Legislature(2017 - 2018)BARNES 124

04/14/2017 03:15 PM LABOR & COMMERCE

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03:18:59 PM Start
03:19:39 PM HB209
04:47:04 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Scheduled but Not Heard
Scheduled but Not Heard
                     ALASKA STATE LEGISLATURE                                                                                 
           HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                          April 14, 2017                                                                                        
                            3:18 p.m.                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Sam Kito, Chair                                                                                                  
Representative Adam Wool, Vice Chair                                                                                            
Representative Andy Josephson                                                                                                   
Representative Louise Stutes                                                                                                    
Representative Chris Birch                                                                                                      
Representative Gary Knopp                                                                                                       
Representative Colleen Sullivan-Leonard                                                                                         
MEMBERS ABSENT                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
Representative Bryce Edgmon (alternate)                                                                                         
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 209                                                                                                              
"An Act relating  to product warranties and  services for certain                                                               
products;   relating  to   certain  dealers,   distributors,  and                                                               
manufacturers; and  establishing an  unfair trade  practice under                                                               
the Alaska Unfair Trade Practices and Consumer Protection Act."                                                                 
     - HEARD & HELD                                                                                                             
HOUSE BILL NO. 83                                                                                                               
"An  Act relating  to new  defined  benefit tiers  in the  public                                                               
employees'  retirement   system  and  the   teachers'  retirement                                                               
system;  providing certain  employees  an  opportunity to  choose                                                               
between  the defined  benefit and  defined contribution  plans of                                                               
the  public  employees'  retirement   system  and  the  teachers'                                                               
retirement system; and providing for an effective date."                                                                        
     - SCHEDULED BUT NOT HEARD                                                                                                  
HOUSE BILL NO. 195                                                                                                              
"An Act relating  to insurer actions based on  credit history and                                                               
insurance scores  at insurance policy renewal;  and providing for                                                               
insurer  consideration of  consumer  requests  for exceptions  of                                                               
credit history or insurance scores."                                                                                            
     - SCHEDULED BUT NOT HEARD                                                                                                  
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 209                                                                                                                  
SHORT TITLE: PRODUCT WARRANTIES & REQUIRED UPDATES                                                                              
SPONSOR(s): REPRESENTATIVE(s) KITO                                                                                              
04/03/17       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/03/17       (H)       L&C, JUD                                                                                               
04/14/17       (H)       L&C AT 3:15 PM BARNES 124                                                                              
WITNESS REGISTER                                                                                                              
BIANCA CARPENETI, Staff                                                                                                         
Representative Sam Kito                                                                                                         
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  On behalf of Representative Kito, prime                                                                  
sponsor, introduced HB 209.                                                                                                     
KEN GERONDALE, Owner                                                                                                            
Construction Machinery Industrial (CMI)                                                                                         
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified that HB 209 supports the small                                                                 
purchasers of heavy equipment within the state of Alaska.                                                                       
JOHN MACKINNON, Executive Director                                                                                              
Associated General Contractors of Alaska (AGC)                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 209.                                                                          
GEORGE WHITAKER, State Government Affairs                                                                                       
CNH Industrial America LLC                                                                                                      
Racine, Wisconsin                                                                                                               
POSITION STATEMENT:  Testified about the concerns that his                                                                    
company has with HB 209.                                                                                                        
JIM HALLORAN                                                                                                                    
Caterpillar Inc.                                                                                                                
N C Machinery                                                                                                                   
Sacramento, California                                                                                                          
POSITION STATEMENT:  Testified in opposition to HB 209.                                                                       
DAVID BLOMMER                                                                                                                   
Bicknell Inc.                                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 209.                                                                          
WILL TONSGARD III, Vice President                                                                                               
Channel Construction                                                                                                            
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Had his written testimony in  support of HB
209 read by Chris Gerondale.                                                                                                    
CHRIS GERONDALE, Contract Employee                                                                                              
Channel Construction                                                                                                            
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions  during the hearing on HB
NICK YAKSICH, Senior Vice President                                                                                             
Government and Industry Affairs                                                                                                 
Association of Equipment Manufacturers (AEM)                                                                                    
Clarksville, Maryland                                                                                                           
POSITION STATEMENT:  Testified in opposition to HB 209.                                                                       
CURTIS THAYER, President & CEO                                                                                                  
Alaska Chamber of Commerce                                                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 209.                                                                          
ACTION NARRATIVE                                                                                                              
3:18:59 PM                                                                                                                    
CHAIR  SAM KITO  called  the House  Labor  and Commerce  Standing                                                             
Committee meeting  to order at  3:18 p.m.   Representatives Kito,                                                               
Sullivan-Leonard, Stutes, Knopp, Birch,  Josephson, and Wool were                                                               
present at the call to order.                                                                                                   
           HB 209-PRODUCT WARRANTIES & REQUIRED UPDATES                                                                     
3:19:39 PM                                                                                                                    
CHAIR KITO  announced that the  first order of business  would be                                                               
HOUSE BILL  No. 209, "An  Act relating to product  warranties and                                                               
services  for  certain  products; relating  to  certain  dealers,                                                               
distributors,  and  manufacturers;  and  establishing  an  unfair                                                               
trade  practice  under  the Alaska  Unfair  Trade  Practices  and                                                               
Consumer Protection Act."                                                                                                       
3:20:38 PM                                                                                                                    
BIANCA CARPENETI,  Staff, Representative  Sam Kito,  Alaska State                                                               
Legislature, on  behalf of Representative Kito,  prime sponsor of                                                               
HB 209,  explained that  the bill  would provide  protections for                                                               
businesses  and consumers  in  Alaska's  heavy equipment  market.                                                               
She spoke as follows:                                                                                                           
     Our   state's  remote   worksites  and   transportation                                                                    
     challenges,  coupled with  high  shipping costs,  often                                                                    
     result in high costs  to local dealers and distributors                                                                    
     when  delivering warranty  and  update  services for  a                                                                    
     manufacturer's  defective or  deficient product.   Many                                                                    
     of   these  services   are   not   reimbursed  by   the                                                                    
     manufacturers who  require this work.   This results in                                                                    
     our  local businesses,  or  their customers,  absorbing                                                                    
     expenses for  shipping, transportation, and  labor that                                                                    
     should  be paid  by the  company that  manufactures the                                                                    
     defective or deficient  product, provides the warranty,                                                                    
     and requires the updates.                                                                                                  
     ... Remote rural work sites  where no approved warranty                                                                    
     providers  are available  present  a  challenge.   This                                                                    
     issue  arises when  one party  in a  contract, in  this                                                                    
     case the  local vendor, lacks the  ability to negotiate                                                                    
     effectively  with the  other party,  in  this case  the                                                                    
     larger  company, the  manufacturer.   Provisions should                                                                    
     exist in  Alaska law that  ensure Alaska's  vendors and                                                                    
     consumers   are  truly   protected  by   fair  warranty                                                                    
     contracts and  that the spirit  of the warranty  to fix                                                                    
     what is  defective is honored.   Government can support                                                                    
     an  environment  where   businesses  and  commerce  can                                                                    
     thrive.   That's the goal  of this  bill.  It  is about                                                                    
     contractual    rights    between   parties    providing                                                                    
     protection for Alaska's vendors and consumers.                                                                             
     I'd also  like to note  that HB 209 closely  tracks the                                                                    
     statute  governing  marine and  motorized  recreational                                                                    
     products,  AS  45.27.100.    That  statute  passed  the                                                                    
     Alaska Legislature unanimously in  2009 as [Senate Bill                                                                    
     173].  To my knowledge,  this statute has not generated                                                                    
     difficulties   or   unintended  consequences   in   the                                                                    
     intervening  eight years.   And  given that  successful                                                                    
     track  record it  seemed prudent  to take  advantage of                                                                    
     legislation that was tried and true in Alaska.                                                                             
     HB  209 also  includes what  I  will refer  to as  "the                                                                    
     lemon  law  provision."   Lemon  laws  originated  with                                                                    
