Legislature(2017 - 2018)BARNES 124

03/27/2018 01:15 PM House TRANSPORTATION

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSSB 163(STA) Out of Committee
Heard & Held
-- Testimony <Invited/Public> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
             HB 136-MOTOR VEHICLE DEALER FRANCHISES                                                                         
1:28:45 PM                                                                                                                    
CO-CHAIR WOOL  announced that  the final  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."                                                                   
1:29:00 PM                                                                                                                    
CO-CHAIR STUTES  moved to adopt the proposed  committee substitute                                                              
(CS) for HB  136, Version 30-LS0561\R, Bannister,  3/21/18, as the                                                              
working  document.    There  being no  objection,  Version  R  was                                                              
before the committee.                                                                                                           
1:29:28 PM                                                                                                                    
REPRESENTATIVE  CLAMAN, as prime  sponsor, presented  HB 136.   He                                                              
explained   the  impetus   to  introduce   HB  136  stemmed   from                                                              
conversations about  the need to  make updates to  Alaska Statutes                                                              
relating to  franchise agreements  between automobile  dealers and                                                              
automobile  manufacturers.    He   said  much  of  the  discussion                                                              
centered  around  warranty practices  and  franchise  termination.                                                              
After HB  136 was heard  in 2017,  there was significant  pushback                                                              
from  the automobile  manufacturers.   The  bill sponsor's  office                                                              
brought  together dealers  and manufacturers  in  January 2018  to                                                              
work on an acceptable  revision, which is the  revision before the                                                              
committee today in Version R.                                                                                                   
REPRESENTATIVE  CLAMAN  said  Version   R  would  update  warranty                                                              
policy to  be more consumer  friendly; it would  provide customers                                                              
who live in remote  locations, either off the road  system or more                                                              
than  100  miles from  a  dealer,  with  a reasonable  option  for                                                              
warranty coverage.   Currently,  customers often  must pay  to get                                                              
their  vehicles to  and  from an  authorized  dealer for  warranty                                                              
repairs.   Under  HB 136,  the manufacturer  would be  responsible                                                              
for  warranty repairs  in  the remote  locations  or shipping  the                                                              
vehicles to and  from remote locations to authorized  locations at                                                              
no cost to  the consumers.  He  said HB 136 would also  update the                                                              
rates  that manufacturers  will  pay  dealers for  warranty  work.                                                              
The updated  rates may  not be less  than the  rates that  an auto                                                              
dealer  charges customers  for similar  non-warranty retail  work.                                                              
He stated, "This  equalizes the rate for repair  work and warranty                                                              
work across the board.                                                                                                          
REPRESENTATIVE   CLAMAN   said  HB   136   would  amend   statutes                                                              
concerning    termination    and   succession    of    franchises.                                                              
Manufacturers must  have a good  cause for terminating  franchises                                                              
and  must  provide  dealers  with notice  and  allow  dealers  the                                                              
chance  to  fix  any  areas  that   are  out  of  compliance  with                                                              
agreements  before the  dealers  can be  terminated.   During  the                                                              
sale   of  a   franchise,   the  dealer   must   also  take   into                                                              
consideration  whether  the  potential   buyer  is  "an  immediate                                                              
family   member,   partial   owner,   and   meets   the   standard                                                              
requirements for  approving the sale."  He said  manufacturers and                                                              
dealers  have  a   common  interest  in  selling   cars;  however,                                                              
manufacturers  nationwide often  have requirements  that can  be a                                                              
burden  on   dealers.     The  goal  is   for  both   dealers  and                                                              
manufacturers  to succeed  and work  well together  in a  balanced                                                              
REPRESENTATIVE  CLAMAN  said  the  core  of  HB  136  is  consumer                                                              
interest  and   ensuring  that   consumers  buying   vehicles  and                                                              
