisements. SENATOR FRENCH requested clarification on whether there is a prohibition on selling it at all, or if the person just cannot sell it as a current-model vehicle. 2:12:30 PM MR. MAKINSTER responded that, according to DOL, the prohibition is on selling it - because "current model" isn't defined in statute, it can be interpreted as an inability to sell a current-model vehicle. SENATOR FRENCH remarked that it seems to go along with the letter from Mr. Sniffen [of DOL, in packets]. MR. MAKINSTER, in response to Chair Huggins, said the change [proposed in the amendment offered by Senator Cowdery] was at the request of the auto dealers association; it was received only two days ago. He reported that DOL believes it is a good change. He informed members that Mr. Sniffen of DOL, who would testify at the next committee hearing, said this new language is probably better because "sales in this state" is somewhat ambiguous with regard to dealers in other states, who might have agreements with the manufacturer to have Alaska under their umbrella of responsibility. Mr. Makinster also noted that Mr. Sniffen said this is mostly a matter of style, but also clarifies what "sales in the state" means. CHAIR HUGGINS brought up the issue of Canadian dealers in particular. MR. MAKINSTER said that was what the original bills dealing with this matter were trying to address. He relayed that Mr. Sniffen said it has been resolved through other legislation. "This is basically cleanup language," Mr. Makinster added. 2:15:55 PM CHAIR HUGGINS asked if [SB 273] would have any negative impacts for the buyer. MR. MAKINSTER said he didn't believe so; according to DOL, this would actually help consumers, who would be allowed to buy a car and turn a car in. As for used-car dealers, he noted that Section 2 repeals [AS 08.66.015(b)], which reads: (b) A person who does business as a dealer in the state may not offer to sell or sell a motor vehicle as a new or current model motor vehicle having a manufacturer's warranty unless (1) the dealer has a current sales and service agreement with the manufacturer and the agreement requires the dealer, upon demand of the motor vehicle buyer, to perform or arrange for, within a reasonable distance of the dealer's place of business in the state, the repair and replacement work required of the manufacturer under the warranty; or (2) the dealer offers to give the buyer a rebate to cover the repair and replacement work that the dealer cannot perform or arrange for within a reasonable distance of the dealer's place of business. He pointed out that someone could have a used current-model vehicle, and that a used car could have a manufacturer's warranty. The existing language limits purchasing options for a buyer. Thus the bill allows consumers to buy new but slightly used cars from a wider range of dealers, not just new-car dealers. 2:17:15 PM CHAIR HUGGINS observed that the bill allows a person to transfer a warranty when selling a car. MR. MAKINSTER concurred. CHAIR HUGGINS opened public testimony. CAROL LYBERGER, Lyberger's Car and Truck Sales, Anchorage, said this bill is a good change and just cleans up an old law. She offered an example, saying this will make every dealership in compliance with state law. She expressed 100 percent support. In response to Chair Huggins, she indicated she believes it is friendly to both customers and dealers. 2:21:02 PM JON COOK, Legislative Director, Alaska Auto Dealers Association; General Manager, Aurora Motors, Fairbanks, informed the committee that he strongly supports SB 273 and the proposed amendment. He said it can't be overstated how beneficial this is. Agreeing this is a housekeeping issue - since dealers in Alaska are technically out of compliance with state law and yet it isn't enforced - he noted that it would be detrimental to consumers if the current law were enforced, which could happen someday if the statute remained on the books. He specified that repeal of subsection (b) also would be most welcome. SENATOR FRENCH asked how many cars come back after the first year of their sale. MR. COOK replied that his dealership gets perhaps a dozen a year, and he believes several hundred are returned each year in Alaska. In response to Chair Huggins, Mr. Cook noted that his organization's membership includes the vast majority of new- and used-car dealers in Alaska. He has worked on this issue for more than a year, but hasn't heard objections. He suggested it would help used-car dealers especially, since they cannot sell a current-model vehicle at all under the existing statute. He indicated he couldn't see any negative impacts on customers, but there would be many problems under the current statute, if enforced, including a worsening of the negative-equity situation discussed earlier in the meeting. STEVE SAUTNER, Owner, Dealers Auto Auction of Alaska, Anchorage, expressed support for SB 237. He explained that wholesalers would like to be in compliance with state law because they sell new, previously owned vehicles, particularly repossessed vehicles, dealer-consigned vehicles and rental vehicles, which they'd like to sell as soon as possible. There are several thousand such 2006 vehicles in Alaska, and dealers cannot absorb all of them. This change is needed so dealers can be in compliance. 2:28:03 PM MR. SAUTNER, in response to Senator Cowdery, said about a third of the vehicles he gets are repossessions; a third are dealer- consigned vehicles, including aged inventory and new-car trade- ins; and a third are rental vehicles and off-lease vehicles. A lot of current-model-year vehicles are returned from rental lots every year; many go to the Seattle markets now, but increasingly they are liquidated. CHAIR HUGGINS asked about any drawbacks to dealers or customers from these proposed changes. MR. SAUTNER replied that he isn't in the retail side of the business, but doesn't see any negatives from either side. 2:29:53 PM [Cynthia Drinkwater of DOL informed members that she was on teleconference to answer questions and that Mr. Sniffen would be available for future hearings.] CHAIR HUGGINS asked whether anyone else wished to testify. He announced that SB 273 would be held over. [The proposed amendment was not adopted.]