Legislature(2017 - 2018)BARNES 124

03/21/2017 01:00 PM House TRANSPORTATION

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01:06:02 PM Start
01:06:35 PM HB136
02:52:50 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
             HB 136-MOTOR VEHICLE DEALER FRANCHISES                                                                         
1:06:35 PM                                                                                                                    
CO-CHAIR WOOL announced that the  only order of business would be                                                               
HOUSE  BILL   NO.  136,  "An   Act  relating  to   motor  vehicle                                                               
franchises,  motor vehicle  transactions, motor  vehicle dealers,                                                               
motor vehicle manufacturers, and motor vehicle distributors."                                                                   
1:07:07 PM                                                                                                                    
REPRESENTATIVE  CLAMAN  presented HB  136  as  prime sponsor  and                                                               
related  that  the  legislation   was  requested  by  the  Alaska                                                               
Automobile   Dealers   Association   (Association)   to   address                                                               
franchise    agreements    between   automotive    dealers    and                                                               
manufacturers.    Similar  legislation  was  offered  during  the                                                               
Twenty-Ninth  Alaska  State  Legislature,  he  advised,  and  the                                                               
Association took the legislative  concerns into consideration and                                                               
requested this  modified bill.  This  legislation brings Alaska's                                                               
dealer franchise  agreements in line  with existing law  in other                                                               
states and  addresses Alaska's  specific circumstances,  he said.                                                               
The  issues  covered  include, franchise  termination,  inventory                                                               
returns, and warranty  work in off-road communities.   He offered                                                               
that automotive  sales and services  vary greatly  from Anchorage                                                               
to Kodiak  to Nome and  a system  fair to all  Alaska communities                                                               
was  necessary.     He   explained  that   responsible  franchise                                                               
agreements  directly  benefit  Alaska's consumers  and  create  a                                                               
level  playing field  between the  dealers and  the manufacturers                                                               
which is in Alaska's best interest.                                                                                             
1:08:14 PM                                                                                                                    
SARAH  PERMAN, Staff,  Representative Matt  Claman, Alaska  State                                                               
Legislature, advised that this bill  recognizes that small Alaska                                                               
automotive  dealers require  assistance  in  dealing with  larger                                                               
manufacturers   who  may   not  appreciate   or  understand   the                                                               
geographic and  demographic complexities  of Alaska,  and pursues                                                               
Alaska friendly  automobile franchise law.   Alaska statutes were                                                               
updated  in 2002,  prior  to  the 2008  market  crash when  large                                                               
manufacturers'  shut down  franchises.   This legislation  offers                                                               
the  following:  "good  cause" for  termination;  updates  notice                                                               
requirements  for   franchise  termination;  sets   out  required                                                               
procedures for dissolving a franchise  and returning inventory to                                                               
the manufacturer,  including the  return of vehicles,  parts, and                                                               
equipment required by the manufacturer;  who can provide warranty                                                               
work;  and   addresses  the  sale,   transfer,  or   exchange  of                                                               
1:10:45 PM                                                                                                                    
MS. PERMAN advised  that Section 1, adds a  section to uncodified                                                               
law with legislative findings and an  overview of the bill.  Sec.                                                               
2, amends  AS 45.25.110(a) and  addresses that  manufacturers may                                                               
not terminate  franchise agreements  unless they have  met notice                                                               
requirements, shown good  cause, and acted in good  faith, or the                                                               
dealer  has  engaged  in  fraud against  consumers.    Secs.  3-4                                                               
specify  reasons  to  not  terminate   franchises,  and  what  is                                                               
considered "good cause."  She deferred to Steve Allwine.                                                                        
1:11:28 PM                                                                                                                    
STEVEN  ALLWINE,   President,  Mendenhall  Auto   Center,  Alaska                                                               
Automotive  Dealers  Association,  advised he  is  an  automobile                                                               
dealer at  the Mendenhall Auto Center  in Juneau, is a  member of                                                               
the Board  of Directors  of the  Alaska Auto  Dealers Association                                                               
(Association),  and  a  member  of  the  board  of  the  National                                                               
Automobile Dealers Association.  He deferred to Gary Sleeper.                                                                   
1:11:59 PM                                                                                                                    
GARY  SLEEPER, Attorney,  Alaska  Automobile Dealers  Association                                                               
(Association),  referred  to Sec.  3,  and  explained that  under                                                               
existing law,  a dealership  or franchise  can be  terminated for                                                               
"good cause," except, the statute  does not provide definition as                                                               
to what constitutes "good cause."   Secs. 3-4 add clarity to what                                                               
constitutes  "good  cause,"  which   is  advantages  to  dealers,                                                               
manufacturers,  and the  court systems.   For  example, he  said,                                                               
under  this  legislation,  a manufacturer  may  not  terminate  a                                                               
franchise  agreement   simply  because  a  dealer   owns  another                                                               
franchise in that some sales  and service agreements provide that                                                               
if  the  dealer   owns  more  than  one  franchise,   it  can  be                                                               
terminated;  it   also  provides   that  the  dealer   cannot  be                                                               
terminated because it sells another  brand from the same facility                                                               
as there are smaller Alaskan cities  that are not large enough to                                                               
not sell multiple  brands out of the same  facility; and provides                                                               
other  common  sense  provisions and  requirements  that  protect                                                               
dealers from termination.                                                                                                       
MR. SLEEPER related that under  HB 136, the manufacturer is still                                                               
committed  to terminate  a dealer  if  the dealer  does not  meet                                                               
sales goals, except these goals  must now be clearly communicated                                                               
by the  manufacture.  Although  the dealer may not  be terminated                                                               
if the  dealer's failure to  meet these  sales goals was  not the                                                               
dealer's  fault  and resulted  from  market,  economic, or  other                                                               
factors beyond the control of the dealer.                                                                                       
MR. SLEEPER  related that another  common sense protection  is if                                                               
the  manufacturer did  not provide  the dealer  with an  adequate                                                               
supply  of vehicles  because  manufacturers  may sometimes  favor                                                               
Lower 48  dealers and  provide preferred  product lines  and then                                                               
criticize the  Alaska dealers for  not meeting  sales performance                                                               
goals.    He  related that  the bill is  not a  radical departure                                                               
from  existing  law,  it  simply  adds  additional  common  sense                                                               
protections  and  describes "good  cause"  for  termination of  a                                                               
1:14:49 PM                                                                                                                    
CO-CHAIR WOOL  asked whether the  existing statute is  the result                                                               
of the 2002 legislation.                                                                                                        
MR.  SLEEPER  agreed  that  it was  the  2002  legislation,  [and                                                               
pointed to [AS 45.25.110(c)], which read as follows:                                                                            
          (c) In this section, "good cause" includes when                                                                       
     the new  motor vehicle dealer  fails to comply  with or                                                                    
     observe   a  material   provision   of  the   franchise                                                                    
MR. SLEEPER  explained that that  provision is the  only guidance                                                               
given to the  courts and dealers in Alaska  when determining what                                                               
constitutes "good  cause" for termination.   He further explained                                                               
that the  additional language  is simply a  list of  common sense                                                               
1:15:54 PM                                                                                                                    
MR.  ALLWINE then  offered  examples  as to  push  back from  the                                                               
manufacturer  in  the  event  a dealer  decided  to  add  another                                                               
franchise, and also offered an example of sales goals.                                                                          
1:18:00 PM                                                                                                                    
CO-CHAIR WOOL referred to Mr.  Allwine's example of 150 Ferrari's                                                               
registered  in  Juneau and  scattered  all  over the  world,  and                                                               
opined that the cars were illegally registered ...                                                                              
MR. ALLWINE  interjected that it  is legal because  an individual                                                               
can register (coughing) piece of legislation (coughing)...                                                                      
CO-CHAIR WOOL  opined that  if an individual  registers a  car in                                                               
Alaska and drives it in another location ...                                                                                    
MR. ALLWINE  interjected that  the venders  are based  in Montana                                                               
and  actually have  an office  in Juneau.   The  venders purchase                                                               
these cars, register them in  Alaska through their Juneau office,                                                               
and export the car  because it is no longer a  new car to another                                                               
country.   Alaska's licensing  regulations permit  that activity,                                                               
and he  said that  the [Department of  Motor Vehicles  (DMV)] has                                                               
stacks  of license  plates that  were returned  after DMV  mailed                                                               
them out, which  is an issue that should be  addressed at a later                                                               
CO-CHAIR WOOL asked whether "they  look at these numbers" and see                                                               
how many  cars are "sold  in Juneau" but  they are not  even sold                                                               
from Juneau dealers.                                                                                                            
MR. ALLWINE said "That is exactly right."                                                                                       
CO-CHAIR WOOL noted that it would  appear there would be a manner                                                               
in which to determine which cars are actually sold ...                                                                          
