Legislature(2015 - 2016)BELTZ 105 (TSBldg)

03/10/2016 01:30 PM Senate LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled: TELECONFERENCED
-- Public Testimony --
Moved SB 168 Out of Committee
             SB 197-MOTOR VEHICLE DEALER FRANCHISES                                                                         
2:28:40 PM                                                                                                                    
CHAIR COSTELLO announced the consideration of SB 197.                                                                           
2:29:07 PM                                                                                                                    
RYNNIEVA  MOSS, Staff,  Senator John  Coghill, introduced  herself                                                              
and Mr. Fisch who is carrying the bill for the sponsor.                                                                         
2:29:34 PM                                                                                                                    
KELLEN FISCH,  Intern, Senator  John Coghill,  stated that  SB 197                                                              
is about  protecting auto dealerships  in the state.  He continued                                                              
the introduction speaking to the following sponsor statement:                                                                   
     This  bills  brings  Alaskan  dealers up  to  date  with                                                                   
     standards  adopted  by other  states  and helps  to  add                                                                   
     language  for  Alaska specific  circumstances.  This  is                                                                   
     done in a variety of different ways.                                                                                       
     By  adding  good  cause  language  for  termination  and                                                                   
     putting    good    faith     requirements    upon    the                                                                   
     manufacturers,  which  includes  performance  goals  and                                                                   
     supplying  inventory. Its sets  out required  procedures                                                                   
     for returning  inventory to the manufacturer,  which was                                                                   
     previously required  by the manufacturer. This  helps to                                                                   
     properly  compensate  the  dealer, to  keep  the  dealer                                                                   
     supplied,  and  to  compensate the  dealer  properly  on                                                                   
     This  bill  also  strengthens   notice  requirements  in                                                                   
     cases  of termination and  discontinuation of  franchise                                                                   
     agreements. It  establishes a procedure  for determining                                                                   
     fair  compensation  to  dealers for  warranty  work.  It                                                                   
     sets out  rules governing  manufacturer audits.  It puts                                                                   
     forth  procedures  for  dealerships  to  succeed,  sell,                                                                   
     transfer,   or  exchange  the   dealership.  The   bill,                                                                   
     contains provisions  governing the establishment  of new                                                                   
     dealerships in  order to make them more  appropriate for                                                                   
     It  contains  provisions  allowing  dealers  to  provide                                                                   
     warranty  work for  consumers  over 100  miles from  the                                                                   
     dealer or in locations not accessible by road.                                                                             
     These provisions  help to  address issues with  Alaska's                                                                   
     unique  landscape  and  limited  number  of  roads.  The                                                                   
     manufacture warranty  work is not allowed to  be done by                                                                   
     local  mechanics.  This  causes   a  great  problem  for                                                                   
     people  in  the  areas  that  are  isolated.  This  bill                                                                   
     creates  needed assistance  for  people  in these  areas                                                                   
     which includes, Nome and Tanana.                                                                                           
2:35:00 PM                                                                                                                    
CHAIR COSTELLO asked for the context for introducing the bill.                                                                  
MS. MOSS  said this  is a  national trend  and a recognition  that                                                              
Alaska  has unique  issues with  warranty and  recall work  due to                                                              
geography.  Getting a  vehicle to  a dealer can  be expensive  and                                                              
inconvenient. The  bill allows a  dealer to contract  with someone                                                              
in the  community where the  vehicle is  located to do  that work.                                                              
It is  also a matter of  the industry changing  considerably since                                                              
2002  when  car  dealership statutes  were  passed.  She  provided                                                              
examples of  specialty tools needed  and new signage  that dealers                                                              
may  need.  The bill  also  has  provisions  for leases  that  are                                                              
canceled if a dealership is terminated.                                                                                         
She directed  attention to the sectional  analysis, a list  of the                                                              
repealed  language  and a  comparison  to  the new  language,  and                                                              
definitions cited in statutes.                                                                                                  
CHAIR COSTELLO asked  how the relationship between  the dealer and                                                              
manufacturer is established.                                                                                                    
MS.  MOSS replied  they are  franchise agreements,  many of  which                                                              
are  years old  and have  been amended.  The bill  is designed  to                                                              
make changes to the way the manufacturer treats the franchisee.                                                                 
2:39:16 PM                                                                                                                    
SENATOR MEYER asked if the bill is retroactive.                                                                                 
MS. MOSS said yes, but the applicability clause on page 2, line                                                                 
2, clarifies that none of the provisions in the bill can violate                                                                
the U.S. Constitution or the Alaska State Constitution.                                                                         
She provided the following sectional analysis for SB 197:                                                                       
[Original punctuation provided.]                                                                                                
     Sec. 1.        Legislative Findings.                                                                                     
          Findings that this bill is a cure to some issues                                                                      
     in the  new vehicle  industry that  affects the  general                                                                   
     economy, the  public interest and public welfare  of the                                                                   
     state   by  insuring  the   new  vehicle   manufacturers                                                                   
     provide  reasonable incentives  to  new vehicle  dealers                                                                   
     to keeping prices  low and warranty and  recall services                                                                   
          Alaska is a unique market that has unique                                                                             
     geographical  challenges for  motor vehicle owners  that                                                                   
     need warranty  and recall work.  Getting a  vehicle from                                                                   
     Hoonah  to Juneau or  Bethel to  Anchorage for  warranty                                                                   
     work  or   recall  work  can   be  expensive   and  time                                                                   
     consuming.   This bill will allow technicians  in remote                                                                   
     areas to do the work.                                                                                                      
          Manufacturers   make    franchises   invest   large                                                                   
     amounts  of  money in  facilities,  signage,  equipment,                                                                   
     specialty  tools, supplies,  and parts.   Some  facility                                                                   