     automotive vehicles.   These  are regulations  meant to                                                                    
     protect  consumers in  the event  that they  purchase a                                                                    
     defective  vehicle.    Alaska's  lemon  law  protecting                                                                    
     motor  vehicles  is  AS  45.45.300,  which  is  closely                                                                    
     analogous to  the lemon  law provision  in [HB]  209 in                                                                    
     front of you.                                                                                                              
MS. CARPENETI  reviewed the specific  provisions of HB 209.   She                                                               
noted that Section 1 of HB 209  [would amend AS 45.45 by adding a                                                               
number  of new  sections to  statute]. She  stated that  sections                                                               
772-776, in  general, would  protect the  manufacturer's interest                                                               
by   ensuring  that   dealers  comply   with  standard   warranty                                                               
practices.     Section   777  would   address  required   service                                                               
reimbursement  and establish  the minimum  compensation for  work                                                               
performed by a dealer on behalf  of a manufacturer.  For example,                                                               
she   continued,  it   would  specify   the  minimum   rate,  the                                                               
established customer  hourly rate,  and a  time for  labor costs.                                                               
In  addition,  it  would  require the  manufacturer  to  pay  for                                                               
transportation and  lodging costs  if the dealer  has to  send an                                                               
employee to the field to perform  the work.  Ms. Carpeneti stated                                                               
that sections 778-779  would deal with products  and parts needed                                                               
for repairs or  services, including how these  are reimbursed and                                                               
where  they  are delivered.    She  said Sections  780-781  would                                                               
outline the  timeline and process  for a manufacturer  to respond                                                               
to a  claim either by paying  or disapproving it.   The intent is                                                               
to  limit the  dealer's  obligation to  carry the  manufacturer's                                                               
costs of warranty repairs beyond a reasonable period.                                                                           
MS.  CARPENETI continued  discussing  the changes  that would  be                                                               
made in  Section 1 of  HB 209 under  proposed new sections  to AS                                                               
45.45.  She said section  782 would outline the repairs required.                                                               
She  pointed out  that this  subsection, similar  to many  of the                                                               
previous provisions,  is based on  the all-terrain  vehicle (ATV)                                                               
and  marine  statute  and  the  purpose is  to  ensure  that  the                                                               
warranty coverage  will apply  if a  customer properly  reports a                                                               
covered defect  during the  warranty period,  even if  the actual                                                               
warranty work  takes place at a  later time.  She  explained that                                                               
sections 783-784 are where the  lemon law provisions can be found                                                               
in HB  209, both  for how  the provision would  work and  for how                                                               
consumers would make a claim under the provision.                                                                               
MS.  CARPENETI  reiterated  that  marine products  and  ATVs  are                                                               
protected, and motor vehicles have   lemon law  protections under                                                               
AS 45.45.300,  while heavy equipment  at this time does  not have                                                               
the  same protection  in Alaska.    In the  absence of  statutory                                                               
protections, she  advised, dealers in Alaska  can find themselves                                                               
in three-way negotiations with  manufacturers and customers about                                                               
the  return or  replacement  of defective  equipment.   In  these                                                               
situations, a dealer may have  to buy back failing equipment from                                                               
a  customer or  substitute other  equipment.   Section 785  would                                                               
outline   the  exemptions   to   this  provision   in  that   the                                                               
manufacturer  would not  be liable  for user  error.   If a  user                                                               
alters or  abuses a piece  of equipment, that piece  of equipment                                                               
would  not be  under warranty.   She  explained that  section 786                                                               
would  work in  conjunction  with the   lemon  law  provision  by                                                               
creating  a rebuttable  presumption in  order to  define what  is                                                               
considered  reasonable  attempts  at  repairing  a  defective  or                                                               
deficient product.   She stated that the last  two sections, 787-                                                               
788, would  establish which  products apply  here and  what would                                                               
qualify as warranty service.                                                                                                    
MS. CARPENETI addressed the remaining  sections of the bill.  She                                                               
stated that Sections  2 and 3 cover definitions.   Section 4, she                                                               
pointed  out, adds  the violations  of this  provision to  unfair                                                               
methods of competition and unfair  or deceptive acts or practices                                                               
found in  45.50.471, Alaska's consumer  protection statute.   She                                                               
said Section 5 establishes the  applicability of the act to after                                                               
its  effective  date  and  further  noted that  the  act  is  not                                                               
retroactive and therefore it applies to new contracts.                                                                          
3:27:15 PM                                                                                                                    
KEN  GERONDALE, Owner,  Construction Machinery  Industrial (CMI),                                                               
testified  that he  has  been involved  in HB  209  since it  was                                                               
introduced.   He said he operated  equipment prior to age  27 and                                                               
became involved  in marketing heavy  equipment after age 27.   In                                                               
1985  he started  his  own business  and today  CMI  is a  fairly                                                               
significant supplier  of heavy equipment  into the oil  patch, as                                                               
well as mining and general contracting.                                                                                         
MR. K.  GERONDALE said he has  been working on HB  209 because in                                                               
Alaska  there  is  a  big   disparity  between  small  and  large                                                               
contractors.   In his  work distributing  equipment in  Alaska he                                                               
has  found  that  large  contractors and  large  mines  have  the                                                               
ability on  their own to negotiate  with both the dealer  and the                                                               
manufacturer regarding  warranties to repair  defective equipment                                                               
and make it  right or to force the dealer  or manufacturer to buy                                                               
back  that piece  of equipment.    The bill,  he advised,  mainly                                                               
supports  the  small users  of  heavy  equipment in  Alaska  that                                                               
normally do not have a large voice.                                                                                             
MR. K.  GERONDALE noted  that Alaska  has many  reputable dealers                                                               
and he considers his  company to be one of them.   In the last 12                                                               
months, he related, CMI has purchased  back five or six pieces of                                                               
equipment  that did  not operate  properly, and,  of those,  half                                                               
were from small contractors.  The  strategy of his business is to                                                               
take care of the  people to whom he sells.  At  the same time, he                                                               
continued, his  experience over the  past 30 years is  that small                                                               
and sometimes  large users  of heavy equipment  have not  had the                                                               
protection  to negotiate,  force,  or get  a  piece of  equipment                                                               
repaired.  Given Alaska is the  size of the continental U.S. from                                                               
coast to coast and north to  south, he said, it is very expensive                                                               
for dealers  and manufacturers to  take care of  their equipment,                                                               
which is, from his standpoint, the background of HB 209.                                                                        
MR. K. GERONDALE  related an instance from about a  year ago when                                                               
CMI  sold three  new  pieces  of equipment  to  Pogo  Mine.   The                                                               
equipment was  manufactured by Skyjack,  a Canadian  company that                                                               
CMI  had represented  for  years.   At  Pogo  Mine the  equipment                                                               
worked  a very  tough situation  underground with  explosives and                                                               
consumables.  The three like  pieces of equipment did not operate                                                               
per the  design and  were considered dangerous  for the  users of                                                               
the  equipment underground.    He said  CMI  negotiated with  the                                                               
manufacturer for  months and  months to  repair the  machines and                                                               
CMI ended  up having  to buy  back the three  pieces and  got the                                                               
manufacturer   to  reimburse   the   warranty   cost  under   the                                                               
manufacturer's condition that it didn't  want to ever do business                                                               
with CMI again as far as  selling heavy equipment, which was fine                                                               
with CMI.                                                                                                                       
3:31:29 PM                                                                                                                    
MR. K. GERONDALE shared another  instance in which a small mining                                                               
company, Goldorado,  purchased a used excavator  for doing mining                                                               
in  the  Talkeetna Mountains  and  support  work for  the  Alaska                                                               
Railroad.  The  equipment had a number of failures,  he said, and                                                               
CMI  ended up  buying back  the  excavator with  no condition  of                                                               
Goldorado  buying  another piece.    Within  six months,  though,                                                               
Goldorado bought another  piece of equipment from CMI  that was a                                                               
different brand and is now a happy customer.                                                                                    
MR. K.  GERONDALE said his point  is that Alaska has  no existing                                                               
protection  for large  or small  users  of heavy  equipment.   He                                                               
urged the  committee to not  let any manufacturer say  it doesn't                                                               
have warranty problems because in  his experience that is not the                                                               
case.   The manufacturers  that CMI represents  have a  hard time                                                               
from time  to time, he  noted, but CMI  is a large  enough dealer                                                               
that it can force the initiative and take care of a customer.                                                                   
3:32:55 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  said he has learned  that opportunities                                                               
arise between  contracting parties to renegotiate  the contracts.                                                               
He   asked  whether   Mr.  K.   Gerondale   has  utilized   those                                                               
opportunities  and  bargained  aggressively.   He  further  asked                                                               
whether  Mr.  K.  Gerondale's  position   is  that  the  original                                                               
manufacturer  is  always going  to  be  in a  preferred  economic                                                               
MR.  K. GERONDALE  responded that  when there  are problems,  CMI                                                               
aggressively pursues  negotiating with the manufacturers  that it                                                               
works with in supporting equipment.   Problems are run into, they                                                               