MR. ALLWINE interjected, "You'd think  so, but if they don't have                                                               
an interest ...                                                                                                                 
CO-CHAIR WOOL asked whether there would be tax data ...                                                                         
MR. ALLWINE answered, "They don't want it."                                                                                     
1:19:58 PM                                                                                                                    
REPRESENTATIVE  CLAMAN surmised  that Mr.  Allwine is  a new  car                                                               
dealer,  and asked  the brands  Mr. Allwine  sells at  Mendenhall                                                               
Auto Sales, his competition in terms  of new car sales in Juneau,                                                               
and in the event of competition, what brand they sell.                                                                          
MR. ALLWINE  responded that  in Juneau, he  and his  partners are                                                               
the last man  standing with two stores that  sell Chrysler, Jeep,                                                               
Subaru, (indisc.), Honda, and Chevrolet.   Up until the beginning                                                               
of  last year  there  was a  standalone Jeep  dealer  and due  to                                                               
certain events in 2009, the  other dealers either sold or closed.                                                               
Recently there  was a satellite  Ford store based out  Kenai, but                                                               
he sold his  facility and closed the store so  his competition is                                                               
Seattle, not so much Anchorage.                                                                                                 
1:21:41 PM                                                                                                                    
REPRESENTATIVE  NEUMAN surmised  that the  committee was  hearing                                                               
from industry as to the legislative intent of the bill.                                                                         
CO-CHAIR WOOL agreed.                                                                                                           
REPRESENTATIVE NEUMAN commented  that it is difficult  for him to                                                               
ask questions  regarding legislative intent when  the industry is                                                               
telling the committee what the  bill is supposed to do [difficult                                                               
to decipher].                                                                                                                   
CO-CHAIR WOOL said he understood.                                                                                               
1:22:27 PM                                                                                                                    
REPRESENTATIVE CLAMAN  explained that  a companion bill  had been                                                               
introduced in  the other body,  and the legislative  request came                                                               
from  the Alaska  Automobile  Dealers Association  (Association).                                                               
He  related that  in  the world  of  simplicity, the  Association                                                               
knows the legislation  as well as anyone,  therefore, it appeared                                                               
easier to  hear directly  from them  than for "us  to try  to add                                                               
another  layer"  (coughing)  when  you've  got  the  people  that                                                               
performed a lot of the research here in the room.                                                                               
REPRESENTATIVE NEUMAN  said he understood and  reiterated that it                                                               
was hard  for him to ask  questions of industry as  to the intent                                                               
of the legislation.                                                                                                             
CO-CHAIR   WOOL  advised   there   were   individuals  from   the                                                               
manufacturers' side online.                                                                                                     
1:23:24 PM                                                                                                                    
MR.  ALLWINE explained  that the  reason industry  [requested the                                                               
legislation]  is  that under  federal  law,  antitrust laws,  the                                                               
dealers cannot gather  or organize as a group  and negotiate with                                                               
1:23:53 PM                                                                                                                    
CO-CHAIR STUTES commented that as  an individual, she would think                                                               
that Mr. Allwine  was certainly capable of  having a conversation                                                               
with a manufacturer.  She asked whether she was correct.                                                                        
MR. ALLWINE replied that her  comment was incorrect and described                                                               
that  automotive  dealer   franchise  agreements  are  unilateral                                                               
agreements  and  are  "take  it  or  leave  it"  documents.    He                                                               
explained that when  a dealer agrees to the terms  and signs that                                                               
document,  it receives  the franchise,  yet the  manufacturer can                                                               
arbitrarily change those  terms at any given point in  time.  The                                                               
agreements   require   significant    investments   in   capital,                                                               
facilities, people,  equipment, and the franchise  agreements are                                                               
in effect  for specific periods of  time.  When the  agreement is                                                               
up for renewal, the manufacturer  can require the dealer to build                                                               
a new building and invest  additional capital, and the dealer has                                                               
no control because there is no negotiation.                                                                                     
1:25:17 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
1:25:56 PM                                                                                                                    
CO-CHAIR WOOL noted that he had  gotten off track in asking about                                                               
the cars registered  in Juneau that leave the  country, and asked                                                               
that Ms. Perman continue with the sectional analysis.                                                                           
1:26:33 PM                                                                                                                    
MS.  PERMAN  turned  to  Sec.  5, and  described  it  as  cleanup                                                               
language  that  amends AS  45.25.120(a),  creates  a roadmap  for                                                               
termination, requires that the manufacturer  provide notice of 90                                                               
days  unless the  dealer is  insolvent or  has failed  to conduct                                                               
business for  seven consecutive days,  is convicted of  a felony,                                                               
or has their license revoked or  suspended for more than 30 days,                                                               
in which case they  must only provide 15 days.   In the event the                                                               
manufacturer discontinues sale and  distribution of a product, it                                                               
must provide notice of 180 days.                                                                                                
MS.  PERMAN  turned to  Secs.  6-9,  and advised  the  provisions                                                               
further discuss termination.  Sec.  6, adds new section 45.25.135                                                               
and allows that  dealer may terminate the  franchise agreement by                                                               
providing the manufacturer  with a notice of 90 days.   Secs. 7-8                                                               
repeals  and  reenacts  45.25.140   and  .150  respectively,  and                                                               
provides  termination  assistance.    Sec. 9,  adds  new  section                                                               
45.25.155  and   provides  no  termination  assistance   for  bad                                                               
behavior.    Sec. 10,  repeals  and  reenacts AS  45.25.160,  and                                                               
provides  guidance as  to  the successor  of  the franchise,  the                                                               
manufacturers  may  not  withhold  consent   to  the  sale  of  a                                                               
franchise if the buyer meets  the manufacturer's standards and is                                                               
capable of being  licensed as a new motor dealer  in the state or                                                               
the manufacturer must provide written grounds for refusal.                                                                      
1:28:46 PM                                                                                                                    
MS. PERMAN said  that Sec. 11, adds AS  45.25.165 wherein dealers                                                               
are  not relieved  of an  obligation to  mitigate dealer  damages                                                               
upon termination.   Sec. 12,  repeals and reenacts  AS 45.25.170,                                                               
and  provides that  the dealer  may  appoint a  successor to  the                                                               
franchise in  circumstances of death or  incapacity under certain                                                               
conditions, and  manufacturers are  required to  provide specific                                                               
written grounds for  refusal to honor succession,  and failure to                                                               
do so within  60 days is considered approval of  successor.  Sec.                                                               
13,  repeals  and reenacts  AS  45.25.180,  and provides  that  a                                                               
manufacturer must provide 90 days  written notice if establishing                                                               
or relocating additional dealers  into a dealer's relevant market                                                               
area, and  the manufacturer must  establish good cause  for their                                                               
1:30:05 PM                                                                                                                    
CO-CHAIR  WOOL  offered  the scenario  of  owning  the  Chevrolet                                                               
dealership in  town, and the Chevrolet  manufacturer advised that                                                               
it was  putting another Chevrolet  dealership in town,  and asked                                                               
whether he  receives a notice of  90 days under existing  law and                                                               
this proposed legislation.                                                                                                      
MR.  SLEEPER  advised  that  under   current  statute  there  are                                                               
different notice  requirements for termination  and establishment                                                               
CO-CHAIR WOOL interjected, establishing a new dealer.                                                                           
MR. SLEEPER said  that it is 90 days, (coughing)  was not changed                                                               
from existing law.                                                                                                              
1:31:27 PM                                                                                                                    
CO-CHAIR  WOOL  asked  whether that  scenario  happens  often  in                                                               
MR. SLEEPER responded that he  knows it happened at the Anchorage                                                               
Chrysler  Center  dealership  because the  statutory  protections                                                               
that are available  to dealers throughout the  nation under other                                                               
franchise laws, was  not available in Alaska.   He explained that                                                               
the  Chrysler  Corporation  told the  Anchorage  Chrysler  Center                                                               
dealership  to   make  some   substantial  improvements   to  the                                                               
facility,   the  dealer   advised  that   under  these   economic                                                               
conditions  it could  not justifiably  make the  improvements and                                                               
asked  that  Chrysler Corporation  give  it  the Jeep  dealership                                                               
because that would offer added  value, especially in Alaska.  The                                                               
Chrysler  Corporation  refused to  give  it  the Jeep  dealership                                                               
unless it remodeled, the dealership  could not afford the remodel                                                               
so Chrysler Corporation  gave the dealership notice.   The dealer                                                               
then  challenged  the  Chrysler  Corporation in  court,  but  the                                                               
Chrysler Corporation was  able to open a new  dealership and give                                                               
the Jeep dealership to the new  dealer, over the objection of the                                                               