     requirements are  unfeasible for Fairbanks  or Anchorage                                                                   
     but  feasible   for  Los  Angeles.     One   example  is                                                                   
     requirements   for  windows   versus  solid,   insulated                                                                   
     walls.   While  signage used  to be  leased to  dealers,                                                                   
     dealers are  now required to invest upwards  of $100,000                                                                   
     for signage.                                                                                                               
     All  these investments  need  to be  protected should  a                                                                   
     manufacturer terminate  an agreement without  cause.  At                                                                   
     the  same  time,  the manufacturer  should  be  able  to                                                                   
     terminate  a  franchise  when  there  is  cause  without                                                                   
     having  to pay the  price for  a bad business  practice.                                                                   
     This bill brings  a balance to what is good  faith, fair                                                                   
     practices and what is unfair practice.                                                                                     
     Maintaining  a healthy  new vehicle  dealer industry  in                                                                   
     Alaska   provides   better   consumer   protection   for                                                                   
     Alaskans  and  provides  good   paying,  private  sector                                                                   
     Sec. 2.        Applicability.                                                                                            
          The   applicability    clause   states   that   any                                                                   
     provision  of this  legislation  that  does not  violate                                                                   
     the Constitution  of Alaska or  the U.S. applies  to any                                                                   
     franchise agreement  in effect  in Alaska between  a new                                                                   
     motor   vehicle  dealer   and   a  new   motor   vehicle                                                                   
          Unlike most other contracts, new motor vehicle                                                                        
     franchise agreements  are not renewed in a  time certain                                                                   
     manner.    There  are  franchise   agreements  that  are                                                                   
     thirty  years  old  and have  had  some  amendments  but                                                                   
     never renewed.                                                                                                             
     Sec. 3.        Termination of Franchise agreements.                                                                    
          This   section   amends    language   requiring   a                                                                 
     manufacturer   to  have  good   cause  to  terminate   a                                                                   
     franchise   agreement    to   include    provisions   of                                                                   
     AS.25.115, a new  section of law found in Sec.  4 of the                                                                 
     bill  that  clearly  lays  out  "good  cause  is",  what                                                                   
     notification  requirements  are, allows  for  corrective                                                                   
     actions on  the part of  the dealer, and sets  timelines                                                                   
     for both the manufacturer and the dealer.                                                                                  
     Sec. 4.        Good cause.                                                                                             
   (a)    Good cause exists if:                                                                                             
   1. Dealer fails to comply with a franchise agreement that                                                                    
        is reasonable and materially significant;                                                                               
   2. The manufacturer notifies the dealer of a failure in                                                                      
        the agreement and the dealer does not take                                                                              
        corrective action in 180 days;                                                                                          
   (b)    If the failure of performance is in sales,                                                                          
     service, or  level of customer  satisfaction it  must be                                                                   
     a standard that  is applied uniformly across  the state,                                                                   
     the manufacturer  must notify  the dealer in  writing of                                                                   
     the failure  that the dealer  has no less than  180 days                                                                   
     to take corrective  action, and, if the dealer  does not                                                                   
     comply,  the noncompliance  was  because  of factors  in                                                                   
     the control of the dealer.                                                                                                 
   (c)    If the manufacturer did not provide adequate                                                                        
     supply,   both  in   quantity  and   product  mix,   the                                                                   
     franchise agreement cannot be terminated.                                                                                  
   (d)    Good cause to terminate is also insolvency,                                                                         
     bankruptcy  or  receivership   proceedings,  failure  to                                                                   
     open   for   business  for   seven   consecutive   days,                                                                   
     principal  operator  is  convicted   of  a  felony,  the                                                                   
     dealer has had  a license revoked or suspended  for more                                                                   
     than 30 days.                                                                                                            
   (e)    Unfair practices by the manufacturer are not good                                                                   
     cause for termination.                                                                                                     
2:43:40 PM                                                                                                                    
SENATOR STEVENS asked for an explanation of subsection (e).                                                                     
MS. MOSS explained that a contractor cannot terminate a contract                                                                
on the basis of good cause if the practice is listed as an                                                                      
unfair practice.                                                                                                                
SENATOR STEVENS asked if that doesn't apply to every franchise.                                                                 
MS. MOSS opined that this is called for due to the nature of the                                                                
industry and the investment required for a franchise.                                                                           
   (f)    Burden of proof for good cause is on the                                                                            
     Sec. 5.        Notice of Termination.                                                                                    
          Amends AS 45.25.120 added a good cause for 15-day                                                                     
     notice  to  terminate  for  a dealer  having  a  license                                                                   
     revoked or suspended for more than 30 days.                                                                                
     Sec. 6.        Termination by dealer.                                                                                  
          A new section that provides that a dealer may                                                                         
     terminate  a   franchise  agreement  by   notifying  the                                                                   
     manufacturer at least 90 days before the termination.                                                                      
     Sec. 7.        Payment for inventory, equipment, and                                                                   
     other items.                                                                                                             
          When a franchise is terminated, this section                                                                          
     outlines  in  detail how  the  dealer will  recover  the                                                                   
     cost of  his investment  in vehicles, equipment,  parts,                                                                   
     supplies, signage,  office equipment, and  special tools                                                                   
     that  were required  by the  manufacturer, less  certain                                                                   
               Vehicles are reimbursed at the dealers cost                                                                      