bringing  those  vehicles  to dealers  for  warranty  repairs  are                                                              
satisfied  with  the service  they  receive.    There is  also  an                                                              
interest in  maintaining a  stable workforce  of those who  do the                                                              
work on  vehicles.   He brought  attention to  a page included  in                                                              
the committee  packet entitled  "Driving Alaska's Economy,"  which                                                              
shows  the jobs  in the  automobile  industry.   He further  noted                                                              
that a  detailed sectional summary  is available in  the committee                                                              
1:34:16 PM                                                                                                                    
REPRESENTATIVE NEUMAN  commented that  he had sponsored  a similar                                                              
bill regarding  all-terrain vehicles (ATVs), outboard  motors, and                                                              
warranties.    He  said  he  would  like  to  hear  the  sectional                                                              
[summary], at the least the major changes.                                                                                      
1:35:48 PM                                                                                                                    
REPRESENTATIVE   CLAMAN  addressed  the   major  changes   in  the                                                              
sectional summary.   He  directed attention to  Sections 3  and 4,                                                              
which  read  as   follows  in  the  Sectional   Summary  [original                                                              
punctuation provided]:                                                                                                          
     Section 3                                                                                                                  
     Amends   AS   45.25.110(a):    Manufacturers   may   not                                                                   
     terminate  an  auto  dealer unless  they  have  complied                                                                   
     with  notice  requirements  and  shown  good  cause  for                                                                   
     termination.  Auto  dealers  have  up  to  120  days  to                                                                   
     correct  areas  out  of compliance  with  the  franchise                                                                   
     agreement.  The manufacturer  may terminate a  franchise                                                                   
     if the dealer has systemically engaged in fraud.                                                                           
     Section 4                                                                                                                  
     Adds  new subsection  to  AS  45.25.110: Good  cause  to                                                                   
     terminate a  franchise does  not include the  failure of                                                                   
     an auto  dealer to  meet sales or  service goals  due to                                                                   
     factors  beyond  the  control of  the  dealer  including                                                                   
     market conditions  or insufficient  supply of new  motor                                                                   
REPRESENTATIVE  CLAMAN  said sometimes  dealers  have  a quota  to                                                              
meet for  a certain model vehicle,  but they don't  receive enough                                                              
inventory  to  meet  that  quota.    Conversely,  sometimes  those                                                              
quotas  are unrealistic  in terms  of conditions  in Alaska.   For                                                              
example, all-wheel  drive vehicles are popular [in  Alaska], so if                                                              
a  quota demands  the sale  of more  2-wheel  drive vehicles  than                                                              
all-wheel drive  vehicles, then  the dealer  may have  a difficult                                                              
time selling the  2-wheel drive vehicles but could  sell more all-                                                              
wheel drive vehicles  if he/she received them.   He emphasized the                                                              
importance of looking at local market conditions.                                                                               
1:37:49 PM                                                                                                                    
CO-CHAIR WOOL  remarked that  the committee  would discuss  HB 136                                                              
in more  detail when  the dealers  and manufacturers  are  able to                                                              
take part in the discussion.                                                                                                    
REPRESENTATIVE CLAMAN  noted that an attorney for  the dealers was                                                              
available via teleconference.                                                                                                   
1:38:18 PM                                                                                                                    
REPRESENTATIVE  NEUMAN   said  he  understands  the   priority  of                                                              
ensuring public testimony.                                                                                                      
1:38:28 PM                                                                                                                    
REPRESENTATIVE CLAMAN  next brought attention to Sections  6 and 7                                                              
of  the  sectional  summary,  which   read  as  follows  [original                                                              