local dealer.  He related  that this incident highlights the need                                                               
for  various protections  for dealers  because manufacturers  can                                                               
post  facility requirements  and demand  that the  dealer improve                                                               
the facility, even if it doesn't  make economic sense, or it will                                                               
terminate  the franchise.   Although,  he  said, this  occurrence                                                               
does not happen frequently.                                                                                                     
1:34:54 PM                                                                                                                    
MS. PERMAN turned to Sec. 14,  adds new section AS 45.25.185, and                                                               
provides  that  dealers may  file  an  action in  superior  court                                                               
within 30  days of receiving  notice of termination  to determine                                                               
whether  good cause  for termination  exists.   In the  event the                                                               
manufacturer refuses  to approve the  sale, dealers have  20 days                                                               
from receipt  of the notice to  file an action.   Sec. 15, amends                                                               
AS 45.25  by adding four  new consumer protection  sections: Sec.                                                               
45.20.200,  provides  that the  manufacturer  shall  pay for  all                                                               
warranty work  performed by  the dealer  if the  dealer submitted                                                               
claims  within  90  days  of  the completion  of  the  work,  the                                                               
manufacturer must  approve or  deny the claim  within 15  days of                                                               
receipt of  the notice  and provide  written reasons  for denial.                                                               
Sec. 45.25.210, provides that the  manufacturer shall provide the                                                               
dealer with a schedule of  compensation for warranty work, policy                                                               
work,  and  other services  the  manufacturer  requires, and  the                                                               
manufacturer  may  not  dictate  the  average  retail  percentage                                                               
markup.  Sec. 45.20.220, provides  that if a certified technician                                                               
is not available within one  business day of delivery, the dealer                                                               
may use  a non-certified technician  to perform repair  under the                                                               
supervision of a certified technician,  the manufacturer will pay                                                               
the  dealer the  same  price  as if  a  certified technician  had                                                               
completed the repair.  In the  event the vehicle is in a location                                                               
off of the  road system for more than 100  miles from a certified                                                               
dealer,  a  dealer may  arrange  for  a non-certified  technician                                                               
where the vehicle  is located.  Sec. 45.25.230,  provides that if                                                               
a manufacturer  discontinues or reduces  the vehicle line  to the                                                               
extent  the  franchise  is no  longer  economically  viable,  the                                                               
dealer  may   consider  the  termination  or   reduction  of  the                                                               
franchise agreement.                                                                                                            
1:36:42 PM                                                                                                                    
MS. PERMAN turned to Sec.  16, repeals and reenacts AS 45.25.300,                                                               
which  relates  to  unfair   practices  and  particularly  unfair                                                               
practices  that   dealers  have  been   forced  to  take   on  by                                                               
manufacturers   including:   incentive  programs,   methods   for                                                               
delivery,  ability  to  collect  document fees,  ability  of  the                                                               
manufacturer  to   withhold  accessories,   require  unreasonable                                                               
advertising displays,  refuse to  offer all  models manufactured,                                                               
bypass the  dealer and sell  directly to the client,  and require                                                               
the  dealer  to  make  material  alterations  to  the  dealership                                                               
facility.    Sec.  17, repeals  and  reenacts  AS  45.35.990(19),                                                               
defines terminate.   Sec. 18,  amends AS 45.25.990,  defines line                                                               
or  make  and  relevant  market   area.    Sec.  19,  repeals  AS                                                               
45.25.110(b)  and AS  45.25.110(c),  repeals franchise  agreement                                                               
termination due  to death or  incapacity, and must  provide "good                                                               
cause."   Sec. 20, adds a  new section to uncodified  law, to the                                                               
applicability  section   regarding  to  whom  the   bill  may  be                                                               
applicable, the  effective date, and  the definitions.   Sec. 21,                                                               
adds  a new  section of  uncodified law,  transition schedule  of                                                               
compensation, and definition section.                                                                                           
1:38:04 PM                                                                                                                    
MS.   PERMAN   deferred   to  Mr.   Sleeper,   in   response   to                                                               
Representative  Neuman's  question  as  to whether  there  was  a                                                               
difference between a new and established dealer.                                                                                
MR.  SLEEPER explained  that a  new  motor vehicle  dealer has  a                                                               
franchise and other  motor vehicle dealers are  used car dealers.                                                               
This statute  only applies  to the holder  of new  motor vehicles                                                               
dealer franchise agreement with the manufacturer, he explained.                                                                 
1:38:58 PM                                                                                                                    
CO-CHAIR WOOL surmised  that the motor vehicles are  new and it's                                                               
not the dealers that are new.                                                                                                   
MR. SLEEPER answered  that new motor vehicle is  defined and then                                                               
CO-CHAIR WOOL interjected, dealer of new motor vehicles.                                                                        
MR. SLEEPER answered in the affirmative.                                                                                        
1:39:17 PM                                                                                                                    
REPRESENTATIVE  NEUMAN related  that  he was  familiar with  this                                                               
discussion and  referred to Sec.  7, inventory and  supplies, and                                                               
said a  large issue  with the new  vehicles is  keeping inventory                                                               
and  stock on  hand.    He asked  whether  there  is an  industry                                                               
standard as to how much inventory  and stock the dealer must have                                                               
on hand for spare parts for any vehicles.                                                                                       
MR.  ALLWINE advised  that there  is  a standard.   The  Chrysler                                                               
Corporation  recently introduced  the Chrysler  Pacifica, so  the                                                               
manufacturer arbitrarily  ships the  dealership a  specific batch                                                               
of  parts  and  components  that  the  manufacturer  expects  the                                                               
dealership will  need in the  coming six months.   The dealership                                                               
carries  that level  of parts  and  then the  market and  demands                                                               
control that level  of parts.  Although, he said,  in his case he                                                               
probably  has  $1.5 million  in  just  parts and  inventory,  not                                                               
including the  vehicles, not including  special equipment  - just                                                               
parts and inventory.                                                                                                            
1:40:55 PM                                                                                                                    
REPRESENTATIVE  NEUMAN  offered a  scenario  of  a vehicle  being                                                               
recalled  due  to a  faulty  crankshaft,  and asked  whether  Mr.                                                               
Allwine was  required to  keep a  set amount  of space  for those                                                               
MR. ALLWINE answered that recalls  are a complex issue because in                                                               
many cases it  may be as simple as the  availability of the part.                                                               
He explained that the consumer  and dealerships are notified, and                                                               
the manufacture  advises the dealerships  of the  availability of                                                               
the part, the manufacturer then  sends out a secondary mailing to                                                               
the  consumer,   and  subject  to  what   the  manufacturer  made                                                               
available  to the  nationwide dealers  determines how  the dealer                                                               
stocks and what it stocks.   He referred to Honda's airbag recall                                                               
and he  said he  probably has  60 of those  airbags on  the shelf                                                               
currently  for his  consumers in  the area,  he stocks  those and                                                               
pays for those airbags out of his  pocket.  He related that as to                                                               
the  recovery of  that investment,  at  the point  the recall  is                                                               
executed, the manufacturer reimburses him.                                                                                      
1:42:13 PM                                                                                                                    
REPRESENTATIVE NEUMAN  asked whether  he was  required to  have a                                                               
certain amount  of recalled  parts in stock,  and whether  he was                                                               
required to  keep the recalled  part on  the shelf for  a certain                                                               
amount of time.                                                                                                                 
MR. ALLWINE  answered that  that is  entirely possible,  it would                                                               
depend  upon  each  recall,  but  that it  was  not  out  of  the                                                               
MR. ALLWINE,  in response to Representative  Neuman, advised that                                                               
the statute was not being changed.                                                                                              
REPRESENTATIVE NEUMAN asked what was changed in Sec. 7.                                                                         
MR. SLEEPER replied  that under existing law, Sec.  7 is referred                                                               
to as "termination  assistance," and it simply  includes a couple                                                               
of items  the manufacturers  would be required  to buyback.   For                                                               
example,  manufacturers  require  that dealers  buy  loaners  and                                                               
carry  a   certain  inventory.     Under  current  law,   if  the                                                               
manufacturer terminates  a dealer  with a  fleet of  loaners, the                                                               
manufacturer does  not have  to buyback the  loaners.   This bill                                                               
language  adds  loaners to  the  buyback  requirements, and  adds                                                               
computers, printers,  and such, because the  dealers are required                                                               
to  operate  sophisticated  dealer management  systems  with  the                                                               
manufacturer's  computers,  printers,  and hardware.    The  bill                                                               
language  also  read  that if  the  manufacturer  terminates  the                                                               
dealer,  the manufacturer  must buyback  these additional  items,                                                               
which is not in current law.                                                                                                    
1:43:55 PM                                                                                                                    