are not  all trouble-free.  He  said he doesn't feel  that HB 209                                                               
will cause  any lawsuits or  an increase  in price.   Rather, the                                                               
bill is going to force the  owner of the equipment and the dealer                                                               
that  sold  the  equipment,  or the  manufacturer  that  sold  it                                                               
direct, to negotiate and come up  with a solution to the problem.                                                               
He pointed out that HB 209  is not retroactive.  For example, CMI                                                               
has had signed  contracts for many years  with manufacturers, and                                                               
the  bill would  not help  CMI as  much as  it would  help a  new                                                               
dealer that signs  a contract.  The bill, he  opined, is going to                                                               
put a delta out  there, a line in the sand, that  CMI can go back                                                               
to a manufacturer  and say that under state  law the manufacturer                                                               
must live up to its commitment.                                                                                                 
REPRESENTATIVE JOSEPHSON said  it is an interesting  bill in that                                                               
CMI  is an  Alaskan  company  and one  might  think  CMI has  the                                                               
sympathy  of fellow  Alaskans.   But, CMI  is a  very significant                                                               
company  and so  it  would seem  that  CMI would  have  a lot  of                                                               
economic  power relative  to the  out-of-state manufacturer.   He                                                               
said he is  also wondering about the role of  the legislature and                                                               
whether it  should be  intervening in  these sorts  of contracts.                                                               
For example, virtually  everything is shipped to  Alaska so there                                                               
must  be a  thousand negotiations  about who  bears the  shipment                                                               
costs  on everything  from  heads  of lettuce  to  bicycles.   He                                                               
surmised  that   the  legislature  is  not   generally  asked  to                                                               
negotiate or intervene  in those, and so he is  wondering why the                                                               
legislature is necessary in this instance.                                                                                      
MR. K.  GERONDALE responded that,  from his experience,  it would                                                               
be very helpful for the end  user of heavy equipment in Alaska to                                                               
have a  law like this  because the end user  can then go  back to                                                               
that manufacturer or that dealer and  make sure they do what they                                                               
said they were going to do    provide a reasonably reliable piece                                                               
of equipment with  a certain warranty that is written  down.  The                                                               
legislature  is not  being asked  to  have any  decision on  that                                                               
warranty, he  said.  It  is being asked  to put something  on the                                                               
books, so end  users can say they just want  [the manufacturer or                                                               
dealer] to live by  the rules and follow the law  to give the end                                                               
users what they were told they would be given.                                                                                  
MR.  K. GERONDALE  continued  and  posed a  scenario  of a  small                                                               
homebuilder  in  Sitka  that purchases  a  Skyjack  forklift  for                                                               
$110,000 from a  Seattle dealer and is making  huge payments only                                                               
to have  the forklift fall  apart and the homebuilder  cannot get                                                               
it fixed.   What leverage does that small  homebuilder have today                                                               
to deal  with the  dealer in  Seattle, he asked,  or a  dealer in                                                               
Anchorage or even Juneau unless  there is a financial wherewithal                                                               
for that  dealer to  want to  solve that problem.   That  user is                                                               
going to  demand that the  Seattle dealer or the  manufacturer in                                                               
Canada buy back that piece of  equipment, but, he said, that will                                                               
not happen because there is no support for that.                                                                                
3:38:39 PM                                                                                                                    
REPRESENTATIVE  BIRCH  stated  he  is  uncomfortable  because  it                                                               
strikes him  that the State  of Alaska would be  inserting itself                                                               
in  a relationship  between a  dealer  and a  manufacturer.   For                                                               
example, he said, the bill  would require the manufacturer to pay                                                               
the transportation and lodging costs  of a dealer's employee sent                                                               
to the field to  perform the work.  He posed  a scenario in which                                                               
someone buys a  Ford sport utility vehicle (SUV) and  flies it to                                                               
Kotzebue, Alaska, and he questioned  whether it is realistic that                                                               
that  customer can  expect Ford  to  fly someone  to Kotzebue  at                                                               
Ford's expense  to fix the  SUV.  Construction equipment  can get                                                               
into  really remote  locations in  Alaska, he  noted, and  HB 209                                                               
would say  unilaterally that  the manufacturer  must pick  up the                                                               
tab  for  transportation  and  lodging.    He  requested  Mr.  K.                                                               
Gerondale to address the state  intervening in what is a contract                                                               
between the dealer and the manufacturer.                                                                                        
MR. K.  GERONDALE answered  that CMI sells  lots of  equipment to                                                               
the State  of Alaska and the  State of Alaska contract  calls for                                                               
the manufacturer or dealer to  support that equipment wherever it                                                               
is, which  can be Naknek or  Kotzebue.  When CMI  sells equipment                                                               
directly to the  City of Kotzebue, he pointed  out, that warranty                                                               
includes  flying to  Kotzebue and  working on  and repairing  the                                                               
equipment.  That  is part of CMI's existing  warranty program for                                                               
the  products it  sells.   Having said  that, he  continued, some                                                               
manufacturers don't  provide that  level of  support and  in that                                                               
case  a large  dealer  like  CMI can  force  the manufacturer  to                                                               
reimburse CMI  and help  CMI fix  that piece  of equipment.   The                                                               
problem is:   for a small dealer that doesn't  have the financial                                                               
wherewithal, or for that fellow  in Kotzebue who buys a brand-new                                                               
piece of equipment  in Seattle, Washington, and  asks the Seattle                                                               
dealer to fly somebody  up to fix it   that is  just not going to                                                               
MR.  K. GERONDALE  further explained  that the  normal course  of                                                               
business  with most  of the  dealers and  the manufacturers  that                                                               
have dealers in Alaska  is that they have to fix it  on site.  In                                                               
those areas where  [a dealer] doesn't get  reimbursed the airfare                                                               
or [other expenses],  that is normally not  negotiated but rather                                                               
part of the purchase  contract on the front end.   He said he can                                                               
guarantee the committee that 90-95  percent of the equipment that                                                               
CMI sells out in the Bush, CMI fixes  it, CMI has to fix it.  The                                                               
end user does not have to pay  for all the travel time or expense                                                               
of getting there.                                                                                                               
REPRESENTATIVE  BIRCH  offered  his  understanding  that  HB  209                                                               
wouldn't change  the aforementioned and  that the bill  is simply                                                               
looking out  for smaller dealers  and would not  adversely impact                                                               
or directly impact a large operator like CMI.                                                                                   
MR.  K.  GERONDALE  confirmed  that the  bill  would  not  [cause                                                               
adverse impact] and that that is  part of CMI doing business.  He                                                               
stated  that  if  Representative  Birch   were  to  talk  to  his                                                               
constituents who  are contractors and buying  new equipment, they                                                               
would tell  him that that  it is expected  and should be  part of                                                               
the purchase contract  - if the equipment needs  repair under the                                                               
warranty, the travel expense has  to be paid because the consumer                                                               
cannot absorb that high expense.                                                                                                
3:43:18 PM                                                                                                                    
REPRESENTATIVE  STUTES asked  where and  why the  state would  be                                                               
involved  in this.   She  posed  a scenario  in which  a bill  is                                                               
passed  that  is  more  onerous on  the  manufacturer  and  asked                                                               
whether there  is anything to  Mr. K. Gerondale's  knowledge that                                                               
would preclude  the manufacturer  from saying that  any equipment                                                               
it sells to the state of Alaska will not have a warranty on it.                                                                 
MR. K. GERONDALE replied he  doesn't know of any bonafide quality                                                               
manufacturer  doing  business in  Alaska  that  would quit  doing                                                               
business  in Alaska  because  it  is being  asked  to uphold  the                                                               
warranty  that it  provides.   However, he  said, a  manufacturer                                                               
that  builds  poor  product,  doesn't  have  confidence  in  that                                                               
product,  and knows  that  a product  sent to  the  Bush will  be                                                               
expensive  to  support,  may  choose  not to  sell  it  for  that                                                               
specific reason.   Just because  Alaska stretches coast  to coast                                                               
and  north to  south, he  opined, doesn't  mean Alaska  shouldn't                                                               
have the same warranty coverage as the continental 48 states.                                                                   
REPRESENTATIVE  STUTES  asked  whether Mr.  K.  Gerondale  thinks                                                               
there isn't  any difference  between working  in rural  Alaska as                                                               
opposed to one of the Lower 48 states.                                                                                          
MR.  K. GERONDALE  responded that  he thinks  there is  a lot  of                                                               
difference and  that is exactly  why it  is so important  to have                                                               
something  on the  books to  provide protection.   Regardless  of                                                               
whether  it is  a  small  Bush community  that  buys crushers  or                                                               
loaders, he  continued, there  should be  the support  to support                                                               
that equipment wherever it is.                                                                                                  
3:45:36 PM                                                                                                                    
REPRESENTATIVE  WOOL  offered  his   understanding  that  Mr.  K.                                                               
Gerondale  is   saying  that  some   of  the  larger   mines  can                                                               
successfully negotiate  with the  manufacturers because  of their                                                               
size  and  that CMI  is  at  times in  that  same  category.   He                                                               
inquired whether  CMI is big  enough to get the  same negotiating                                                               
power  as  the large  mines,  or  whether  that  is what  Mr.  K.                                                               
Gerondale is striving for with HB 209.                                                                                          
MR. K.  GERONDALE answered that that  is not what he  is striving                                                               
for.   He said CMI  has that now  with the manufacturers  that it                                                               