punctuation provided]:                                                                                                          
     Section 6                                                                                                                  
     Amends  AS  45.25.150(b)  If   a  franchise  termination                                                                   
     occurs,  auto dealers  have  an obligation  to  mitigate                                                                   
     damages  under  a  lease  and   mitigate  the  costs  of                                                                   
     facility relocations, alterations or remodels.                                                                             
     Section 7                                                                                                                  
     Adds  new subsection  to AS  45.25.150:  If a  franchise                                                                   
     termination  occurs, manufacturers  must  pay the  costs                                                                   
     of  relocation,  alteration  or remodeling  of  an  auto                                                                   
     dealers  facilities   if  they  were  required   by  the                                                                   
     manufacturer  and were completed  within three  years of                                                                   
REPRESENTATIVE CLAMAN  summarized that  Section 8 would  provide a                                                              
detailed process  for the transfer  of dealerships.   He explained                                                              
that it  is common that dealers  are interested in  either selling                                                              
the  dealership to  family  members  or to  people  who have  been                                                              
involved  in the  business for  a long  time.   The section  would                                                              
provide  protection so  that manufacturers  cannot prohibit  that.                                                              
He  said  manufacturers  nationally  are  trying  to  get  a  more                                                              
diverse group  of owners of dealerships,  so Section 8  would also                                                              
support  that  "to the  extent  that  that doesn't  conflict  with                                                              
existing ownership  rights and moving  on to folks that  have that                                                              
ownership share."                                                                                                               
REPRESENTATIVE  CLAMAN   addressed  Sections  9  and   10  in  the                                                              
Sectional  Summary, which  read as  follows [original  punctuation                                                              
     Section 9                                                                                                                  
     Amends  AS 45.25.180(d)  Expands  the  factors that  the                                                                   
     superior  court must  consider in  a lawsuit  addressing                                                                   
     whether  good cause  exists to establish  or relocate  a                                                                   
     Section 10                                                                                                                 
     Adds  new subsection  to  AS 45.25.180  Establishes  the                                                                   
     burden of proof  in a franchise lawsuit.  A manufacturer                                                                   
     has  the burden  of proof  to establish  good cause  for                                                                   
     establishing  or   relocating  a  dealership   that  the                                                                   
     manufacturer   has  proposed.   An   auto  dealer   must                                                                   
         establish good cause for any establishment or                                                                          
     relocation that the auto dealer proposes.                                                                                  
REPRESENTATIVE CLAMAN  said Section 12 provides more  detail about                                                              
rates that  are paid for warranty  work and how the  warranty work                                                              
is provided.   He  said one  issue identified  by dealers  is that                                                              
the  warranty  rate  agreed upon  by  manufacturers  is  sometimes                                                              
lower than the  retail rate charged in Alaska.   That differential                                                              
does  not help  dealers provide  effective customer  service.   He                                                              
said under  Section 12,  a framework would  be created  in statute                                                              
for dealers  to be able  to establish an  average retail  rate and                                                              
then have that  rate apply to the  warranty work.  The  result, he                                                              
explained,  is that  dealers  essentially  would  be charging  the                                                              
same  for warranty  and  non-warranty  work.   Another  aspect  of                                                              
Section 12 would  be to ensure that manufacturers  are responsible                                                              
for returning  a repaired  vehicle to the  remote location  of its                                                              
1:42:18 PM                                                                                                                    
CO-CHAIR  WOOL observed  that under  HB 136,  a non-dealer  can be                                                              
authorized  to work  on a  vehicle so  that the  vehicle does  not                                                              