CO-CHAIR STUTES offered confusion as  to why the committee should                                                               
get  between private  industries, and  described it  as a  slight                                                               
overreach.    She  referred  to  the  3/16/17  letter  from  Curt                                                               
Augustine,  Alliance  of  Automobile  Manufactures,  directed  to                                                               
Marten Martensen,  Alaska Auto  Dealers Association,  wherein the                                                               
discussion is meeting to discuss  this legislation, and she asked                                                               
whether  the   parties  had  gotten   together  to   discuss  the                                                               
legislation  or decided  it  would be  more  expedient to  appear                                                               
before the  legislature.   She reiterated  concern as  to getting                                                               
involved in  private industry because once  the legislature opens                                                               
this floodgate,  where does it  stop.  While she  understands the                                                               
dealers  need  some  type of  accommodating  agreement  with  the                                                               
manufacturers, she noted her problem  in seeing the legislature's                                                               
responsibility to ensure that accommodation.                                                                                    
1:45:35 PM                                                                                                                    
MR. SLEEPER  read an  excerpt from a  1978 United  States Supreme                                                               
Court decision, as follows:                                                                                                     
     Dealers are, with  few exceptions, completely dependent                                                                    
     on the manufacturer  for their supply of cars.   When a                                                                    
     dealer has invested to the  extent required to secure a                                                                    
     franchise,  he becomes  in a  real  sense the  economic                                                                    
     captive   of  his   manufacturer.     The   substantial                                                                    
     investment of his  own personal funds by  the dealer in                                                                    
     the  business,  the  inability to  convert  easily  the                                                                    
     facilities to other uses, the  dependence upon a single                                                                    
     manufacturer   for   supply   of  vehicles,   and   the                                                                    
     difficulty  of  obtaining   a  franchise  from  another                                                                    
     manufacturer, all  contribute toward making  the dealer                                                                    
     an easy  prey for  domination by the  factory.   On the                                                                    
     other  hand,  from  the standpoint  of  the  automobile                                                                    
     manufacturer,  any single  dealer is  expendable.   The                                                                    
     faults  of  the  factory  dealer  system  are  directly                                                                    
     attributable  to the  superior market  position of  the                                                                    
1:46:38 PM                                                                                                                    
MR. SLEEPER  pointed out that  the excerpt was the  United States                                                               
Supreme  Court's   statement  of  the  overall   problem.    When                                                               
discussing  contracts  between  parties,   he  described,  it  is                                                               
envisioned  that one  person  makes an  offer,  the other  person                                                               
makes an acceptation, and they negotiate  over the terms.  In the                                                               
United  States  there is  no  negotiation  over these  contracts,                                                               
these  franchise   agreements  are  a   "take  it  or   leave  it                                                               
agreement," and the same agreement  is used by every manufacturer                                                               
in  every  state  with  no  negotiation.    All  50  states  have                                                               
recognized  that because  these  are contracts  of adhesion,  the                                                               
government  does  need  to  intervene.   He  related  that  under                                                               
current Alaska law a provision read as follows:                                                                                 
     The terms  and conditions in agreement  -- in agreement                                                                    
     between a  manufacturer and a new  motor vehicle dealer                                                                    
     in this  state, including a motor  franchise agreement,                                                                    
     that are  inconsistent with  the law  of this  state do                                                                    
     not have any force or effect in this state.                                                                                
1:47:42 PM                                                                                                                    
MR.  SLEEPER  reiterated that  that  is  how  all 50  states  are                                                               
protecting these dealers because these  are "take it or leave it"                                                               
contracts.   These  state statutes  protect dealers  and in  many                                                               
instances  protect the  consumer, and  that consumer  protections                                                               
are written into  the bill language.  He referred  to a series of                                                               
maps [included  in the committee packets],  and acknowledged that                                                               
the  Alliance  of  Automobile Manufacturers  (Alliance)  believes                                                               
this is  a radical  departure from existing  law, that  Alaska is                                                               
making  new law,  and so  forth.   Thus,  a series  of maps  were                                                               
prepared  depicting how  Alaska  is behind  the  curve, that  the                                                               
provisions are  common in every state  depicted in red -  a state                                                               
with a  franchise statute  providing termination  assistance that                                                               
currently requires  warranty reimbursement  at resale rates.   He                                                               
related that  these adhesion contracts  are a major reason  it is                                                               
important for  the legislature to  get between  the manufacturers                                                               
and  the dealers  because  the only  protections  are when  state                                                               
legislatures  determine   that  the   laws  of  that   state  are                                                               
inconsistent with (indisc.) contract that the law controls.                                                                     
1:49:58 PM                                                                                                                    
CO-CHAIR  STUTES  referred to  the  discussion  of franchise  and                                                               
wondered whether it was same  when buying a McDonald's franchise,                                                               
and offered  a scenario  of McDonald's  requiring a  franchise to                                                               
purchase  the golden  arches, and  if the  dealer did  not abide,                                                               
McDonald's would take  the franchise away.  She  advised there is                                                               
one  car dealership  in her  district  and the  dealer loves  the                                                               
franchise, and that she could not quite get past the overreach.                                                                 
MR. SLEEPER  reiterated that  the reason all  50 states  have the                                                               
franchise  statutes  is  due  to  the  relationship  between  the                                                               
automobile dealers and manufacturers.   He pointed out that there                                                               
is incredible  overreach and  disparate bargaining  power between                                                               
the manufacturers and the automobile  dealers.  Although, he said                                                               
he  does   not  know  whether  the   McDonald's  franchises  have                                                               
statutory protection, but  just because they do not  have it does                                                               
not  mean they  need protection.   He  stated that  the franchise                                                               
agreements "literally say,  this is what they say, as  long as we                                                               
adopt the same  contract in every state, so if  you want to amend                                                               
our franchise agreement  after you've signed it, we  can amend it                                                               
as long as  we amend it in  all 50 states."  While  that may work                                                               
in 49 states with good  franchise protection, Alaska's dealers do                                                               
not  have  that protection.    For  example,  he pointed  out,  a                                                               
manufacturer  can tell  an Alaska  dealer to  order 10  two-wheel                                                               
drive  convertibles  if they  want  to  receive three  four-wheel                                                               
drive vehicles, and that sort of  heavy handling can't be done in                                                               
the other  49 states.   He  then offered  examples of  dealers in                                                               
Alaska being treated with a heavy hand.                                                                                         
1:53:56 PM                                                                                                                    
REPRESENTATIVE  KOPP  related  that  there  appears  to  be  some                                                               
anomalies in "our free market"  with manufacturers and automobile                                                               
dealers that are  difficult for free market minded  people to get                                                               
their heads around and why this  issue is so different.  He asked                                                               
where the public money was involved  - so why was the legislature                                                               
involved, and whether McDonald's  and other franchises would come                                                               
to  the legislature  for some  type  of protection.   Except,  he                                                               
pointed  out, those  franchises  are not,  which  then says  that                                                               
possibly there is something unique happening in this situation.                                                                 
1:55:10 PM                                                                                                                    
MR.  ALLWINE  responded that  car  dealers  are all  free  market                                                               
people  in  a  unique  situation.    He  explained  that  on  the                                                               
manufacturer  side, various  levels  can dictate  to the  dealers                                                               
such  as at  the  business center  level, and  in  the event  the                                                               
interests, bonus plans, and/or personnel  change, the "whole game                                                               
can change for us,  it changes on a whim."   He related that they                                                               
have worked on  this bill for two years, on  August 25, 2016, the                                                               
Alaska Auto  Dealers Association (Association) directed  a letter                                                               
to the Alliance of Automobile  Manufacturers (Alliance) with zero                                                               
response,  and  that  the  Association   has  tried  on  multiple                                                               
occasions to have  a discussion with the  Alliance regarding this                                                               
bill.    He  related  that  a couple  of  weeks  ago  the  Senate                                                               
companion  bill was  heard,  and after  the  hearing, Ross  Good,                                                               
representative  from Fiat-Chrysler  and  he  promised each  other                                                               
that if there was no  communication, that they would communicate.                                                               
On March 17, 2017, he called Mr.  Good and advised he had not yet                                                               
heard from  anyone, and exactly  two hours later he  received the                                                               
3/16/17  letter  Co-Chair Stutes  referred  to.   He  stated,  "I                                                               
guarantee you that  letter wasn't written on March  16, 2017, and                                                               
it wasn't  a coincidence that it  showed up on March  17, 2017 in                                                               
an  email."   The  Alliance  has  been non-cooperative  and  non-                                                               