     for  two model  years  in  inventory, plus  charges  for                                                                   
     distribution,  delivery and  taxes,  less allowances  to                                                                   
     dealer  by  the manufacturer,  repairable  damage  to  a                                                                   
     vehicle,  and 20  cents per  mile for  all mileage  over                                                                   
     200  miles.  This  includes   vehicle  required  by  the                                                                   
     manufacturer  to be used  as loaners, demonstrators,  or                                                                   
     display purposes.                                                                                                          
2:46:59 PM                                                                                                                    
CHAIR COSTELLO asked if this type of description currently is                                                                   
included in franchise agreements.                                                                                               
MS. MOSS replied it is in some and not in others.                                                                               
Sec. 7 continued.                                                                                                             
               All unsold supplies, parts, and accessories                                                                      
     in  the original  unbroken  package that  are listed  in                                                                   
     the manufacturer's  current catalog and  those supplies,                                                                   
     parts  or  accessories that  the  manufacturer  required                                                                   
     the dealer  to buy  will be  reimbursed at the  dealer's                                                                   
          For each undamaged sign that bears a common name,                                                                     
     trade   name,   or  trademark   and   the   manufacturer                                                                   
     recommended  or  required  the signs  purchase  will  be                                                                   
     reimbursed at fair market value.                                                                                           
          All equipment, furnishings, and special tools                                                                         
     owned   by   the   dealer   because   the   manufacturer                                                                   
     recommended   or   required   the   purchase   will   be                                                                   
     reimbursed  at  fair  market   value.    If  items  were                                                                   
     leased, the  manufacturer will reimburse the  dealer the                                                                   
     amount necessary to terminate the lease agreement.                                                                         
          All computers, software and printers required by                                                                      
     the  manufacturer  or reasonable  necessary  to  operate                                                                   
     the dealership  to the manufacturer's standards  will be                                                                   
     reimbursed  at fair  market value.   If  the items  were                                                                   
     leased the  manufacturer will  reimburse the dealer  the                                                                   
     amount necessary to terminate the lease(s).                                                                                
          The manufacturer will pay the dealer for the cost                                                                     
     to transport, handle, pack and load the items above.                                                                       
          If   the    franchise   agreement    requires   the                                                                   
     manufacturer  to pay  the dealer an  amount higher  than                                                                   
     stipulated in  statute, the provisions of  the franchise                                                                   
     agreement prevail.                                                                                                         
          The dealer will return all the items to the                                                                           
     manufacturer  within 90 days  of the termination  of the                                                                   
     franchise  and  the  manufacturer will  pay  the  dealer                                                                   
     within  30 days  of  the delivery  of  the  items.   The                                                                   
     title  to items  are not  clear,  the manufacturer  will                                                                   
     jointly  pay the  holder of  the  security interest  and                                                                   
     the dealer.                                                                                                                
2:48:47 PM                                                                                                                    
     Sec. 8.        Payments for dealership facilities and                                                                    
          Dealers make significant investments in dealer                                                                        
     locations.     Manufacturers  require  renovations   and                                                                   
     renovations  that  require   hundreds  of  thousands  of                                                                   
     dollars  for  the  dealer   to  comply.    This  section                                                                   
     provides  for the  manufacturer  to pay  the dealer  the                                                                   
     cost   of   relocation,   substantial   alteration,   or                                                                   
     remodeling  of a  dealer's facilities  if the  franchise                                                                   
     agreement  is  terminated   and  the  improvements  were                                                                   
     completed in the three years prior to the termination.                                                                     
          If the facility was leased, the manufacturer                                                                          
     would pay the  dealer for the shorter period  of time of                                                                   
     the  unexpired term  of the  lease or 24  months or  the                                                                   
     time  provided the time  provided for  in the  franchise                                                                   
          If the facility is owned by the dealer the                                                                            
     manufacturer will  pay the dealer a reasonable  rent for                                                                   
     the  facilities for  24 months or  until the  facilities                                                                   
     are leased or sold.                                                                                                        
          The payment for the facilities will be for only                                                                       
     that  portion  of  the  facilities  that  was  used  for                                                                   
     activities  under  that  specific  franchise  agreement.                                                                   
     Many  dealers  have multiple  franchise  agreements  and                                                                   
     sell more than one make of vehicles.                                                                                       
          If a manufacturer discontinues the sale and                                                                           
     distribution   of  a   vehicle   line  nationwide,   the                                                                   
     manufacturer will  pay the dealer fair market  value for                                                                   
     the franchise.                                                                                                             
          If the manufacturer is making payments for rent                                                                       
     of  the  facilities,  the manufacturer  is  entitled  to                                                                   
     possess and use the space.                                                                                                 
2:50:26 PM                                                                                                                    
     Sec. 9.        Application of payment provisions.                                                                      
          Reimbursement for vehicles, equipment, supplies,                                                                      
     parts,  furnishings, computers,  software, signage,  and                                                                   
     facilities  space by  the manufacturer  is not  required                                                                   
     when the  manufacturer terminates a franchise  agreement                                                                   
     because  the  dealer  is insolvent,  the  subject  of  a                                                                   
     bankruptcy  or receivership  proceeding,  has failed  to                                                                   
     conduct its  customary operations for  seven consecutive                                                                   
     days,  is  convicted of  a  felony,  has had  a  license                                                                   