represents, and he doesn't think  HB 209 will change the coverage                                                               
that CMI has from the manufacturers  that it represents.  The one                                                               
area that there is a possible  difference, he noted, is the lemon                                                               
law portion  of the bill  when it comes  to a piece  of equipment                                                               
that just doesn't operate because of  design.  A good example, he                                                               
continued, is Tier 4 Interim  mission control that has not proved                                                               
reliable and  has been a  big problem.   Eighty percent  of CMI's                                                               
buybacks have  been because of the  design of Tier 4  Interim and                                                               
CMI has  been fully supported  by its manufacturers when  CMI has                                                               
come to solve that problem.                                                                                                     
REPRESENTATIVE WOOL  offered his understanding that  CMI is large                                                               
enough  to successfully  negotiate  with the  manufacturers.   He                                                               
noted  that  automobiles must  be  purchased  from a  dealer  and                                                               
cannot  be  purchased  directly  from Ford.    He  asked  whether                                                               
smaller  companies  or individuals  in  Alaska  are able  to  buy                                                               
directly from the manufacturer and  whether they are the ones the                                                               
bill is looking to protect.                                                                                                     
MR. K. GERONDALE replied yes.   A generator or any heavy piece of                                                               
equipment  can be  purchased directly  from a  manufacturer or  a                                                               
dealer outside  of Alaska and  shipped direct to  the purchaser's                                                               
location in, say, Western Alaska or the Aleutian Chain.                                                                         
3:48:57 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON stated  he is  not hearing  that people                                                               
are in breach of contract because  if that were the case then any                                                               
lawyer  could be  employed to  sue for  breach of  contract.   He                                                               
offered his  understanding that  Mr. K.  Gerondale is  not saying                                                               
that  [a manufacturer  such  as] Kubota  guaranteed  in the  fine                                                               
print that if somebody were in a remote mining site ?                                                                           
CHAIR   KITO,  due   to  technical   difficulties  with   Mr.  K.                                                               
Gerondale's  online   connection,  moved  to  the   next  invited                                                               
3:50:23 PM                                                                                                                    
JOHN   MACKINNON,   Executive    Director,   Associated   General                                                               
Contractors of Alaska (AGC), testified in  support of HB 209.  He                                                               
noted that  AGC is a construction  trade association representing                                                               
around  640  Alaska  businesses   involved  in  the  construction                                                               
industry.  Of those 640  businesses, he continued, about half are                                                               
contractors  and  half  are  suppliers   and  associates  to  the                                                               
construction industry.   For full  disclosure, he noted  that CMI                                                               
is  an AGC  member, as  are four  or five  other major  equipment                                                               
dealers in the state.  He stated AGC's support of the bill.                                                                     
MR. MACKINNON  related that several  instances have  been brought                                                               
to his  attention where smaller  contractors were  the recipients                                                               
of  poor services  as a  result of  warranty issues  or equipment                                                               
that failed to perform  as promised.   He said  that when he sent                                                               
last  year's  version  of  the   bill  to  his  membership,  some                                                               
contractors responded  that the  bill would have  alleviated many                                                               
of the  issues and  poor performance  that they  had experienced.                                                               
One small  dealer has told  him of  its definite support  for the                                                               
bill.   He  offered  his understanding,  however, that  equipment                                                               
dealers  are unwilling  to  support the  bill  because they  fear                                                               
retribution from  their suppliers.   He noted  that CMI is  a big                                                               
dealer,  selling equipment  like  Hitachi, and  is,  in order  of                                                               
magnitude, larger.   Even though CMI is big  and exerts leverage,                                                               
he  said, the  big  manufacturers are  considerably  larger.   He                                                               
reiterated AGC's support  for HB 209 and said it  is good for the                                                               
industry as a whole.                                                                                                            
3:52:42 PM                                                                                                                    
REPRESENTATIVE  KNOPP asked  Mr. MacKinnon  whether he  knows any                                                               
end users  who are buying  factory direct from such  companies as                                                               
Caterpillar, Volvo, or Hitachi.                                                                                                 
MR. MACKINNON  replied no, big manufacturers  are dealing through                                                               
distributors and licensed retailers.   He said he doesn't know of                                                               
anyone who would be able to  buy factory direct.  They oftentimes                                                               
buy  from  dealers outside  Alaska  to  save  money or  they  buy                                                               
aftermarket  products  out  of  state.   Big  equipment  is  sold                                                               
through licensed dealers within the state, he added.                                                                            
REPRESENTATIVE  KNOPP surmised  that  when a  piece of  equipment                                                               
comes,  regardless  of  which dealer  it  is  purchased  through,                                                               
Alaska dealers still have an  obligation for the warranty work on                                                               
that because that is part of the contract.                                                                                      
MR. MACKINNON responded correct.                                                                                                
REPRESENTATIVE KNOPP  further surmised that when  dealers pick up                                                               
a new product  line, they would be aware of  the warranty and the                                                               
contract of that manufacturer at that time.                                                                                     
MR.  MACKINNON answered  correct  and added  that  when a  dealer                                                               
picks up a product line, they  might be picking up some potential                                                               
REPRESENTATIVE KNOPP  opined that, to  him, HB 209 does  not read                                                               
like a consumer  protection bill, but rather  a dealer protection                                                               
bill.   He said he  likes some things  in the bill,  but dislikes                                                               
others.   For  example, he  continued,  he has  trouble with  the                                                               
provision that the manufacturer  would pay the transportation and                                                               
lodging  costs   because  he  thinks   that  is   an  unrealistic                                                               
expectation in a  state of this size.  He  said another provision                                                               
he doesn't like  is the requirement to pay a  dealer full retail,                                                               
rather than  cost, for  a part  off the shelf.   He  recalled Mr.                                                               
Gerondale  talking about  the Tier  4 Interim  problem and  asked                                                               
whether that problem  is the bulk of the warranty  work having to                                                               
be performed.                                                                                                                   
MR. MACKINNON  replied he cannot  answer the question  because he                                                               
is  not familiar  with  many  of the  details  on these  warranty                                                               
issues, although he does know of  a number that have been failure                                                               
to perform as specified or promised  in the literature.  He added                                                               
that the  Tier 4 Interim,  at least for a  period of time,  was a                                                               
work in progress and had a lot of little kinks to be ironed out.                                                                
3:56:20 PM                                                                                                                    
GEORGE  WHITAKER,   State  Government  Affairs,   CNH  Industrial                                                               
America LLC,  testified that CNH  is the manufacturer of  Case IH                                                               
and  New  Holland agricultural  equipment  and  Case IH  and  New                                                               
Holland construction  equipment.  He  said seven CNH  dealers are                                                               
located   in  Alaska,   their  locations   being  in   Fairbanks,                                                               
Anchorage, Wasilla,  and Palmer.   The concerns called out  in HB
209 are best addressed between  dealers and suppliers, he stated.                                                               
Product support  for delivery warranty  reimbursement is  a fast-                                                               
changing environment for suppliers  and dealers alike, especially                                                               
as new smart  products are seen.  As new  technologies emerge, he                                                               
advised,  there is  no question  that  the world  of warranty  is                                                               
going to change  dramatically over the next three  to five years.                                                               
He said CNH  working with its dealers is best  suited to plot the                                                               
course forward without legislative intervention.                                                                                
MR. WHITAKER drew attention to  page 2, line 20,  Sec. 45.45.775.                                                             
Restrictions not  allowed." He said  the proposed section  for AS                                                             
45.45 caught CNH's eye because  of the ambiguous language; should                                                               
a dispute arise  between the dealer and a supplier,  he said, the                                                               
result would  be an extremely  difficult and costly  scenario for                                                               
the parties.   He added that  CNH questions the exact  meaning of                                                               
the  language  [on  line  23] that  states  "if  the  restriction                                                               
impairs  the  dealer's  or distributor's  ability  to  satisfy  a                                                               
required service".   He maintained that  "restriction" could mean                                                               
anything to a  plaintiff's attorney, such as the  method in which                                                               
a part was ordered, the words  in the service manual, or the form                                                               
and manner of  training that a dealer technician  received from a                                                               
supplier, to  name a few.   The intent of this  paragraph appears                                                               
to be that  the suppliers would have to follow  the law, which he                                                               
said  they currently  do.    He said  the  section needs  clearer                                                               
language to  reduce the potential  to head down  an unnecessarily                                                               
expensive and time-consuming path should a dispute arise.                                                                       
MR.  WHITAKER  brought  attention  to  page  2,  line  25,   Sec.                                                             
45.45.776.  Payment  for  required   services."    Regarding  the                                                             
language, "standard claim  procedures", he said there  is no real                                                               
industry  standard form  for warranty  claims.   For example,  he                                                               
continued, CNH's process  is different in form  and function from                                                               
Caterpillar as  is [Caterpillar's] from John  Deere and different                                                               
other  suppliers  of chainsaws,  ATVs,  and  other products  that                                                               
would  be  covered under  the  proposed  legislation.   It  seems                                                               
absent of an  industry standard, he stated.  It  is ambiguous and                                                               
lends  itself to  an unnecessarily  expensive and  time-consuming                                                               