responsive on  these issues,  he stressed,  and pointed  out that                                                               
the  letter  requested  a  detailed  list  of  the  Association's                                                               
concerns, and he said "We already have it in detail, 29 pages."                                                                 
1:58:05 PM                                                                                                                    
CO-CHAIR  WOOL noted  that  these issues  appeared  to be  inter-                                                               
industry  disagreements  which  the legislature  hoped  could  be                                                               
resolved using existing statute.                                                                                                
1:58:56 PM                                                                                                                    
REPRESENTATIVE CLAMAN noted that as  of 2002, there was the sense                                                               
that  the  market  wasn't  working well  for  Alaskans,  and  the                                                               
perspective of the dealers is  that the statute still needs work.                                                               
He related that as sponsor of  this bill he hears the committee's                                                               
comments as to whether the bill  needs to go all that far, what's                                                               
wrong with the status quo, and  to identify the problems with the                                                               
status quo.   He said  he would  look carefully at  the perceived                                                               
problems with existing statutes that may need improvement.                                                                      
2:00:46 PM                                                                                                                    
REPRESENTATIVE  KOPP  asked  how this  legislation  would  impact                                                               
MR.  ALLWINE answered  that one  of the  biggest sections  in the                                                               
legislation  deals  with warranties  and  recalls,  which is  the                                                               
single most  important area as  far as  impact to consumers.   He                                                               
referred to consumers living 100  miles off-road or on an island,                                                               
and  advised it  would allow  dealers the  ability to  facilitate                                                               
repairs  in remote  locations in  a manner  that would  benefit a                                                               
consumer.   Current statutes do  not give dealers  enough control                                                               
in  assisting  consumers, whether  it  is  for  the recall  or  a                                                               
warranty  repair.   He then  offered a  recall example  wherein a                                                               
person living in  Ketchikan had a Chrysler  vehicle recalled, and                                                               
the Chrysler manufacturer paid for  the ferry in both directions.                                                               
Except, when  the gentleman had another  Chrysler vehicle subject                                                               
to  a  recall, the  Chrysler  manufacturer  wasn't interested  in                                                               
reimbursing  him  for  the  ferry.    He  pointed  out  that  the                                                               
manufacturers  are   inconsistent  in   their  decisions.     The                                                               
gentleman  contacted the  Better Business  Bureau twice,  and Mr.                                                               
Allwine had  to respond  twice, then the  gentleman wrote  to the                                                               
Attorney General's Office, and Mr.  Allwine responded that it was                                                               
not in his purview.   Mr. Allwine explained that this legislation                                                               
would assist in  those situations because it  would allow dealers                                                               
to facilitate those issues in an effective manner.                                                                              
2:02:55 PM                                                                                                                    
REPRESENTATIVE KOPP  referred to  repairs and warranty,  and said                                                               
the manufacturer  manufactures all of  the parts for  repairs and                                                               
warranties, and  asked whether it  sells those parts  directly to                                                               
the dealers  at a market rate,  or whether there other  things it                                                               
can do with  those parts that are problematic as  far as "filling                                                               
into a part shop cheaper than to the dealers."                                                                                  
MR. ALLWINE responded that different  manufacturers sell to their                                                               
dealers at varying  markups, such as General  Motors, in addition                                                               
to  selling certain  things to  their dealers  inconsistently, it                                                               
also sells to  outlying parts houses at rates  that are sometimes                                                               
less  than what  their dealers  are buying.   He  related that  a                                                               
General Motors dealer cannot buy  a Chevrolet engine from General                                                               
Motors, they have to go to  another Chevrolet dealer, and he is a                                                               
Chevrolet   dealer.     There  are   significant  inconsistencies                                                               
existing  within   the  industry  which  demonstrates   why  this                                                               
legislation was  put forth in that  it is not just  with a single                                                               
manufacturer, but rather a number  of manufacturers, and they all                                                               
have a different take.                                                                                                          
2:04:35 PM                                                                                                                    
MR. SLEEPER  added that, currently  if a certified  technician is                                                               
not available  for warranty  work, the person  must wait  to have                                                               
the  worked  performed.   In  the  event another  technician  was                                                               
available  that  could  do  the  work  and  be  supervised  by  a                                                               
certified  technician,  it  is  the  dealers'  belief  that  that                                                               
practice should  be allowed and  reimbursed by  the manufacturer,                                                               
he said.   This issue is  corrected with the language  in HB 136,                                                               
he  explained, in  the  event  a person  lived  100-miles from  a                                                               
service facility, any facility could fix  it as long as they were                                                               
supervised  by the  manufacturer's representative,  which is  the                                                               
dealer.   He explained  that the  manufacturer requires  that the                                                               
dealers perform warranty work and  the manufacturer specifies the                                                               
price the  dealer can  charge for  that warranty  work.   He then                                                               
referred to the rights of  contracts and parties, and asked where                                                               
else  does the  buyer dictate  the price  the seller  can charge,                                                               
except  in  this  business.    Warranty  work  is  expensive,  he                                                               
expressed, because  dealers must  have special tools,  send their                                                               
service technicians  out for schooling,  and such,  and according                                                               
to the  manufacturer, the dealer  can only charge 70  percent and                                                               
limits the amount  of time spent on the repair  to bring the cost                                                               
down for  the manufacturer.   Capitalism and  economic principles                                                               
were  previously discussed,  and he  pointed out  that when  that                                                               
cost is shifted  to the manufacturer and the  dealer can't charge                                                               
a fair rate  for the warranty work, that extra  cost gets made up                                                               
in the non-warranty  work performed for consumers.   He explained                                                               
that  in the  event  a manufacturer  wanted to  move  into a  new                                                               
location  and open  a  new  store, there  are  four  or five  new                                                               
provisions  that specifically  direct the  court to  consider the                                                               
competition, the  effect on  the consumer, what  it would  do for                                                               
pricing, and to make certain it did not result in a monopoly.                                                                   
2:08:29 PM                                                                                                                    
CO-CHAIR  WOOL  asked  whether  warranty  work  was  only  dealer                                                               
authorized work and he could only  go to that dealer and not shop                                                               
around for the best price.                                                                                                      
MR.  SLEEPER opined  that any  dealer in  the authorized  service                                                               
centers could perform the work.                                                                                                 
CO-CHAIR  WOOL clarified  his question  and said  that as  far as                                                               
being  a  dealer  that  performs  warranty work,  a  lot  of  the                                                               
dealer's business  is probably warranty  work at a  reduced rate,                                                               
which is  similar to  a doctor  taking Medicaid  patients wherein                                                               
the  doctor  receives  a  discount   in  reimbursement  but  also                                                               
receives a large amount of patients.                                                                                            
MR. ALLWINE  responded that the  nationwide reality, not  just in                                                               
Alaska, is that approximately 30  percent of his work is warranty                                                               
work and the  bulk of the work is retail  work for his customers.                                                               
He  explained that  prior to  the massive  recalls, manufacturers                                                               
had always advised  the dealers that the  manufacturers would not                                                               
be a  prime part of the  dealer's business, and that  the dealers                                                               
needed to  cultivate their retail  consumers, which is  the bases                                                               
under which dealers operate.                                                                                                    
2:10:13 PM                                                                                                                    
REPRESENTATIVE   SULLIVAN-LEONARD    noted   that   manufacturing                                                               
entities operate primarily in the  Eastern United States and many                                                               
of the dealerships  are all across this state, and  asked how the                                                               
Federal Trade  Commission is then  overseeing how  the agreements                                                               
are  made between  the manufacturers  and the  dealerships.   She                                                               
opined that part of this  discussion is state oversight, but also                                                               
federal  oversight,  and  she  asked for  a  description  of  the                                                               
federal umbrella ...                                                                                                            
2:11:09 PM                                                                                                                    
MR. SLEEPER answered  that because it is a matter  of contract in                                                               
general, the  federal government  defers to state  franchise laws                                                               
to  govern the  dealer/manufacturer  relationship.   The  Federal                                                               
Trade  Commission comes  in to  govern  the relationship  between                                                               
dealers and consumers, he explained.                                                                                            
2:12:07 PM                                                                                                                    
DAVID  BRIGHT, Attorney,  Alliance  of Automobile  Manufacturers,                                                               
advised that  he is  an attorney for  the Alliance  of Automobile                                                               
Manufacturers  (Alliance) representing  12 manufacturers  of cars                                                               
and light  trucks and  combined, produces  roughly 70  percent of                                                               
