Legislature(2017 - 2018)BUTROVICH 205
04/13/2018 03:30 PM Senate STATE AFFAIRS
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HB 136-MOTOR VEHICLE DEALER FRANCHISES 4:22:24 PM CHAIR MEYER announced the consideration of House Bill 136 (HB 136). 4:22:53 PM SARA PERMAN, Staff, Representative Claman, Alaska State Legislature, Juneau, Alaska, noted that Chair Meyer is the sponsor of the Senate's companion bill, Senate Bill 47 (SB 47). She provided an overview of HB 136 as follows: The driving forces behind HB 136 were the repeated conversations about the need to statutorily update franchise agreements between auto dealers and auto manufacturers; much of this discussion was driven by issues with warranty practices and franchise termination. When we first introduced this bill last year, it looked very different; however, we had trouble getting it out of "first gear" when we hit a "speed bump" with the auto manufacturers. With their concerns in mind we decided to "throw the bill in reverse" and work to find a compromise between all parties. While the bill "idled" in the House Transportation Committee, Representative Claman and Senator Meyer brought both manufacturers and auto dealers to the table and we've worked out a revision that is now acceptable to both auto dealers and manufactures; this is the version in front of you today. The CS of House Bill 136 updates warranty policy to be more consumer friendly, it provides 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 repair coverage. As it stands, customers currently need to pay to get their vehicle to and from an authorized dealer for warranty repairs. With House Bill 136, the manufacturer will be responsible for warranty repairs in the remote location or shipping the vehicle to and from an authorized location at no cost to the consumer. House Bill 136 also updates the rates that manufacturers may pay auto dealers for warranty work. The updated rates may not be less than the rates that the auto dealer charges customers for similar non- warranty-retail work; this equalizes the rate for repair work across the board. "Shifting gears," House Bill 136 amends statutes concerning terminations and succession of franchises. Manufactures must have good cause for terminating the franchise and must provide dealers with notice and allow dealers to attempt to fix areas out of compliance with franchise agreements before terminating the dealer. During the sale of a franchise, a manufacturer must also take into consideration whether the potential buyer is an immediate family member, partial owner, or meets the standard requirements when approving the sale. 4:22:59 PM SENATOR EGAN joined the committee meeting. 4:25:33 PM MS. PERMAN referenced the sectional analysis HB 136 as follows: Section 1 Adds legislative intent language to uncodified law, "It is in the public interest to protect have warranty service for new motor vehicles and maintain fair competition among auto manufacturers and auto dealers." Section 2 Amends AS 45.25.010: Applicability: AS 45.25.020 - 045.25.310 apply to franchise agreements between manufacturers and Alaska auto dealers. 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 vehicles." Section 5 Amends AS 45.25.140(a), updates and amends the manufacturers repurchase requirements upon termination of a franchise agreement. The manufacturer must repurchase current year models of new motor vehicles, certain new motor vehicle models from the prior year, parts, trademark signs and equipment, special tools, computer, printers, and electronic hardware. 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 termination. Section 8 Repeals and reenacts AS 45.25.160. This section establishes a procedure for the proposed transfer of a dealership: • Manufacturers may not prevent the sale of a franchise to a potential buyer who is capable of being licensed as an auto dealer and who meets the manufacturers' standards. • Upon receipt of the notice to transfer the franchise, manufacturers have 30 days to request supplemental information after which the manufacturer has 75 days to give notice of rejection of the transfer. • The manufacturer has the right of first refusal to a transfer with limitations. The manufacturer has the same notice requirements for the right of first refusal as they have for rejecting the transfer outright. A manufacturer may not exercise the right of first refusal if the transfer of the franchise is to a family member or a managerial employee owning 15 percent or more of the dealership. If a manufacturer exercises the right of first refusal, then the manufacturer must provide the auto dealer with the same compensation as offered by the proposed buyer. The manufacturers must also pay the legal fees incurred for the preparation of the void transfer agreement. 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 dealership. 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. Section 11 Amends AS 45.25.190, this section updates the statutory references in the arbitration section. Section 12 Adds new sections to article 2 of AS 45.25, this section addresses warranty work and pay rates for warranty work: • Sec 45.25.200: A manufacturer must pay an auto dealer for all warranty work if the auto dealer provides documentation of the need for the repairs. The auto dealer must submit the claim within 90 days of the completed warranty work, and a manufacturer must approve the claim within 30 days of receipt. If the manufacturer rejects the claim, they must provide notice of their reasons to the auto dealers, who may correct the issues within 30 days of receipt of the rejection. A manufacturer may conduct an audit of warranty repairs performed, which must be done within a year of the claim. Only one audit can be performed per year. • Sec 45.25.210: A manufacturer must provide auto dealers with a schedule of compensation for warranty work. The rates may not be less than the rates that the auto dealer charges customers for similar retail work. To establish this warranty rate, auto dealers shall submit 100 sequentially ordered claims. Rates for special events and manufacturer specials are not considered in this calculation. • Sec 