     revoked  for  more  than  30  days,  or  when  a  dealer                                                                   
     voluntarily  enters an agreement  to sell the  franchise                                                                   
     and the manufacturer has approved the agreement.                                                                           
2:51:22 PM                                                                                                                    
     Sec. 10.  Sale, transfer, or exchange of a franchise.                                                                  
          This section defines what a qualified buyer of a                                                                      
     new  motor vehicle  franchise  is.   A  qualified  buyer                                                                   
     must  meet  normal  reasonable,  and  uniformly  applied                                                                   
     standards  established by the  manufacturer, or  already                                                                   
     hold a  franchise from the  manufacturer, or  is capable                                                                   
     of  being licensed  as  a new  motor  vehicle dealer  in                                                                   
     Alaska.    A  dealer must  possess  a  business  license                                                                   
     renewable  every two years  and a  DMV license which  is                                                                   
          A qualified buyer must promptly provide personal                                                                      
     and  financial  information   to  the  manufacturer  and                                                                   
     agree  to   be  bound  by   all  reasonable   terms  and                                                                   
     conditions of the franchise.                                                                                               
          If a manufacturer refuses to approve a qualified                                                                      
     buyer, they  must serve written notice on  the applicant                                                                   
     and the  dealer not  later than 60  days after  the date                                                                   
     the manufacturer  received the dealer's  written request                                                                   
     for   the  transfer   or,  if   personal  or   financial                                                                   
     information  was requested, not  later than 60  days the                                                                   
     information  was received.   The notice  of denial  must                                                                   
     be made by  personal delivery or certified  mail, return                                                                   
     receipt requested.                                                                                                         
          The manufacturer's failure to respond in a timely                                                                     
     manner is considered consent by the manufacturer.                                                                          
          The manufacturer must state specific grounds for                                                                      
     the denial in the written notice.                                                                                          
2:52:28 PM                                                                                                                    
     Sec. 11. Mitigation of damages.                                                                                          
          This section clarifies that the dealer has an                                                                         
     obligation  to  justify  any   damages  it  claims  upon                                                                   
     Sec. 12. Successions.                                                                                                    
          Dealers make a huge investment in their business                                                                      
     and as  with any major investment  they want to  pass on                                                                   
     their   investment  to   family   or  other   designated                                                                   
     successors.    Section  11  lays  out  the  process  for                                                                   
     assigning   succession   for  a   franchise   dealership                                                                   
          The owner of a franchise has two methods of                                                                           
     appointing  a successor.   At  any time  the dealer  can                                                                   
     appoint a  designated successor to succeed  ownership of                                                                   
     the  franchise  to someone  upon  the owner's  death  or                                                                   
     incapacity   by  giving   a   written   notice  to   the                                                                   
     OR if the dealer  has owned the franchise he  or she may                                                                 
     designate  someone  to  succeed   ownership  at  a  time                                                                   
     certain  date before  the dealer's  death or  incapacity                                                                   
     by giving the manufacturer written notice.                                                                                 
     The  designated   successor  must  meet   the  following                                                                   
     1. Meets the normal,  reasonable, and uniformly  applied                                                                   
        standards of the manufacturer or agree to employ                                                                        
        someone who meets those standards.                                                                                      
     2. Give written  notice to  the  manufacturer within  60                                                                   
        days of the death or incapacity of  the dealer of the                                                                   
        intention to succeed the franchise or  in the case of                                                                   
        a time certain  designation, give  written notice  to                                                                   
        the  manufacturer   at   least  30   days  prior   to                                                                   
     3. Agree to be bound by all terms and  conditions of the                                                                   
        existing franchise.                                                                                                     
          The manufacturer may request personal and                                                                             
     financial information of the successor.                                                                                    
     The  manufacturer with  good cause  refuse to honor  the                                                                   
     successor  by giving  written notice  to the  designated                                                                   
     successor  not earlier than  60 days after  manufacturer                                                                   
     received   written  notice,   or  if  the   manufacturer                                                                   
     requested financial  information not later than  30 days                                                                   
     after  receipt of  that information.    The notice  must                                                                   
     state specific grounds for the denial.                                                                                     
          If the manufacturer does not serve notice of                                                                          
     refusal in a timely manner the successor if approved.                                                                      
     A  manufacturer has  the burden  of proof  to show  good                                                                   
     cause exists.                                                                                                              
          If the dealer enters into a purchase agreement                                                                        
     with  a person  who is related  in the  first or  second                                                                   
     degree or  is the husband or  wife of a relative  of the                                                                   
     owner in  the first or  second degree, the  manufacturer                                                                   
     cannot exercise a right of first refusal.                                                                                  
          A   manufacturer   cannot    require   changes   in                                                                   
     capitalization  or  facilities   of  a  franchise  as  a                                                                   
     condition  of  approving  a   purchase  agreement  of  a                                                                   
2:54:00 PM                                                                                                                    
     Sec. 13. New or relocated dealership                                                                                     
          Before a manufacturer can establish or relocate a                                                                     
     dealership  within a  dealers relevant  market area  the                                                                   
     manufacturer  must give the  any existing dealer  in the                                                                   
     relevant market area 90-day notice.                                                                                        