the cars  sold in the United  States every year.   He pointed out                                                               
that  this  bill  rewrites existing  contracts  between  business                                                               
partners, and as such there  is no compelling public purpose here                                                               
or  reason  for  the  legislature's  involvement.    During  this                                                               
hearing,  the  contracts  have been  discussed  as  contracts  of                                                               
adhesion or  somehow nefarious strong-arm type  of contracts, and                                                               
simply stated that  is not the case, he said.   The manufacturers                                                               
must offer  the same deal to  all dealers and the  only manner in                                                               
which to do  that is to use form contracts.   The alternative, he                                                               
pointed out,  would be to  negotiate with each  individual dealer                                                               
resulting  in different  deals  for each  dealer,  and given  the                                                               
attention  the  current  law  and   this  bill  gives  to  unfair                                                               
practices  or  discriminating  against   dealers,  he  could  not                                                               
imagine that  would be  the outcome  Alaska dealers  would prefer                                                               
over the uniform  contracts, he said.  The  uniform contracts, he                                                               
described, are not  just handed out as edicts from  "on high," as                                                               
dealers do have a means to  influence those contracts, as well as                                                               
the  rest  of  the  business between  the  manufacturer  and  the                                                               
dealer,  through  "dealer  councils."   Mr.  Bright  likened  the                                                               
dealer council  as almost legislative bodies  (indisc.) sample of                                                               
different dealers able  to give input to the  manufacturer on the                                                               
franchise   contract  and   any   programs   or  incentives   the                                                               
manufacturer  may be  running,  and those  dealers  advise as  to                                                               
certain  pitfalls  and  issues  the  manufacturer  may  not  have                                                               
considered.   Those  dealer councils  are  productive and  viable                                                               
ways for  manufacturers and dealers  to communicate and  work out                                                               
their differences, he said.                                                                                                     
2:14:45 PM                                                                                                                    
MR.  BRIGHT related  that in  terms  of this  bill generally,  he                                                               
submitted that this bill does not  catch Alaska up to the rest of                                                               
the country, but rather this  language makes Alaska an outlier by                                                               
adopting extreme  versions of  almost every  single idea  [in the                                                               
bill].  He referred to Map  5, addressing that most of the states                                                               
in  the  country have  termination  assistance,  and he  said  he                                                               
agreed, but definitely not by  what is contemplated in this bill.                                                               
This legislation would  require payment for "even  the dealer who                                                               
quits the  business," wherein the  rest of the  country generally                                                               
accepts  what  happens  when  the   manufacturer  is  the  entity                                                               
terminating  a  dealer,  he  related.   For  example,  an  entity                                                               
generally would  not give the  same severance package  to someone                                                               
who  quit  working, as  opposed  to  some  asked  to leave.    He                                                               
referred to  Maps 8-9,  reimbursements for  parts and  signs, and                                                               
noted there  is an  important distinction  because in  only seven                                                               
states in  the country do they  follow the model suggested  in HB
136,  the   manufacturer  reimburse  for  items   recommended  or                                                               
required.  Typically,  he said, other states  are reimbursed only                                                               
what the  manufacture required as opposed  to recommended because                                                               
expanding  the   scope  of  the   liability  to   include  simple                                                               
recommendations would  stifle what  the manufacturer  may suggest                                                               
to  the  dealer  that  should  be  helpful  for  everyone.    The                                                               
manufacturer  certainly  does  not  intend to  expose  itself  to                                                               
liability upon making a simple  recommendation, he explained.  He                                                               
referred  to   Map  23,  regarding  warranty   audits  wherein  a                                                               
manufacturer reviews  what it  had already  paid car  dealers for                                                               
warranty  work in  order to  be certain  the claims  and payments                                                               
were proper.   Alaska already  would be a  bit of an  outlier for                                                               
the fact it  limits that audit period to six  months, he related,                                                               
but then  it adds  another wrinkle which  is that  a manufacturer                                                               
may audit six months back but it  can only do that once per year.                                                               
Thereby,  allowing  a six  month  period  where the  manufacturer                                                               
cannot  review  or  "do  anything" which,  he  described,  is  an                                                               
invitation for sloppiness  and a free for all.   He noted that he                                                               
had submitted a separate document  explaining his issues with the                                                               
2:17:55 PM                                                                                                                    
MR.  BRIGHT referred  to "intra-brand  competition", and  advised                                                               
that Sec.  10 will  make it harder  for manufacturers  to prevent                                                               
one dealer  from buying  up all  of the  dealerships in  an area.                                                               
Wherein,  he pointed  out, that  problem will  be exacerbated  by                                                               
Sec.  13, which  then makes  it  harder for  the manufacturer  to                                                               
create  new   dealerships.     Consumers  benefit   from  dealers                                                               
competing against each  other for their business in  terms of the                                                               
services offered  and the prices  charged, he related, and  it is                                                               
not  in the  consumer's  interest to  have  not have  intra-brand                                                               
competition for consumers.                                                                                                      
2:18:47 PM                                                                                                                    
MR.  BRIGHT then  referred to  Sec.  15, and  explained that  the                                                               
section  creates upward  pressure on  retail prices  by directing                                                               
the  manufacturer  to  reimburse  at  whatever  rate  the  dealer                                                               
charges to the  consumer, not at a pre-arranged bulk  rate.  This                                                               
bill, he described, is a bit of  an outlier in that it limits the                                                               
manufacturer's  ability to  pushback on  what  is, or  is not,  a                                                               
reasonable retail  rate.  For  example, the  bill read that  if a                                                               
dealer was not  the most expensive in "this area,"  then it was a                                                               
reasonable  rate,  and  that  is  not common,  he  stated.    The                                                               
language  also  read that  the  manufacture  cannot surcharge  to                                                               
recoup  its increased  costs generated  from  an Alaska  specific                                                               
law, and  the manufacturer  has no  ability to  push back  on the                                                               
height of those rates, he explained.                                                                                            
MR.  BRIGHT  referred to  "document  fee"  in the  industry,  and                                                               
explained  that a  manufacturer will  run some  type of  program,                                                               
such  as a  "friends and  family" program  or a  recent (indisc.)                                                               
program,  and the  manufacturer was  simply putting  cash on  the                                                               
hood and meant it to go  directly to the consumer.  Typically, he                                                               
said, when  the manufacturer  runs this  program, the  program is                                                               
optional and dealers are not  required to participate.  (Indisc.)                                                               
line  in the  agreement, he  said,  "If you  do participate,  you                                                               
can't charge more  than 'X' amount of dollars  in document fees,"                                                               
such as titling  fees, registration fees, and such.   Without the                                                               
ability  to  put a  cap  on  that,  he  stressed, the  money  the                                                               
manufacturer intended to go to the  consumer may well be eaten up                                                               
by these  document fees, and that  is not good for  the consumer.                                                               
He described that this is a  complex and esoteric area of law and                                                               
the language and issues matter quite  a bit, and because it is so                                                               
complicated it  takes quite  a bit  of time  to go  through these                                                               
bills and negotiate.   The Alliance, he related, has  not yet had                                                               
the opportunity  to sit down  and negotiate with  the Association                                                               
on this bill,  and it is prepare  to do so.   However, he pointed                                                               
out,  given the  complexity  and  length of  the  bill, there  is                                                               
simply  no time  to  do that  until the  interim  session of  the                                                               
2:22:00 PM                                                                                                                    
MR.  BRIGHT related  that  there is  no need  to  rush this  bill                                                               
through  the  legislature  as  harm  comes  from  rushing.    The                                                               
language is  complex, he reiterated,  there is  collateral damage                                                               
to  the   manufacturers  as  well   as  Alaskan   consumers  and,                                                               
therefore,  the  Alliance requests  more  time  to negotiate  the                                                               
2:22:45 PM                                                                                                                    
CO-CHAIR STUTES asked whether there  had been consumer protection                                                               
problems with existing law.                                                                                                     
MR. BRIGHT  answered that he  was not familiar with  any consumer                                                               
protection issues that may have arisen.                                                                                         
2:23:13 PM                                                                                                                    
ED   SNIFFEN,    JR.,   Senior   Assistant    Attorney   General,                                                               
Commercial/Fair  Business  Section, Civil  Division  (Anchorage),                                                               
Department  of Law  (DOL), responded  that  the attorney  general                                                               
receives a  number of consumer  complaints related  to automobile                                                               
issues and warranty work, but he  could not recall whether any of                                                               
the complaints  were specifically related to  issues addressed by                                                               
this legislation.                                                                                                               
CO-CHAIR STUTES  related that it  was odd Mr. Bright  stated that                                                               