have to be moved from its remote location.                                                                                      
REPRESENTATIVE CLAMAN  said there were  two things he  learned [in                                                              
working on  HB 136].   One was  that a person  living in  a remote                                                              
area might be better  served by purchasing an older  car no longer                                                              
under  warranty.   The  second thing  is  that manufacturers  have                                                              
strict requirements  that certified  mechanics do warranty  repair                                                              
work, because  if a non-certified  mechanic works on  the vehicle,                                                              
the  warranty is  voided.   He  said it  is  interesting that  the                                                              
certification  to   do  the  work  is  through   the  Society  for                                                              
Automotive Engineers.   The manufacturers do not insist  on a Ford                                                              
dealer working  on a  Ford vehicle, for  example, but  rather that                                                              
the person  working on the  vehicle is  a certified mechanic.   He                                                              
expressed the  need to  broaden the area  through the  state where                                                              
these certified mechanics can be found.                                                                                         
1:44:35 PM                                                                                                                    
REPRESENTATIVE KOPP  commended the bill  sponsor on the  work that                                                              
had been done since  the last hearing in 2017.   He asked if there                                                              
is a consensus  between the manufacturers and dealers  in terms of                                                              
Version R.                                                                                                                      
REPRESENTATIVE  CLAMAN answered  that  is his  understanding.   He                                                              
proffered  that from  a national  level, these  types of  requests                                                              
for change typically  come from the dealers; the  manufacturers do                                                              
not endorse  these  types of bills  but do  communicate when  they                                                              
have no opposition to a bill.                                                                                                   
REPRESENTATIVE  KOPP surmised  that HB  136 would  make it  easier                                                              
for dealers to  do business with customers in  remote locations by                                                              
having  some   guarantee  of   price  reimbursement   and  perhaps                                                              
expanding opportunities to partner with mechanics.                                                                              
REPRESENTATIVE  CLAMAN  answered that  is  correct.   Further,  he                                                              
said there  would be  a benefit in  having certified  mechanics in                                                              
remote  locations,  because if  a  dealer  sends a  mechanic  from                                                              
Juneau  to Sitka, the  complication  is in figuring  out who  pays                                                              
for the  travel time,  because a  mechanic is  typically paid  for                                                              
mechanical work, not for travel time.                                                                                           
1:46:35 PM                                                                                                                    
REPRESENTATIVE  STUTES said  that coming  from a  rural area,  she                                                              
appreciates [HB  136].  She said  in Kodiak, Alaska,  "most people                                                              
drove  a  Ford,  because  that was  the  only  dealership  we  had                                                              
there."  She  said she bought a  Toyota and sat on the  plane next                                                              
to  the  West  Coast  representative  from  Toyota,  to  whom  she                                                              
remarked  that she  wished she had  not bought  a Toyota,  because                                                              
she  could  not  get  it  worked  on  under  warranty  in  Kodiak.                                                              
Subsequently,  Toyota  "associated  one  of the  repair  shops  in                                                              
Kodiak" so  that now there is  a certified mechanic for  Toyota as                                                              
well as Ford  in that community, where Representative  Stutes said                                                              
now everyone drives either a Ford or a Toyota.                                                                                  
1:47:26 PM                                                                                                                    
CO-CHAIR WOOL announced that HB 136 was held over.                                                                              

Document Name Date/Time Subjects
SB0163B.PDF HTRA 3/27/2018 1:15:00 PM
SB 163
SB163 Fiscal Note DOT-MSCVE 1.29.18.pdf HTRA 3/27/2018 1:15:00 PM
SB 163
SB163 Fiscal Note DOT-MSCVE 3.7.18.pdf HTRA 3/27/2018 1:15:00 PM
SB 163
HB314 Sponsor Statement 1.29.18.pdf HTRA 3/27/2018 1:15:00 PM
HB 314
HB314 ver A 1.29.18.pdf HTRA 3/27/2018 1:15:00 PM
HB 314
SB163 Sponsor Statement 1.29.18.pdf HTRA 3/27/2018 1:15:00 PM
SB 163
CSHB136 Sponsor Statement 3.23.18.pdf HTRA 3/27/2018 1:15:00 PM
HB 136
CSHB136 Sectional Analysis 03.23.18.pdf HTRA 3/27/2018 1:15:00 PM
HB 136
CSHB136 Ver. R 3.23.18.pdf HTRA 3/27/2018 1:15:00 PM
HB 136
HB136 Additional Documents-NADA Alaska 2016 Annual Contribution 3.23.18.pdf HTRA 3/27/2018 1:15:00 PM
HB 136