     "relevant market area" means the greater of the area                                                                       
             (A) within a radius of 14 miles around an                                                                          
     existing new motor vehicle dealer; or                                                                                      
             (B) of responsibility defined in a governing                                                                       
     franchise agreement;                                                                                                       
     Notification is not required for:                                                                                          
     1. the relocation of an existing dealership;                                                                               
     2. the sale  or transfer  of an  existing dealership  if                                                                   
        the location is within 10 miles of the current                                                                          
        location and the same line make will be sold;                                                                           
     3. or if the new dealership location is  at or within 10                                                                   
        miles of a former dealership that ceased operation                                                                      
        within the previous 24 months;                                                                                          
     4. the proposed  relocation is  two miles  or less  from                                                                   
       the existing location of the relocating dealer; or                                                                       
     5. if the proposed relocation of an  existing dealership                                                                   
        is farther away from any other dealer of the same                                                                       
        make line than the existing location.                                                                                   
          Before the manufacturer can create a new                                                                              
     dealership  location or  relocate a  dealership into  an                                                                   
     existing  relevant  maker area,  the  manufacturer  must                                                                   
     show  good  cause  for such  an  action  by  considering                                                                   
     existing circumstances such as:                                                                                            
     1. The ability  of the  existing dealer  to perform  its                                                                   
        investment obligations and profitability of the                                                                         
        dealership and the impact a new dealership would                                                                        
        have on that ability;                                                                                                   
     2. Growth and decline  in population  and the  five year                                                                   
        trend of new motor vehicle registration;                                                                                
     3. Effect on the consumer public;                                                                                          
     4. Effect on  the  existing dealers,  including  adverse                                                                   
        financial effect;                                                                                                       
     5. Reasonable expected  or anticipated market  including                                                                   
        age of population, income, education, product                                                                           
        popularity, etc.;                                                                                                       
     6. Would  an  additional  dealership   would  injure  or                                                                   
        benefit the public welfare;                                                                                             
     7. Whether  the   existing   dealership   is   providing                                                                   
       adequate competition and convenient customer care;                                                                       
     8. Whether manufacturer is  motivated by good  faith and                                                                   
        economic considerations;                                                                                                
     9. Whether  the manufacturer  has  denied  the  existing                                                                   
        dealer the opportunity for reasonable growth.                                                                           
     10.  Whether  the existing  dealer is substantially  and                                                                   
        significantly violating the franchise agreement.                                                                        
     If the  manufacturer is  creating a  new location  in an                                                                   
     existing relevant  market area, the existing  dealership                                                                   
     is  given  the  first  offer   by  the  manufacturer  to                                                                   
     establish  a new location  by providing  the dealer  90-                                                                   
     days  advance  written  notice   by  certified  mail  to                                                                   
     1. Specific location                                                                                                       
     2. Date to begin business                                                                                                  
     3. Identity  of  existing   dealership(s)  in   relevant                                                                   
        market area and the names and addresses of the                                                                          
        principal investors                                                                                                     
     4. Specific grounds or  reasons for proposed  new dealer                                                                   
        or relocation                                                                                                           
     The manufacturer  has the burden  of proof to  establish                                                                   
     good cause for a the new dealership or relocation.                                                                         
2:55:32 PM                                                                                                                    
     Sec. 14. Court Actions.                                                                                                  
          This section establishes a process to bring court                                                                     
     action for  notice of termination,  approval of  sale or                                                                   
     transfer, and new dealerships.                                                                                             
     Sec. 15. Rates for warranty and policy work.                                                                           
          This section sets rates for warranty and policy                                                                       
     work.   It  requires  the  manufacturer to  provide  the                                                                   
     dealer  with a  schedule  of compensation  for  warranty                                                                   
     work,  policy   work,  predelivery  service,   or  other                                                                   
     service  that the  manufacturer requires  the dealer  to                                                                   
     perform.  This schedule will include:                                                                                      
     1. Compensation for parts, labor, and diagnostic work                                                                      
     2. A schedule that is  not less than the rates  that the                                                                   
       new motor vehicle dealer charges retail customers                                                                        
     3. An average  retail  percentage  markup that  will  be                                                                   
        determined by  the  dealer submitting  50  sequential                                                                   
        service order invoices  or 45  days of retail  repair                                                                   
        order which  is fewer,  all of  which were  performed                                                                   
        less than 180 days prior to submission,  establishing                                                                   
        the average                                                                                                             
          When calculating the retail price for parts and                                                                       
     labor there are  half a dozen things that  should not be                                                                   
     in the calculation.  They include:                                                                                         
     1. Repairs    for    manufacturer     special    events,                                                                   
        manufacturer specials, or retail customer repair                                                                        
        promotional discounts.                                                                                                  