process should a dispute arise between dealers and suppliers.                                                                   
4: 00:10 PM                                                                                                                   
MR.  WHITAKER  turned to  page  2,  [line 29],  "Sec.  45.45.777.                                                             
Required  service  reimbursement.    Regarding  the  language  of                                                             
Required  service   reimbursement,  beginning   on  page   2  and                                                               
continuing to  page 3.   He  said it  seems to  be an  apples and                                                               
oranges  comparison,   because  the  language  states   that  the                                                               
manufacturer shall  pay the dealer  at a  rate not less  than the                                                               
highest of  three choices  that follow, [on  page 3,  lines 5-10,                                                               
paragraphs (1)-(3), which read as follows]:                                                                                     
               (1) the rate the dealer or distributor                                                                           
     customarily charges a customer for work that is not a                                                                      
     required service;                                                                                                          
               (2) the manufacturer's printed flat rate; or                                                                     
               (3)  the  rate  established by  a  flat  rate                                                                    
     manual for  dealers or distributors,  if the  manual is                                                                    
     produced for  dealers or  distributors by  a nationally                                                                    
     recognized industry consultant.                                                                                            
MR.  WHITAKER stated  that private  published labor  rate manuals                                                               
may exist in the auto industry  but if they exist in construction                                                               
equipment,  they are  very hard  to find  and if  found they  are                                                               
typically  used for  providing productivity  analysis for  dealer                                                               
technicians  or job  quotations, but  certainly not  for warranty                                                               
purposes.  Mr. Whitaker pointed  out that the dealer posted labor                                                               
rate varies from  dealer to dealer, with the  dealer deriving the                                                               
rate  locally without  input from  the  manufacturer and  without                                                               
regard to the  supplier.  The rate is based  on the market served                                                               
and  the investment  the dealer  has made,  the wages  the dealer                                                               
pays,  and the  dealer's position  in  the marketplace.   So,  he                                                               
continued,  two   dealers  representing   the  same   brand  will                                                               
invariably  have different  posted  labor  rates.   Manufacturers                                                               
don't typically dictate labor rates to the dealers, he added.                                                                   
MR.  WHITAKER said  the next  proposed sections  for AS  45.45 he                                                               
will  be  discussing are  about  how  cost inevitably  finds  the                                                               
consumer and  will speak to  some of the earlier  questions about                                                               
how manufacturers  might change  warranty and  how cost  could be                                                               
passed on  to consumers through enhanced  warranty reimbursement.                                                               
He  first directed  attention to  language  on page  3, line  11,                                                               
which  states,  "The  payment  under (b)  of  this  section  must                                                               
include   payment    for   clean-up,    preparation,   diagnosis,                                                               
disassembly, repair, assembly, testing,  and final cleaning".  He                                                               
said  the   words  clean-up,  preparation,  testing,   and  final                                                               
cleaning  are  unaccountable  and unauditable  activities by  the                                                               
dealer.    Some  jobs will  have  a lot,  some jobs  will have  a                                                               
little, he  continued, but  the incremental  administrative costs                                                               
will be substantial.                                                                                                            
MR.  WHITAKER said  the aforementioned  leads  to the  discussion                                                               
about the  so-called unreimbursed  costs and  how they  get paid.                                                               
He stated that  a high performing dealer like  CMI captures these                                                               
costs and  knows what they  are and typically builds  those costs                                                               
into the  cost of the  machine when establishing a  selling price                                                               
to the consumer.   So, those costs are recovered  when the dealer                                                               
sells  the  machine and  they  are  effectively not  unreimbursed                                                               
costs,  the   customer  pays  the   costs  just   like  customers                                                               
ultimately pay  for all  costs for the  dealership plus  a profit                                                               
for  the business.   It  is a  cost of  doing business.   If  the                                                               
supplier were to  be handed these costs as proposed  in the bill,                                                               
Mr.  Whitaker  continued, a  similar  thing  would happen.    The                                                               
supplier would  see higher warranty  costs and would  offset that                                                               
cost by  raising the  cost of  the equipment  sold to  dealers in                                                               
Alaska, or  the supplier  would put a  surcharge on  the products                                                               
shipped to Alaska  to cover these costs.   So, at the  end of the                                                               
day, the customer would pay these  costs through the price of the                                                               
4:04:40 PM                                                                                                                    
MR.  WHITAKER   discussed  language  on  page   3,  lines  14-16,                                                               
[subsection]  (d),  which states,  "In  addition  to the  payment                                                               
under (b)  of this section,  the manufacturer shall pay  a dealer                                                               
or  distributor  a  minimum  of  one  hour  at  the  dealer's  or                                                               
distributor's standard labor rate  for the administration of each                                                               
required service  claim."  He  advised that dealers  have various                                                               
people in  their business to  keep things running    direct folks                                                               
who  produce  the revenue  and  indirect  folks who  help  things                                                               
happen  in the  business.   All those  people are  there to  help                                                               
technicians work effectively  in generating income.   The cost of                                                               
all those people,  he said, is calculated into  the dealer's shop                                                               
or  labor rate  and  it should  be treated  just  like the  other                                                               
departments  of the  dealership that  have administrative  costs.                                                               
So, if  the state says,  "Mr. Dealer,  transfer this cost  to the                                                               
supplier," the suppliers will in  turn transfer that cost back to                                                               
the  dealer  through  price increase  or  through  surcharge  and                                                               
ultimately the customer will pay  for that hour of administration                                                               
as the customer does today.                                                                                                     
MR.  WHITAKER  spoke   to  language  on  page   3,  lines  17-29,                                                               
[subsection   (e)],  which   states,   "The  manufacturer   shall                                                               
reimburse the  dealer or distributor  for the  transportation and                                                               
lodging costs of the employees  of the dealer or distributor when                                                               
it is necessary for the employees  to travel to the location of a                                                               
product  to perform  a  required  service."   He  said that  from                                                               
personal experience  working in  areas of large  geography, Texas                                                               
being an  example, if  the dealer  wants to sell  a product  to a                                                               
customer that will be taking  the product beyond a certain radius                                                               
or to a remote area, then  the dealer will have conversation with                                                               
the customer  so that the  customer understands that  he/she will                                                               
have  some financial  responsibility for  travel time  to conduct                                                               
some  warranty and  service.   So,  Mr.  Whitaker continued,  the                                                               
customer/owner of a backhoe in  Prudhoe Bay can't expect the same                                                               
type  of cost  structure for  warranty  that does  a customer  in                                                               
Anchorage or Fairbanks.  In  turn, that customer builds that cost                                                               
into his cost of doing business.   There is some incremental cost                                                               
from being a  long way from support infrastructure,  he said, and                                                               
those customers  understand that and  build that into  their cost                                                               
of doing business.                                                                                                              
4:07:18 PM                                                                                                                    
MR. WHITAKER  stated that  there is a  point regarding  the lemon                                                               
law that  doesn't seem to be  included in the bill.   There might                                                               
be  cases, he  continued, where  a supplier  says that  a certain                                                               
application  doesn't work  for  a machine;  for  example, it  was                                                               
earlier mentioned about Skyjack lifts  in a mining condition.  He                                                               
said CNH has had excavators in  salt conditions and in very tough                                                               
marble quarry mining conditions and  CNH wasn't made aware of the                                                               
conditions  that   the  machine  was   going  into.     In  these                                                               
situations,  he  explained, rather  than  replace  a product  CNH                                                               
would simply  want to  provide a  refund and  walk away  from the                                                               
deal, but  it doesn't  seem that the  bill provides  coverage for                                                               
that option for the manufacturer.                                                                                               
MR.  WHITAKER addressed  what he  termed  very broad  definitions                                                               
related to equipment, tools, and  motor vehicles.  He pointed out                                                               
that regarding a  repair, a dealer who sells a  Kubota tractor to                                                               
be  used for  farming  in the  Matanuska-Susitna  Valley and  who                                                               
sells  that  same   model  tractor  with  a   backhoe  for  light                                                               
construction   in   Anchorage   would  be   treating   customers,                                                               
suppliers, and the product differently between the two.                                                                         
4:08:55 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON offered his  understanding that there is                                                               
opportunity for  negotiation to  occur between  the manufacturers                                                               
that Mr. Whitaker broadly  represents and the dealer/distributor.                                                               
He  asked Mr.  Whitaker to  provide an  example of  something the                                                               
manufacturer has conceded in a previous negotiation.                                                                            
MR. WHITAKER requested clarification  on whether "opportunity for                                                               
negotiation" is in relation to  a dealer agreement or in relation                                                               
to a failed machine warranty experience.                                                                                        
REPRESENTATIVE JOSEPHSON  clarified he is talking  about a dealer                                                               
agreement, so  meaning the birth  of the new set  of negotiations                                                               
much like a union would  negotiate with management, not that that                                                               
is  a parallel.   He  offered  his understanding  that there  are                                                               
actual meetings where there is an offer and an acceptance made.                                                                 
MR. WHITAKER  replied that  CNH has  a standard  dealer agreement                                                               