he  would have  to wait  until the  interim to  have any  type of                                                               
conversation [with the Association], and asked the reason.                                                                      
MR.  BRIGHT replied  that  his role  at the  Alliance  is to  fly                                                               
around the  country and  meet with  auto dealer  associations and                                                               
negotiate these  bills, it takes  several hours to get  through a                                                               
four or  five issue  bill for  both sides to  solve and  work out                                                               
agreed upon language,  and this is a large and  complex bill with                                                               
many wrinkles.                                                                                                                  
CO-CHAIR STUTES expressed  her confusion as to  the difference it                                                               
makes as  to whether  or not  the legislature is,  or is  not, in                                                               
session to have this conversation.                                                                                              
MR. BRIGHT  opined that  whether the  legislature was  in session                                                               
was not important, the point was  how long the process would take                                                               
and he understood  there were legislative deadlines.   He advised                                                               
that  he  did  not  expect  it would  be  possible  to  finish  a                                                               
negotiation in time to meet the legislature's deadlines.                                                                        
2:26:38 PM                                                                                                                    
MR.  BRIGHT,  in  response  to  Representative  Kopp,  agreed  to                                                               
provide a  recap of  the issues he  highlighted in  his testimony                                                               
CO-CHAIR  WOOL  asked whether  Mr.  Bright's  job was  to  travel                                                               
around  the country  dealing with  individual  states and  dealer                                                               
associations within  those states to negotiate  an agreement with                                                               
the various dealer associations.                                                                                                
MR.  BRIGHT clarified  that his  role is  limited to  negotiating                                                               
legislative language,  and not to negotiate  the actual franchise                                                               
contract  itself.   He  offered  to  submit a  typical  franchise                                                               
agreement  to  review,  and reiterated  that  he  represents  the                                                               
industry and  not a specific  company.  He said  his negotiations                                                               
are all  with state  automobile dealers  associations as  well as                                                               
legislators interested in safe franchise laws and legislation.                                                                  
2:28:14 PM                                                                                                                    
CO-CHAIR  WOOL  related that  the  franchise  agreement would  be                                                               
interesting  to  see  because   everyone  is  familiar  with  the                                                               
dealer's  side, but  probably  consumers  do not  give  a lot  of                                                               
consideration  to the  intricacies between  the manufacturer  and                                                               
the dealership, and  take it for granted  because the dealerships                                                               
appear to be "hunky dory."                                                                                                      
CO-CHAIR  WOOL   noted  that  the  discussion   had  been  around                                                               
contracts  the  dealers  must sign,  yet  the  manufacturers  can                                                               
change  the contract  unilaterally later  down the  line and  the                                                               
dealers have to accept the change.                                                                                              
MR.  BRIGHT  pointed to  the  need  to  offer  the same  deal  to                                                               
everyone  and  the only  way  to  do so  was  to  use those  form                                                               
contracts.    In  the  event  those form  contracts  need  to  be                                                               
updated, a  vote or negotiation  does not  take place and  "it is                                                               
just a  simple every so often  a manufacture needs to  update the                                                               
contracts," and there must be  no discrimination amongst dealers,                                                               
he said.                                                                                                                        
2:30:10 PM                                                                                                                    
REPRESENTATIVE  CLAMAN noted  the 5-6  page Alliance  analysis of                                                               
the  problematic issues  in HB  136,  which appeared  to be  more                                                               
extensive  than Mr.  Bright's testimony.   He  asked whether  Mr.                                                               
Bright based  his testimony on the  Alliance's sectional analysis                                                               
in response to the provisions in the bill.                                                                                      
MR. BRIGHT answered  yes, but in the interest of  time he did not                                                               
want to  go through  every column  highlighted in  that document,                                                               
and that his testimony was largely excerpted from that document.                                                                
REPRESENTATIVE CLAMAN  surmised that  this document  reflects the                                                               
Alliance's  objections.   Representative  Claman requested  three                                                               
good  model states  to review  that Mr.  Bright broadly  believes                                                               
have  done a  good job  of striking  a good  balance between  the                                                               
consumer, dealer, and  manufacturers' interests, recognizing that                                                               
those three interests may not always be aligned.                                                                                
MR. BRIGHT  responded that it  was difficult to provide  an exact                                                               
answer,  and  that  recently  the  Alliance  negotiated  well  in                                                               
Indiana and  Michigan.   Typically, he  explained, when  he meets                                                               
with  dealer associations  to hammer  out agreeable  compromises,                                                               
rather than  reinventing the wheel, they  identify certain states                                                               
that have performed certain concepts  well and try to borrow from                                                               
those  concepts.    It  is  difficult to  make  the  entire  code                                                               
perfect, he pointed  out, which is why was difficult  to point to                                                               
one specific perfect state.                                                                                                     
2:33:16 PM                                                                                                                    
CO-CHAIR STUTES  asked that when  the manufacturers have  to make                                                               
adjustments to  the contracts every  three or four  years whether                                                               
the adjustments are  made without the dealers'  knowledge, or any                                                               
type of conversation with the dealers.                                                                                          
MR.  BRIGHT answered  that, typically,  it  is not  so much  that                                                               
these contracts are  being modified, they are  just being renewed                                                               
once every  five years,  more or  less, and it  is not  common to                                                               
have  significant changes  made to  these boilerplate  contracts,                                                               
they  are  just  meant  to  be renewed  as  opposed  to  amended.                                                               
Potentially, he related, the most  surprising thing the committee                                                               
will find  in the  contract is that,  unlike McDonald's  or other                                                               
typical fast food franchises, the dealers  do not pay any type of                                                               
fee to  the manufactures to obtain  the franchise or to  keep the                                                               
2:35:00 PM                                                                                                                    
CO-CHAIR  WOOL related  that in  previous conversations  a dealer                                                               
mentioned that the manufacturer had  required the dealer to paint                                                               
the floor in the shop to  its specifications, and he thought that                                                               
that was too  much of a detailed  request to put in  front of the                                                               
legislature.  He  commented that painting the shop  floor was not                                                               
something in a contract, but yet it was required of the dealer.                                                                 
MR.  BRIGHT answered  that perhaps  the dealer  was discussing  a                                                               
facilities   incentive   program,   sometimes  there   are   side                                                               
agreements wherein  a manufacturer makes  an offer to  the dealer                                                               
that  if the  dealer would  make the  following changes  to their                                                               
facility,  the  dealer  would  be  eligible  for  "X"  incentive.                                                               
Again, he reiterated, that is  meant to help the dealers renovate                                                               
their  facilities,  keep the  facilities  modern,  and provide  a                                                               
strong  representation  of  the  brand  to  the  consumer.    The                                                               
franchise contract  itself may make reference  to dealers keeping                                                               
their facility up to snuff,  but typically the franchise contract                                                               
does not  discuss paint schemes  and such.  As  manufacturers, he                                                               
added,  the only  way  to  get to  the  consumer  is through  the                                                               
dealer, and as such it cares  about the presentation of the brand                                                               
to  the consumer,  and at  the same  time, if  the dealer  is not                                                               
successful,   the   manufacturer   is  not   successful.      The                                                               
manufacturers, he related, do not  look at this as an adversarial                                                               
process,  but rather  as two  business partners  who have  worked                                                               
together for decades, who keep  their business affairs out of the                                                               
public view by  not causing a scene in the  legislature, and work                                                               
it out amongst themselves.                                                                                                      
2:37:41 PM                                                                                                                    
CO-CHAIR STUTES offered that if  [the manufacturer] suggested the                                                               
dealership  put in  new floors  or paint  their facility  and the                                                               
dealer chose not  to, whether that would trigger  a revocation of                                                               
the franchise.                                                                                                                  
MR.  BRIGHT  opined that,  generally,  the  dealers believe  that                                                               
anyone in  the franchise may  have a requirement to  meet certain                                                               
minimal  considerations, but  he could  not imagine  anyone being                                                               
terminated solely  for not repainting  the floors from  one color                                                               
to  another color.   Typically,  he said,  when he  talks to  his                                                               
members about  problems they've had  on the facilities  front, it                                                               
has  been stores  that are  not simply  out of  date, but  almost                                                               
2:39:05 PM                                                                                                                    
REPRESENTATIVE  CLAMAN   asked  Mr.  Sleeper  which   states  the                                                               
committee should review in continuing  to review this legislation                                                               
MR.  SLEEPER  advised  that the  legislation  was  modeled  after                                                               