     2. Insurances repairs,  parts  sold at  wholesale or  at                                                                   
        reduced or specially negotiated rates                                                                                   
     3. Routine  maintenance   not  covered  under   warranty                                                                   
        (replacement of belts, fluids, filters)                                                                                 
     4. Items that don't have an individual  part number like                                                                   
        nuts and bolts                                                                                                          
     5. Tires, batteries and light bulbs                                                                                        
     6. Vehicle reconditioning                                                                                                  
          Once the percentage markup has been established                                                                       
     by the  manufacturer the rate  goes into effect  no more                                                                   
     than 30 days after it is established.                                                                                      
          A manufacturer will compensate a dealer for labor                                                                     
     and  diagnostic  work  at   the  same  hourly  rates  as                                                                   
     charged  to  regular customers  plus  any  documentation                                                                   
     work  or contact  time with  the manufacturer  including                                                                   
     photographs,  paperwork,  consultation,  and  electronic                                                                   
          A manufacturer can disapprove hourly rates or                                                                         
     other  charges if the  manufacturer  can prove the  rate                                                                   
     unreasonably exceed  the rates and charges of  all other                                                                   
          A dealer is limited to one rate increase a                                                                            
     calendar year.                                                                                                             
          The manufacturer will pay for all repairs                                                                             
     performed  by   a  dealer  that  are  covered   under  a                                                                   
     manufacturer's  warranty, policy,  or service  contract,                                                                   
     whether  the  need  for repair  was  discovered  by  the                                                                   
     customer  or  the  dealership  personnel.    In  current                                                                   
     practice  many manufacturers  deny payment for  warranty                                                                   
     work that  was discovered by dealership  personnel while                                                                   
     performing other warranty work.                                                                                            
          The dealer must submit billing for warranty work                                                                      
     within 90  days of when the  work was performed  and the                                                                   
     manufacturer  has  15  days   to  approve  or  deny  the                                                                   
     billing.  If  the manufacturer does not deny  or approve                                                                   
     a  billing within  15 days,  the  billing is  considered                                                                   
     approved.   The  manufacturer then  has 30  days to  pay                                                                   
     the billing.                                                                                                               
          If the manufacturer denies the claim the                                                                              
     manufacturer  will  contact  the dealer  in  writing  or                                                                   
     electronically  and  explain  the denial.    The  dealer                                                                   
     will then  have 30 days  to resubmit  the bill if  it is                                                                   
          Dealer incentive claims are handled the same way.                                                                     
     These  are  factory  rebates  on the  purchase  on  cars                                                                   
          If the manufacturer chooses to audit a dealer                                                                         
     they must  initiate the audit  within six months  of the                                                                   
     date of the paid claims.                                                                                                   
          The manufacturer cannot deny or charge back a                                                                         
     claim  on an audit  if the  dealer can demonstrate  that                                                                   
     the  reason  for  the repair  existed,  the  repair  was                                                                   
     performed,  and  the cause  for  the repair  was  cured.                                                                   
     This  goes back to  the manufacturer  denying the  claim                                                                   
     because  a  warranty  issue  was  discovered  by  dealer                                                                   
     personnel while doing warranty work on another repair.                                                                     
          One issue that makes Alaska unique is the                                                                             
     remoteness of  some of the new vehicles and  the ability                                                                   
     to take  the vehicle  to a  dealership for warranty  and                                                                   
     recall  work. Subsections  (u) and (v)  of this  section                                                                   
     (page   20,   line   28)  allow   for   flexibility   to                                                                   
     accommodate this issue.                                                                                                    
          If a certified technician cannot perform the                                                                          
     repairs   within  one  business   day,  an   uncertified                                                                   
     technician   may   perform   the   repairs   under   the                                                                   
     supervision  of   a  certified  technician   or  service                                                                   
     manager.   The repairs will  be billed at the  same rate                                                                   
     as a certified technician.                                                                                                 
          If the dealership is not accessible by road or is                                                                     
     more  than  100  road miles  from  the  dealership,  the                                                                   
     dealership  can  make  arrangements  with  a  technician                                                                   
     accessible to  the vehicle to perform the  repairs.  The                                                                   
     manufacturer  will reimburse the  dealer at the  current                                                                   
     schedule of  compensation for parts and labor,  plus any                                                                   
     freight or  shipping charges OR  the retail rate  in the                                                                 
     community  where  the  repairs are  made,  whichever  is                                                                   
     Sec. 15.  Discontinuation or reduction of line.                                                                          
          This section provides that if a manufacturer                                                                        
     discontinues  the  sale  or distribution  of  a  vehicle                                                                   
     line or reduces  the selection of a vehicle  line to the                                                                   
     point  it is  not economically  viable,  the dealer  can                                                                   
     terminate the  franchise dealership agreement  with good                                                                   
2:56:02 PM                                                                                                                    
MS. MOSS noted that Section 16 addresses Senator Steven's                                                                       
question about unfair practices.                                                                                                
     Sec. 16. Unfair practices.                                                                                               
          The section of the bill outlines practices that a                                                                     
     manufacturer should  not impose on a dealer  and use the                                                                   
     failure  of the dealer  to accept such  a practice  as a                                                                   
     reason for termination of the dealership agreement.                                                                        
     1. Sell vehicles or parts  or accessories to  one dealer                                                                   