because in many  cases the law says that dealers  must be treated                                                               
the same - the same terms,  same pricing, no biases towards size.                                                               
There might be  some ability to change price based  on volume and                                                               
so forth, he  noted, and below that a lot  of operating items are                                                               
negotiated.   In the case of  a warranty, he continued,  if there                                                               
is a major  failure and it is a critical  customer, or the dealer                                                               
feels that the  customer warrants some cooperation,  CNH will get                                                               
in and negotiate that with the customer and dealer in a three-                                                                  
party  fashion.   Regarding the  dealer agreement,  there may  be                                                               
some trade  areas or  other types  of things  that are  unique to                                                               
Alaska that CNH would negotiate  through amendments and addendums                                                               
to the  contract.  But  by and large, he  said, it is  a standard                                                               
contract offered to all dealers and signed across all 50 states.                                                                
4:11:35 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON noted  the  committee has  heard a  lot                                                               
about the manufacturer's side  and the dealer/distributor's side.                                                               
He inquired  as to  what the  customer thinks is  going on.   For                                                               
example, he presumed  that if he bought some  heavy equipment for                                                               
his  farm in  the Matanuska-Susitna  Valley and  it didn't  work,                                                               
there  would  be  something  in  writing  that  says  either  the                                                               
distributor that  sold him  the equipment  is responsible  and he                                                               
can  rely  on  that  because   that  is  his  contract  with  the                                                               
distributor or  that there is  a contract  that says it  would be                                                               
someone in Illinois  working for John Deere  that is responsible.                                                               
He said he  isn't hearing that there is a  dispute about contract                                                               
duty, as  that is what  contracts are about.   He said HB  209 is                                                               
about moving  duty from one side  to the other and  asked whether                                                               
that is Mr. Whitaker's understanding.                                                                                           
MR. WHITAKER answered in the affirmative.   He added that in this                                                               
case  he  wouldn't say  shift  duty  so  much  as shift  cost  of                                                               
execution.   He said  the first  line is  always the  dealer that                                                               
sold the  equipment or the  dealer into whose area  the equipment                                                               
was  sold and  is  obliged to  do  the warranty  work  or do  the                                                               
service work on that machine.   If the dealer finally runs out of                                                               
rope and has  done everything it can, then the  company will step                                                               
in and  bring in  an expert, or  make a swap,  or do  whatever is                                                               
necessary to get right with the customer.                                                                                       
4:13:50 PM                                                                                                                    
REPRESENTATIVE BIRCH noted  that when a customer buys  a car from                                                               
a  dealer,  the dealer  charges  the  customer  by the  hour  for                                                               
maintenance  work.    However,  he  continued,  if  the  work  is                                                               
warranty  related the  dealer has  a contract  with the  supplier                                                               
that guarantees the dealer the work  at a reduced rate.  He asked                                                               
whether  in the  case  of  a bulldozer  from  a  supplier to  the                                                               
dealer, the dealer  secures some guaranteed line of  work and, if                                                               
so, whether doing  warranty work for that  equipment is typically                                                               
a  pretty significant  percentage of  the work  that that  dealer                                                               
MR. WHITAKER answered that many  manufacturers are different, but                                                               
in  CNH's case  if  warranty work  comes back  to  the shop,  CNH                                                               
reimburses  the dealer  at the  dealer's retail/walk-in  customer                                                               
rate for labor and reimburses  the dealer at cost-plus for parts.                                                               
He  said CNH  does  this  because it  also  uses  warranty as  an                                                               
incentive  to  the  dealer  to  make  investments  in  tools  and                                                               
training to  give best-in-class  service.   As to  how much  of a                                                               
dealer's total  revenue for shop  work/service work  is warranty,                                                               
he said  there is  a big  variance.  It  depends on  the machines                                                               
that the dealer has established  and how well and effectively the                                                               
dealer  markets  its  service  department.     There  is  no  set                                                               
guarantee,  he  continued,  but obviously  the  more  machines  a                                                               
dealer  sells,  the  more  warranty  work it  generates.    On  a                                                               
percentage basis, the shop is  typically the most profitable area                                                               
of  the  dealership  operation,   whether  it  is  automotive  or                                                               
construction machinery.                                                                                                         
REPRESENTATIVE  BIRCH  drew attention  to  page  3, lines  21-23,                                                               
which  state,  "A  manufacturer   shall  reimburse  a  dealer  or                                                               
distributor at  the current manufacturer's full  suggested retail                                                               
price  for  covered products  in  the  dealer's or  distributor's                                                               
inventory".  He asked whether  this provision seems reasonable to                                                               
Mr. Whitaker.                                                                                                                   
MR. WHITAKER replied that in  his business there are "majors" and                                                               
"minors".   For the  majors that  provision would  not be  out of                                                               
line, but  for the  minors it  would be  difficult.   There would                                                               
also be the variations.   For example, Caterpillar and John Deere                                                               
may each  have a  different situation,  he said,  as there  is no                                                               
real standard.  In terms of  reimbursing a dealer at the dealer's                                                               
retail rate for labor, the provision is not out of line.                                                                        
4:17:20 PM                                                                                                                    
REPRESENTATIVE  WOOL inquired  whether Mr.  Whitaker was  talking                                                               
about  manufacturers or  dealers when  he mentioned  "majors" and                                                               
MR. WHITAKER  responded that he was  talking about manufacturers.                                                               
He  said CNH  might  be considered  a  full-line manufacturer  of                                                               
construction equipment, whereas there are  other folks in a niche                                                               
market  or with  a shorter  product line  or that  do attachments                                                               
only and they would be considered minors.                                                                                       
REPRESENTATIVE  WOOL  offered  his understanding  that  regarding                                                               
warranty  work, Mr.  Whitaker is  saying that  CNH pays  the shop                                                               
rate and pays for  the parts.  He asked whether,  as a major, CNH                                                               
negotiates a different deal with  different dealers or sellers of                                                               
CNH's products.                                                                                                                 
MR. WHITAKER answered  that there is a baseline  and the baseline                                                               
then improves  as the dealer  meets certain metrics  in training,                                                               
schooling in  electronic service tools  that allow the  dealer to                                                               
efficiently do diagnostics, investment  in the special tools that                                                               
are required  for the new models  that have come in,  and whether                                                               
the dealer has  a parts fill rate that is  of a certain strength.                                                               
The better the dealer does, he  continued, the more the dealer is                                                               
invested, and the better service  level the dealer gets, then the                                                               
more reimbursement  the dealer  receives from  CNH.   He prefaced                                                               
the aforementioned by noting that that  is CNH's policy and he is                                                               
not talking for the industry in that regard.                                                                                    
REPRESENTATIVE  WOOL surmised  that  CNH doesn't  micro-negotiate                                                               
with  independent  dealers  for  special deals  on  warranty  and                                                               
service  work and  that  CNH  has a  pretty  flat  rate with  the                                                               
various dealers based on the aforementioned metrics.                                                                            
MR. WHITTAKER replied yes.                                                                                                      
4:20:02 PM                                                                                                                    
REPRESENTATIVE KNOPP  inquired whether  CNH reimburses on  a flat                                                               
rate basis and has flat rate manuals for certain repairs.                                                                       
MR.  WHITAKER responded  that  CNH  has a  flat  rate manual  for                                                               
warranty repairs.   For instance,  a job  may take two  hours and                                                               
then the  dealer will multiply  that times the  dealer's personal                                                               
shop labor rate  plus any additional incentive that  CNH may have                                                               
given to the dealer.                                                                                                            
REPRESENTATIVE  KNOPP surmised  CNH would  not pay  a dealer  for                                                               
four hours on a job on which CNH had a flat rate of two hours.                                                                  
MR.  WHITAKER answered  that if  the dealer  raised an  objection                                                               
because of  running into an  unusual situation, the  dealer would                                                               
have the  ability to appeal  and CNH will often  make concessions                                                               
based on  that appeal.   If  there is  nothing special  about the                                                               
operation, he  added, then  it is  very likely  that most  of the                                                               
time the dealer would receive [payment for] two hours.                                                                          
REPRESENTATIVE  KNOPP related  his personal  experience regarding                                                               
warranty work.   He said  that when  his skid loader  breaks down                                                               
the first thing his local dealer tells  him to do is bring in the                                                               
loader.   If he cannot bring  the loader in due  to its location,                                                               
the dealer comes  out to fix it and his  experience has been that                                                               
he must  pay for the  mechanic's travel  time and lodging.   Even                                                               
when the  equipment was  under warranty, he  pointed out,  he has                                                               
had to  pay for the travel  but not the service  that was covered                                                               
by the warranty.  He asked  whether his experience is the current                                                               
standard practice  or whether it  is CNH's practice  to reimburse                                                               
those types of expenses.                                                                                                        
MR.  WHITAKER replied  that as  a general  statement CNH  doesn't                                                               
reimburse travel time or employee  lodging and related costs.  If                                                               
the dealer  has a compelling reason  that CNH should look  at it,                                                               
then CNH will  react to it.    Also, he added, it is  part of the                                                               