Washington  law,  and suggested  Oregon  and  New York  franchise                                                               
laws.  He referred to the  maps and related that wherever a color                                                               
was  shown on  the map  it meant  that that  state had  adopted a                                                               
franchise  statute dealing  specifically with  something in  that                                                               
franchise contract.   All of  these states,  he said, due  to the                                                               
provisions  in  the  contract  that  allow  the  manufacturer  to                                                               
dictate remodeling,  have had to  step forward and  provide their                                                               
dealers statutory protection.  He  reiterated that these contract                                                               
are  not  unilaterally  negotiated, the  manufacturers  say  that                                                               
these sales  and service  agreements are "take  it or  leave it."                                                               
The  state  legislatures then  step  in  and protection  for  the                                                               
dealers and consumers.                                                                                                          
2:42:20 PM                                                                                                                    
CO-CHAIR  WOOL noted  there had  been some  question as  to state                                                               
involvement between two  private entities, contract negotiations,                                                               
the 2002  franchise statutes in  Alaska and other states,  and he                                                               
asked Mr. Sniffen for is thoughts.                                                                                              
MR. SNIFFEN  responded that  the administration  does not  have a                                                               
position on  this bill  one way  or the other,  but he  had heard                                                               
testimony  worthy of  clarification.   He  referred to  testimony                                                               
that  the state's  current franchise  law does  not provide  many                                                               
standards  when  it  comes  to  establishing  or  terminating  an                                                               
existing dealership,  and what it  means to terminate  for cause.                                                               
Currently, he explained,  Alaska law does address  that issue but                                                               
it does so in a cumbersome  manner, such that under AS 45.25.180,                                                               
if  an existing  dealership  had a  concern  with a  manufacturer                                                               
putting a new  dealership into the area, it could  file an action                                                               
with the  court and the court  was given some guidance  on how to                                                               
determine whether or not good cause  existed.  The law spells out                                                               
that the  court is to look  at whether or not  the new dealership                                                               
was warranted by  economic and market conditions,  whether or not                                                               
the  investment   made  by  the  existing   dealership  would  be                                                               
jeopardized, and so forth.   He referred to previous testimony as                                                               
to whether  or not a  manufacturers could  coerce a dealer  to do                                                               
things  such as  paint the  floors or  change the  facilities and                                                               
just do that on their own,  and he explained that currently under                                                               
AS  45.25.300,  a manufacturer  cannot  require  a motor  vehicle                                                               
dealer  to engage  in any  unreasonable substantial  alterations,                                                               
and if  there isn't  a sufficient supply  of new  motor vehicles.                                                               
Current law, he pointed out, is  certainly not as detailed as the                                                               
proposed legislation  and this bill would  add more clarification                                                               
and detail.                                                                                                                     
2:45:23 PM                                                                                                                    
MR. SNIFFEN turned  to the consumer side and said  he agreed with                                                               
the dealers in that there are  a couple of good consumer benefits                                                               
in  this  bill such  as,  allowing  non-certified technicians  in                                                               
certain  circumstances  to perform  repairs  is  a good  fix  for                                                               
consumers.    The  new 100-mile  rule  allowing  a  non-certified                                                               
[technician] to  perform repairs  in an  area where  a certified-                                                               
technician does not  exist certainly does makes  sense in Alaska.                                                               
Although, he  noted, there are  concerns with  other consequences                                                               
of  this  bill   and  referred  to  the   effect  of  intra-brand                                                               
competition.  He put forth  that this bill would essentially make                                                               
it  "very,  very difficult  for  a  manufacturer"  to put  a  new                                                               
dealership in  an area with  an existing dealer, it  would cement                                                               
in place all  of the dealers in the state  pretty much right now,                                                               
and make  it difficult for  new dealers to  come in.   Under this                                                               
bill, he  explained, the  existing dealers  would have  the first                                                               
shot of refusal to  not to put in a new  dealership and that they                                                               
would just open  up a satellite dealership.  That  may be good or                                                               
bad, the  Department of  Law (DOL)  does not  take a  position on                                                               
that, but that  is just one consequence of this  legislation.  He                                                               
related that his  office has not been a fan  of document fees for                                                               
a long time, although they  are allowed in certain circumstances.                                                               
In the  event a promotion  is offered  to a consumer,  that would                                                               
limit  those fees  and pass  that (indisc.)  on to  the consumer,                                                               
this  proposed statute  would say,  "No, you  could still  add on                                                               
some more  document fees.  So,  the consumer that is  buying this                                                               
vehicle in some  other area that accepts this  promotion, but pay                                                               
a lesser  amount than  Alaskan consumers that  might have  to pay                                                               
more if  those kinds  of fees  were added on."   Again,  he said,                                                               
those might  be necessary fees,  the dealers may have  that added                                                               
expenses to justify those fees,  therefore, the DOL does not take                                                               
a position  as to whether it  is good or  bad but that is  one of                                                               
the consequences.                                                                                                               
2:47:28 PM                                                                                                                    
MR. SNIFFEN  related that overall,  there are  franchise statutes                                                               
in other  states and  a recognition  that this  is in  the public                                                               
interests, including  the United States Supreme  Court wherein it                                                               
recognized the  issues, in  the quote read  by Mr.  Sleeper, from                                                               
the  seminal  United  States  Supreme   Court  case.  Alaska  has                                                               
existing franchise law and whether  this particular law is better                                                               
or  worse  is something  for  the  committee  to decide,  but  it                                                               
certainly is more  comprehensive than most of  the franchise laws                                                               
he is has read, he said.                                                                                                        
2:48:06 PM                                                                                                                    
REPRESENTATIVE  NEUMAN   asked  whether   he  had   received  any                                                               
complaints as to dealers or manufacturers on this issue.                                                                        
MR.  SNIFFEN  reiterated, not  that  he  could recall  in  recent                                                               
history,  and  advised  that  he  was  involved  in  passing  the                                                               
existing  franchise law  in  2002,  wherein Representatives  Lisa                                                               
Murkowski  and Andrew  Halcro headed  up  discussion groups  with                                                               
manufacturers  and dealers,  and  at that  time  there were  some                                                               
complaints which created  the current franchise law.   Other than                                                               
through this legislative  process, he said he has  not been aware                                                               
of  any adverse  consequences  from the  issues this  legislation                                                               
2:48:55 PM                                                                                                                    
REPRESENTATIVE NEUMAN referred  to the issue of  a new dealership                                                               
coming to  town with  an existing  dealership, and  asked whether                                                               
there was anything in the  legislation that would prevent an even                                                               
playing field for a new dealership.                                                                                             
MR.  SNIFFEN  opined that  this  bill  would certainly  give  the                                                               
existing  automobile  dealers  more   ammunition  to  resist  the                                                               
infiltration of a new dealer into  the state.  Although, he said,                                                               
he  did not  see anything  in  the law  that would  differentiate                                                               
among them once they were established.                                                                                          
2:50:14 PM                                                                                                                    
CO-CHAIR STUTES  referred to  the maps and  said that  it appears                                                               
Alaska's franchise laws  are quite similar to  Washington for the                                                               
most part, and asked whether she was correct.                                                                                   
MR.  SNIFFEN replied  that the  proposed legislation  would bring                                                               
Alaska closer to Washington than  Alaska's current franchise law,                                                               
although, it  probably does more  than Washington.   He explained                                                               
that he  had not performed  a side-by-side comparison of  the two                                                               
states and was uncertain.                                                                                                       
2:51:03 PM                                                                                                                    
MR. SLEEPER explained  that the maps show what  Alaska would look                                                               
like,  in some  cases, if  the  bill passed  the legislature  and                                                               
there  will  be  some  cases where  Alaska  law  already  mirrors                                                               
CO-CHAIR STUTES  asked whether Mr.  Sleeper had anything  to show                                                               
what Alaska looks like currently.                                                                                               
MR. SLEEPER answered no, [through the  maps] they tried to show a                                                               
[comparison] to the other states.                                                                                               
2:51:57 PM                                                                                                                    
CO-CHAIR WOOL surmised this is if  the bill were to pass, this is                                                               
how  Alaska would  stack up,  and  it doesn't  show where  Alaska                                                               
stacks up currently.                                                                                                            
MR. SLEEPER replied  that in some cases it does  because there is                                                               
the protection ...                                                                                                              
[HB 136 was held over.]