        at a lower price than sold to another dealer.                                                                           
     2. Use a  promotion plan  or marketing  plan that  would                                                                   
        result in a  one dealer being  charged a lower  price                                                                   
        for a vehicle than another dealer.                                                                                      
     3. Use a promotion plan or marketing  plan that provides                                                                   
        a rebate or incentive program that  requires a dealer                                                                   
        inventory with a  predetermined number or  percentage                                                                   
        of vehicles.                                                                                                            
     4. Adopt an unreasonable, unfair and  unequitable method                                                                   
        for the allocation,  scheduling,  or delivery of  new                                                                   
        vehicles, parts, or accessories.                                                                                        
     5. Refuse or fail  to deliver, in reasonable  quantities                                                                   
        and  a  reasonable  time,  product  if  it  is  being                                                                   
        delivered to other dealers.                                                                                             
     6. Require a  dealer  to  remodel or  renovate  existing                                                                   
        facilities as a prerequisite to receiving  a model or                                                                   
        series of vehicles.                                                                                                     
     7. Fail  or  refuse  to  offer  the  dealer  all  models                                                                   
        manufactured for that line make of vehicles.                                                                            
     8. Sell, lease,  ship  or deliver  a  new  vehicle to  a                                                                   
        person other  than a  dealer in  the relevant  market                                                                   
        area,  unless  the   vehicle  is  sold,   leased,  or                                                                   
        delivered to  a  federal  agency  or the  vehicle  is                                                                   
        purchased  in   one  relevant   market  area  to   be                                                                   
        delivered in a different relevant market area.                                                                          
     9. Own, operate,  or  control  a dealership  in  Alaska,                                                                   
        except for  a  temporary  period  not to  exceed  two                                                                   
        years during a transition  from one owner  to another                                                                   
        is the  dealership is  currently for  sale at a  fair                                                                   
        and reasonable price; OR in conjunction  with another                                                                 
        person who  lacks resources  to immediately  purchase                                                                   
        the dealership but the person cannot  be connected to                                                                   
        the manufacturer,  has  made  a  significant  capital                                                                   
        investment  in  the  dealership,  has   an  ownership                                                                   
        interest, and will be able to acquire  full ownership                                                                   
        in a reasonable time.                                                                                                   
     10.  Own,  operate,  or control  a service  facility  or                                                                   
        contract with  a  person  other than  its  franchised                                                                   
        dealer  for  a   service  facility  without   written                                                                   
        consent of the franchised dealer unless  the vehicles                                                                   
        being serviced are owned  and operated solely  by the                                                                   
     11.  Use  of  or sell  of  confidential  or  proprietary                                                                   
        information from  a  dealer  to compete  with  dealer                                                                   
        such as trade secrets, business plans,  market plans,                                                                   
        customer lists, etc.                                                                                                    
     12.  Terminate a  franchise the dealer  holds additional                                                                   
        line make  franchises and  uses  the same  dealership                                                                   
        facilities for the sale of other line makes.                                                                            
     13.  Coerce  or attempt  to coerce a  dealer to  refrain                                                                   
        from or  prohibit  or attempt  to  prohibit a  dealer                                                                   
        from acquiring another make line.                                                                                       
     14.  Require  the  dealer to  make  material  alteration                                                                   
        to,  expansion  of   or  addition  to   a  dealership                                                                   
        facility unless  all dealers  similarly situated  are                                                                   
        required to take  the same action.   The dealer  will                                                                   
        select who does the work.                                                                                               
     15.  Require the  dealer to order or accept  delivery of                                                                   
        any   vehicles,   parts,   accessories,    equipment,                                                                   
        promotional material,  display items  or other  items                                                                   
        not required by law.   This does not apply  to recall                                                                   
        of  safety  and  emissions  parts  or  to  a  vehicle                                                                   
        feature, part, accessory or other  component required                                                                   
        by federal, state, or local law.                                                                                        
     16.  Coerce  or  attempt to  coerce  a dealer  to  join,                                                                   
        contribute  to  or  affiliate  with   an  advertising                                                                   
        association   or   participate   monetarily   in   an                                                                   
        advertising campaign. If the dealer  does participate                                                                   
        the dealer will be identified as  the advertiser, not                                                                   
        the association.                                                                                                        
     17.  Prevent   the   dealer  from   changing   executive                                                                   
        management  unless the  manufacturer  can  prove  the                                                                   
        change will  result  in management  by  a person  who                                                                   
        does not have  good moral character  or who  does not                                                                   
        meet reasonable, preexisting,  and equitably  applied                                                                   
        standards of the manufacturer.   Rejection of  such a                                                                   
        change must be given  in written notice with  60 days                                                                   
        by the manufacturer.                                                                                                    
     18.  Condition   the  sale,  transfer,   relocation,  or                                                                   
        renewal of a franchise on the  manufacturer obtaining                                                                   
        site  control  or   requiring  the  dealer   to  make                                                                   
        substantial  facility  improvements   or  renovations                                                                   
        that exceed $5,000.                                                                                                     
     19.  Require  a dealer,  as a condition  of granting  or                                                                   
        renewing a  franchise, to waive,  limit, or  disclaim                                                                   
        the right to protest the establishment  or relocation                                                                   
        of another dealer in the relevant market area.                                                                          
     20.  Require   the   dealer   to  change   the   capital                                                                   