dealer's  responsibility  to  understand  where  the  product  is                                                               
going.   If it is going  into a very difficult  mining situation,                                                               
as was  earlier described, he  would suggest that  Skyjack should                                                               
have been  consulted about  whether it was  a place  that Skyjack                                                               
was  comfortable placing  the product  in.   The dealer  needs to                                                               
understand those costs and account for  them as part of the sales                                                               
price that went into the product when it was purchased.                                                                         
REPRESENTATIVE KNOPP  asked whether, going into  the purchase, it                                                               
wouldn't  also be  the  consumer's  responsibility to  understand                                                               
that, especially if  it was for a  rural area.  He  said he would                                                               
think  that   the  consumer  and   the  dealer  must   have  that                                                               
MR. WHITAKER  agreed that those  conversations should  happen and                                                               
added  that  it  is  incumbent upon  the  dealer  to  communicate                                                               
clearly to the  customer that there are  certain expectations the                                                               
customer should  have that are  different from when  the customer                                                               
is located in close proximity to the dealer.                                                                                    
4:25:29 PM                                                                                                                    
CHAIR KITO noted  it is said that things are  different in Alaska                                                               
and  in  some  circumstances,  they really  are  different.    He                                                               
pointed out  that a lot  of construction happens in  remote parts                                                               
of Alaska where a contractor will load  up a barge and ship it in                                                               
the springtime  to a site and  that equipment will not  come back                                                               
until the fall or will stay there  if it is a multi-year job.  In                                                               
many cases,  he further  pointed out,  the contractor  won't know                                                               
which  contract he  is  going  to get  by  bidding,  so when  the                                                               
contractor  gets  a bid,  he  will  go  to whatever  location  is                                                               
identified  and is  therefore  unable to  tell  the dealer  which                                                               
community  the  equipment is  going  to  be  taken  to.   If  the                                                               
equipment  fails it  affects the  bottom-line of  that contractor                                                               
and the contractor has purchased  that piece of equipment in good                                                               
faith.   He said the  manufacturer needs to understand  that some                                                               
of these  smaller contractors don't  have the ability to  ship up                                                               
another piece  of equipment or  do some  of the repairs  on their                                                               
own and  are reliant on the  dealer or manufacturer to  make sure                                                               
that they  have equipment that works  so they can do  their jobs.                                                               
There is  very little  road for  the geography  of the  state, he                                                               
noted, and a  lot of places are only accessible  by air or water.                                                               
He urged  that Mr.  Whitaker think about  this regarding  how the                                                               
manufacturers consider  reimbursement for  travel or  lodging, or                                                               
how to support the pieces of equipment.                                                                                         
4:27:41 PM                                                                                                                    
JIM  HALLORAN, Caterpillar  Inc., Sacramento,  California, stated                                                               
that Mr. Whitaker did a fine  job of explaining the provisions in                                                               
the bill.   He said  Caterpillar and  its dealer, N  C Machinery,                                                               
are in  opposition to HB  209.  He noted  that N C  Machinery has                                                               
been Caterpillar's  dealer since 1926 and  said Caterpillar looks                                                               
at this more  uniquely based on this  life-long relationship with                                                               
the dealer and N C Machinery  has a similar relationship with its                                                               
customers.   Caterpillar sees  this as a  solution looking  for a                                                               
problem, he  added, because it  is not experiencing  the problems                                                               
that have been  raised and, if Caterpillar is, it  is handling it                                                               
in-house through its dealer agreements.                                                                                         
MR. HALLORAN  addressed Representative Josephson's  comment about                                                               
dealer agreements.   He pointed  out that Caterpillar  has global                                                               
agreements and  appreciates the challenges of  Alaska and getting                                                               
into Alaska's  remote areas.   He said the global  agreement that                                                               
Caterpillar  has  in  place  for  Alaska is  the  same  one  that                                                               
Caterpillar has in Sub-Saharan Africa,  which has the same amount                                                               
of  challenges  for  getting  parts   and  equipment  service  to                                                               
Caterpillar customers operating there.                                                                                          
MR. HALLORAN  spoke to  the earlier  question about  whether this                                                               
would change  how warranties are  handled and advised  that, yes,                                                               
it very  much would.   Caterpillar's agreement is  different than                                                               
CNH,  Volvo, or  others, he  said, and  HB 209  would impact  how                                                               
Caterpillar  handles its  warranties.   In terms  of out-of-state                                                               
sales, he  noted that  the logical  out-of-state sale  for Alaska                                                               
would  either  be Canada  or  the  state  of Washington  and  for                                                               
Caterpillar, N C Machinery represents the state of Washington.                                                                  
MR.   HALLORAN,  regarding   the  question   about  when   dealer                                                               
agreements get looked  at, said the last  change that Caterpillar                                                               
had  in  its dealer  agreements  occurred  in mid-1970s.    These                                                               
agreements  are  working,  he  stated,  and  the  legislature  is                                                               
overstepping its  bounds in  getting involved  in these  types of                                                               
agreements.    He  added that  Caterpillar  shares  the  concerns                                                               
pointed by Mr. Whitaker.                                                                                                        
4:31:40 PM                                                                                                                    
CHAIR KITO opened public testimony on HB 209.                                                                                   
4:32:03 PM                                                                                                                    
DAVID BLOMMER,  Bicknell Inc.,  testified in  support of  HB 209.                                                               
He said  the Bicknell's have  been in  Alaska for about  40 years                                                               
and  have done  paving for  about 15  years.   In about  2007, he                                                               
related,  Bicknell Inc.  purchased  a  factory rebuilt  Ingersoll                                                               
Rand paver  for about  $225,000, one of  the last  rebuilt pavers                                                               
before  Ingersoll   Rand  sold  its  paving   division  to  Volvo                                                               
Construction Equipment.   After receiving the  machine in Juneau,                                                               
it was obvious there were some problems with it.                                                                                
MR. BLOMMER stated  that Bicknell Inc. had  several meetings with                                                               
the  local dealer  and the  manufacturer  to try  to address  the                                                               
issues.  The  manufacturer told Bicknell to deal  with the issues                                                               
through normal warranty procedures,  he related, but those normal                                                               
warranty  procedures  didn't  cover  travel  or  labor  when  the                                                               
machine broke  down on the  job, airfreighting in the  parts when                                                               
the  machine  was down  and  Bicknell  needed  to pave  to  avoid                                                               
liquidated damages, trucking the paver  back to the dealer to get                                                               
it worked  on, and  renting another paver  to complete  the jobs.                                                               
Bicknell Inc. sold  the paver in 2002 but was  unable to get full                                                               
market value  because Juneau is  a small  town and the  paver was                                                               
already labeled a lemon.                                                                                                        
MR. BLOMMER  stated HB 209 would  have helped reduce some  of the                                                               
costs with the warranty work  performed on the paver, although it                                                               
still  would not  have covered  most of  the costs  incurred that                                                               
were associated  with the down  time.   The bill would  also have                                                               
given Bicknell  Inc. the  ability to return  the paver  under the                                                               
lemon law provision.   For these reasons, he  said, Bicknell Inc.                                                               
asks that the committee support HB 209.                                                                                         
4:33:57 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  stated  he is  sympathetic  but  asked                                                               
whether  Bicknell  Inc.  exercised sufficient  due  diligence  in                                                               
reading the  agreement.  He said  he could see a  situation where                                                               
because of  a compelling need one  might speed through that.   He                                                               
asked whether Bicknell Inc. found  anything in the agreement that                                                               
was violated    where the [dealer/manufacturer] said  it would do                                                               
something but didn't.                                                                                                           
MR. BLOMMER replied  he is before the  committee representing the                                                               
owner,  Roscoe Bicknell,  and he  is  unable to  comment on  that                                                               
because he doesn't know the specifics on the agreement.                                                                         
4:34:57 PM                                                                                                                    
WILL TONSGARD III, Vice President,  Channel Construction, had his                                                               
written testimony  read by Chris Gerondale,  a contract employee,                                                               
as follows:                                                                                                                     
     I,  Will  Tonsgard,  in  Juneau,  Alaska,  ask  you  to                                                                    
     support  HB  209.    I am  vice  president  of  Channel                                                                    
     Construction, in  Juneau, Alaska,  and I'm  speaking on                                                                    
     behalf of  my father - William  "Shorty" Tonsgard, Jr.,                                                                    
     who is president of Channel  Construction - and myself.                                                                    
     We had  not originally intended on  getting involved in                                                                    
     this discussion because I was  concerned about how this                                                                    
     may affect our support  from Caterpillar going forward.                                                                    
     After I  heard ... they  testified in the  Senate Labor                                                                    
     and  Commerce Committee  that  they  didn't have  these                                                                    
     problems  I became  frustrated  and  angry, because  we                                                                    
     have had  many problems  with getting  Caterpillar, and                                                                    
     other  manufacturers  as  well,  to  stand  behind  the                                                                    
     equipment they manufactured for many years.                                                                                
     While we  have had problems with  many manufacturers, I                                                                    
     will  provide  one  example from  our  experience  with                                                                    