        structure of  the dealership  or means  by which  the                                                                   
        dealer finances the  operation unless the  dealership                                                                   
        does  not  at  all  times  meet   reasonable  capital                                                                   
        investment requirements.                                                                                                
     21.  Increase  the price  of a vehicle  for which  there                                                                   
        exists a purchaser at  the time of the order  and the                                                                   
        order was made  before the manufacturer  provided the                                                                   
       dealer with a written price increase notification.                                                                       
     22.  Fails  to  indemnify  and hold  harmless  a  dealer                                                                   
        when the  manufacturer  settles  in writing  a  court                                                                   
        judgment for  damages  or when  applicable  law or  a                                                                   
        franchise  agreement  requires   indemnification  and                                                                   
        holding harmless.                                                                                                       
          The provisions of Sec. 16(a)(1)-(3) lower price                                                                     
     for  vehicles,  parts,  and  promotional  plans  do  not                                                                 
     apply to:                                                                                                                  
     1. Sale for resale to a federal agency                                                                                     
     2. Sells or donates the  vehicles for use in  a driver's                                                                   
        education program                                                                                                       
     3. Bona fide uniformly applied manufacturer  promotional                                                                   
     4. Manufacturers bona fide quantity discount  program to                                                                   
        sell parts or accessories                                                                                               
     5. Manufacturer's  bona  fide  discount  program  for  a                                                                   
        fleet of 15 or more new vehicles                                                                                        
          Subsection (c) has definitions.                                                                                       
     Sec. 17. Redefines "terminate".                                                                                          
          Repeals the current definition of "terminate"                                                                         
     which  is  "includes nonrenewal  or  cancellation;"  and                                                                   
     redefines  "terminate" as  "includes to  cancel, not  to                                                                   
     renew, or  to discontinue or  make a reduction  under AS                                                                   
     Sec. 18. Definitions.                                                                                                    
          Adds definitions for "line make" and "relevant                                                                      
     market area".                                                                                                              
     Sec. 19. Repealer.                                                                                                       
     Sec. 45.25.110. Termination of franchise agreements.                                                                       
        (b) Notwithstanding (a)(1) of this section, a                                                                           
     manufacturer  may not  terminate  a franchise  agreement                                                                   
     with a  new motor  vehicle dealer  because of the  death                                                                   
     or incapacity  of an  owner if the  owner is not  listed                                                                   
     in  the  franchise   as  one  on  whose   expertise  and                                                                   
     abilities  the manufacturer  relied in  the granting  of                                                                   
     the franchise.                                                                                                             
     (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                                                                   
     agreement.  For the purposes  of determining good  cause                                                                   
     under  this  subsection, reasonable  sales  and  service                                                                   
     performance   criteria   and    capital   and   facility                                                                   
     requirements  may  be  considered   material  provisions                                                                   
     only if  the criteria or requirements  were communicated                                                                   
     in  writing to  the new  motor vehicle  dealer within  a                                                                   
     reasonable  period  before  the effective  date  of  the                                                                   
     termination   or  nonrenewal   so   that  a   reasonable                                                                   
     opportunity  was  afforded over  a  period of  not  less                                                                   
     than  six  months   to  comply  with  the   criteria  or                                                                   
     Sec. 20. Transition: Schedule of Compensation.                                                                           
          This section provides that the schedule of                                                                            
     compensation on  the effective date of SB  197 cannot be                                                                   
     less  than  it  was  immediately  before  the  effective                                                                   
     date.    It  also  makes  reference  to  definitions  in                                                                   
     current law.                                                                                                             
2:59:57 PM                                                                                                                    
CHAIR COSTELLO held SB 197 in committee.                                                                                        

Document Name Date/Time Subjects
SB 55 - Background Document - AK Soc. Eye Surgeons Review.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Background Document - Edward Godnig.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Background Document - AOA Malpractice Fact Sheet.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Background Document - Kentucky Board of Optometric Examiners.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Fiscal Note DCCED.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Background Document - White Paper AK Soc. of Eye Physicians.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Opposition E-mails.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Opposition Letter - Alaska Society of Eye Physicians & Surgeons.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Opposition Letter - American Soc. of Plastic Surgeons.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Opposition Letter - IIPA.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Opposition Letter - Linda Weld.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Opposition Letter - Oliver Korshin.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Opposition Letter - Opthalmic Associates.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Sectional Analysis.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Sponsor Statement.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Article - Newkirk Article.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support E-mails.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Letter - AK Vision Center.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Letter - AOA.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Letter - D. Delzer.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Letter - D. Schmid.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Letter - Jeff Gonnason.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Letter - Lodestar Eye Care.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Letter - Messerschmidt.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Letter - Tanana Chiefs Conference.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55 - Support Letter - Victoria Blower.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 55.pdf SL&C 3/10/2016 1:30:00 PM
SB 55
SB 197 - Fiscal Note Law.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197 - Legal Memo.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197 - Opposition Letter - Alaska Franchise Letter.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197 - Sectional Analysis.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197 - Sponsor Statement.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197 - Supporting Document - Continental Auto.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197 - Supporting Document - Nissan letter.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197 - Supporting Documents- Worthington Ford.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197- Support Letter - AADA.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197.PDF SL&C 3/10/2016 1:30:00 PM
SB 197
SB 197 - Auto Alliance Sectional Analysis.pdf SL&C 3/10/2016 1:30:00 PM
SB 197
SB55 Costello.03.12.2016.pdf SL&C 3/10/2016 1:30:00 PM
SB 55