     Caterpillar and  can provide more examples  if you feel                                                                    
     it would  be helpful.   Channel  Construction purchased                                                                    
     two new  Caterpillar excavators.   Since they  were new                                                                    
     the  excavators would  turn to  the  left when  driven.                                                                    
     Numerous times  we've had  Caterpillar and  their local                                                                    
     dealer try to fix these  machines, but they could never                                                                    
     fix the  problems.   We paid N  C Machinery,  the local                                                                    
     Cat  dealer,  well  over  $10,000 to  try  to  fix  the                                                                    
     excavators  but   they  still  can't  figure   out  the                                                                    
     problems  to this  day.   We  still own  and use  these                                                                    
     excavators  every week  even though  they  pull to  the                                                                    
     left because  we are a  small company and  can't afford                                                                    
     to  replace  these  machines  even  though  this  issue                                                                    
     affects our  operation.   These are  specialized pieces                                                                    
     of equipment  that would cost  us well over  $1 million                                                                    
     to replace  and we don't have  that kind of money.   We                                                                    
     do a  lot of demolition  and work on barges.   Although                                                                    
     we have never  had an accident due to  this problem, it                                                                    
     is a  potential safety  issue and could  cause problems                                                                    
     at some point.                                                                                                             
     It is  my understanding that  HB 209 would  have helped                                                                    
     alleviate some of the costs  associated with these work                                                                    
     orders and  allowed us to  get these  machines replaced                                                                    
     under  the lemon  law feature  ...  of HB  209 when  we                                                                    
     first purchased these  machines.  We are  just a small,                                                                    
     family-owned  construction company  and don't  have the                                                                    
     administrative  staff to  fight with  big manufacturers                                                                    
     when things  aren't going  the way  they should.   This                                                                    
     bill  will help  small  companies like  ours have  some                                                                    
     leverage  in  getting  our   equipment  fixed  when  it                                                                    
     doesn't  work  as  designed.   I  can  give  you  other                                                                    
     examples  where I  feel  manufacturers  other than  Cat                                                                    
     have not  supported small companies  like ours  when it                                                                    
     comes to warranties and technical service bulletins.                                                                       
4:37:54 PM                                                                                                                    
REPRESENTATIVE  KNOPP  asked whether  the  reason  N C  Machinery                                                               
couldn't  fix the  problem was  because  its maintenance  support                                                               
staff  was   inadequate  or   because  the   manufacturer  wasn't                                                               
providing what was  needed.  He further asked whether  it was the                                                               
manufacturer  or   the  dealer   that  was  not   fulfilling  its                                                               
CHRIS GERONDALE,  Contract Employee, Channel  Construction; part-                                                               
time worker,  Kensington and Greens Creek  mines and Construction                                                               
Machinery Industrial (CMI), responded  that the manufacturer sold                                                               
a  piece of  equipment that  is designed  to drive  forward in  a                                                               
straight line when  both pedals are pushed forward.   However, he                                                               
explained,  when both  pedals are  pushed forward,  the machinery                                                               
turns  to the  left and  this is  a safety  issue operating  on a                                                               
barge.   Why  the  machine does  that is  unknown,  which is  why                                                               
Channel Construction  hired the experts  to come out and  fix it.                                                               
He noted that  he has found at  least five work orders  from [N C                                                               
Machinery] coming out to fix this  problem, but [N C] is not sure                                                               
what the problem is.                                                                                                            
4:39:14 PM                                                                                                                    
REPRESENTATIVE WOOL  asked why  the gripe  isn't with  the dealer                                                               
given that  the sales are not  direct from the manufacturer.   He                                                               
commented that obviously  [N C Machinery and  Caterpillar] have a                                                               
good relationship and that since  Channel Construction bought two                                                               
machines, a  big investment, it  would seem that [N  C Machinery]                                                               
would be on the hook for it.                                                                                                    
MR. C.  GERONDALE answered that  N C Machinery is  absolutely who                                                               
[Channel Construction] goes through  to deal with these problems.                                                               
He  offered his  understanding  that  under Alaska's  automobile,                                                               
boat,  and  ATV  lemon  law,  replacement  is  typically  handled                                                               
through the manufacturer, not the dealer.                                                                                       
REPRESENTATIVE WOOL  asked whether it  is a coincidence  that Mr.                                                               
C. Gerondale has the same last name as ?                                                                                        
MR. C.  GERONDALE replied it is  not a coincidence because  as he                                                               
stated earlier, he does work for CMI.                                                                                           
4:41:25 PM                                                                                                                    
NICK  YAKSICH, Senior  Vice  President,  Government and  Industry                                                               
Affairs, Association of  Equipment Manufacturers (AEM), testified                                                               
in opposition to  HB 209.  He  noted that AEM is  a North America                                                               
based  international  trade  association  representing  over  950                                                               
companies in  the off-highway machinery  market.  He  stated that                                                               
AEM  is  opposed  to  HB  209,  which  [proposes  to]  alter  the                                                               
treatment of  heavy equipment warranties.   He said  AEM believes                                                               
it is  an intrusion  into the  business relationship  between the                                                               
manufacturer and the dealer.  It  is AEM's hope that these issues                                                               
are  dealt with  outside of  the legal  or legislative  arena and                                                               
that  between  the customer,  the  dealer,  and the  manufacturer                                                               
these issues  can be resolved.   In  regard to the  contracts, he                                                               
stated  that ultimately  the manufacturer  looks  to protect  its                                                               
brand and  provide the  best technology and  best service  to the                                                               
dealer and to the customer.   He reiterated that AEM opposes this                                                               
bill  and  said  it  would  have  a  significant  impact  on  all                                                               
4:43:00 PM                                                                                                                    
CHAIR KITO inquired whether AEM  has dealt with other states that                                                               
have laws that provide some direction on warranty.                                                                              
MR. YAKSICH  replied AEM has  not dealt with this  issue recently                                                               
on the warranty.  He said  the contracts are expensed in terms of                                                               
buybacks, warranty,  parts, and  such, but in  this case  AEM has                                                               
not dealt with the warranty issues.                                                                                             
CHAIR  KITO  referenced his  earlier  comments  about the  unique                                                               
construction situation  in Alaska where equipment  is transported                                                               
to  construction sites  and  not easily  accessible  to the  road                                                               
system  or dealers.   Alaska  has some  transportation challenges                                                               
that  other places  don't, he  noted, plus  Alaska has  a limited                                                               
construction season  that makes it  vitally important to  be able                                                               
to have  equipment functioning when  it needs to  be functioning.                                                               
He urged that manufacturers keep this in mind.                                                                                  
MR. YAKSICH offered his appreciation  for the aforementioned.  He                                                               
commented that  the previously mentioned  Tier 4 issue had  to do                                                               
with an Environmental Protection Agency  (EPA) mandate as part of                                                               
the  Clean Air  Act.   He  said manufacturers  spent millions  of                                                               
dollars  in research  and  development to  comply  with that  EPA                                                               
mandate, and it  is an example of the kind  of challenge that AEM                                                               
also faces  working with the  customer, dealer,  and manufacturer                                                               
in complying with the law.                                                                                                      
4:45:10 PM                                                                                                                    
CURTIS  THAYER,  President &  CEO,  Alaska  Chamber of  Commerce,                                                               
stated that the  chamber supports the current version  of HB 209.                                                               
He   noted   the   chamber  represents   over   700   businesses,                                                               
manufacturers,  and local  chambers across  the state.   Alaska's                                                               
remoteness and high  cost of shipping are some  of the challenges                                                               
living here, he  said, and looking out for the  dealers in Alaska                                                               
needs  to be  done.   This bill  is modeled  after other  laws in                                                               
other states for  warranties, he continued, and a  bill is needed                                                               
that extends  the same  protection to heavy  equipment.   It will                                                               
keep Alaska's construction resource industry active and alive.                                                                  
4:46:08 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  asked  whether  the  U.S.  Chamber  of                                                               
Commerce's position  is the same  on these  sorts of bills  as is                                                               
the state's chamber.                                                                                                            
MR.  THAYER  replied  that  the Alaska  Chamber  of  Commerce  is                                                               
affiliated  with   the  U.S.  Chamber   of  Commerce   through  a                                                               
federation,  but the  state chamber  is not  a part  of the  U.S.                                                               
Chamber of Commerce.                                                                                                            
4:46:32 PM                                                                                                                    
CHAIR KITO closed  public testimony on HB  209 after ascertaining                                                               
that no one else wished to testify.                                                                                             
CHAIR KITO held over HB 209.                                                                                                    
4:47:04 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
4:47 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB083 Fiscal Note DOA-COM 3.18.17.pdf HL&C 4/14/2017 3:15:00 PM
HB 83
HB083 Fiscal Note DOA-DRB 4.7.17.pdf HL&C 4/14/2017 3:15:00 PM
HB 83
HB209 Sectional Analysis 4.13.17.pdf HL&C 4/14/2017 3:15:00 PM
HB 209
HB209 Sponsor Statement 4.4.17.pdf HL&C 4/14/2017 3:15:00 PM
HB 209
HB209 Fiscal Note LAW-CIV 4.7.17.pdf HL&C 4/14/2017 3:15:00 PM
HB 209
HB209 Supporting Documents - Letters of support 4.13.17.pdf HL&C 4/14/2017 3:15:00 PM
HB 209
HB209 Supporting Documents - Letters of Opposition 4.14.17.pdf HL&C 4/14/2017 3:15:00 PM
HB 209