45.25.220: If a vehicle needs warranty repairs and is located in a remote location, the manufacturer shall make reasonable efforts to repair the vehicle in the remote location. If the repairs cannot be made on site, the manufacturer may arrange, at no cost to the owner, to ship the vehicle to a location where repairs can be completed. The manufacturer is responsible for returning the repaired vehicle to the remote location. The manufacturer may direct auto dealers to refer customers in remote locations to the manufacturer. Auto dealers may subcontract warranty work in a remote location. "Remote location" refers to a location that is not accessible by road or is 100 road miles or more from an auto dealer. • Sec 45.25.230: Manufacturers shall provide auto dealers with specific instructions for the preparation of new vehicles before delivery to buyers, compensation for the preparation, and the amount of time allowed for preparation. Section 13 Repeals and reenacts AS 45.25.300 regarding unfair practices, manufacturers may not: • Require or coerce auto dealers to relocate or remodel their facilities if the changes are unreasonable. • Require auto dealers to purchase a set number of certified pre-owned vehicles or lease return vehicles. • Refuse to deliver for sale a line or make of vehicles that manufacturer makes. • Require auto dealers to purchase unreasonable advertising displays or an unreasonable number of signs. • Require auto dealers to accept vehicles, parts, accessories or equipment they did not voluntarily order. • Increase the price of a vehicle ordered by the auto dealer between the time of order and the time of payment. • Require or coerce auto dealers to join an advertising association or contribute to an advertising campaign. Section 14 Repeals and reenacts AS 45.25.990(19), defines "terminate" for this chapter. Section 15 Adds new paragraph to AS 45.25.990, defines "schedule of compensation" and "warranty work" for this chapter. Section 16 Repeals AS 45.25.320. MS. PERMAN reviewed the "substantial parts" of HB 136 as follows: Section 3 Is about dealership terminations. Manufactures may not terminate dealers without good cause and meeting the proper notice requirements. Section 4 Expands upon that good cause, if a dealer cannot meet sales goals due to factors out of the dealer's control, such as lack of inventory or delayed shipments, it does not amount to good cause for termination. Section 5 When terminating dealerships, the manufacturer must repurchase all current year models, certain new motor vehicles from the previous year, trademark signs, parts, tools, computers and equipment. Section 8 Is about the transfer of dealerships. Manufactures are given the right of first refusal for transfers; however, they may not prevent the transfer of a dealership if the potential buyer is capable of being licensed as an auto dealer and meets the manufacturers standards. Manufacturers also may not reject the transfer of a dealership to an immediate family member of the current owner or a managerial employee who owns 15 percent or more of a dealership. Section 12 Covers warranties, manufactures have the burden of repairing warranty vehicles for consumers that live in remote, off-road locations or more than 100 miles from a dealership; this is places like Kodiak or Nome where someone may have a brand-new Mercedes but there isn't a Mercedes dealer in town, they have the burden of repairing it either in the location or paying for it to be transfer to an authorized shop and then paying of it to come back at no cost to the consumer. This section also changes the rates dealers are paid for warranty work to match the amount they are paid for non-warranty retail work. Section 13 Lists unfair practices and among these manufactures may not require unreasonable advertising displays or require dealers to join advertising associations. 4:27:39 PM SENATOR WILSON asked what the shipping costs are to ship a vehicle to off-road locations. MS. PERMAN answered that there were concerns about the use of a third party to do warranty work with the manufacturer unable to guarantee the work that the manufactures preferred to take on the burden of doing the maintenance themselves to maintain their reputation and brand. SENATOR WILSON asked who sets vehicle transportation in motion. MS. PERMAN replied that she was not sure but noted that the burden falls on the manufacturer. SENATOR COGHILL asked how the new law will affect existing franchises. He inquired if the legislation requires immediate conformity. MS. PERMAN replied that she would defer to the lawyer for the Alaska Auto Dealers Association, Gary Sleeper. 4:31:18 PM GARY SLEEPER, Attorney, Alaska Automobile Dealers Association, Anchorage, Alaska, explained that the bill was drafted to be remedial and apply to existing franchise agreements but only to the extent permitted by the Alaska Constitution and the United States Constitution. He noted that the provision was approved by the manufactures and detailed that it may or may not be applied retroactively depending on the particular provision at stake and decided on a case-by-case basis. 4:33:00 PM SENATOR COGHILL remarked that many manufactures can come down with requirements and asserted that the provision provides a backdrop for some protection. He noted that franchises have requirements for advertising, quality and volume. He asked if the bill provides enough "Alaska unique protection." MR. SLEEPER answered yes. He explained that section 13 identifies a couple of unfair practices. He noted that a new section was added to say that the manufactures cannot require a new auto dealer to purchase unreasonable advertising. He detailed that the intent was to give the Alaska dealers the right to pushback a little bit when manufactures try to require participation in expensive advertising campaigns, especially when designed for a national audience rather than an Alaska audience. SENATOR COGHILL asked if the arbitration addressed in the bill is a new technique. MR. SLEEPER answered that the amendment was technical and conforming to correctly cite the statute. He added that there was no change from the existing law. CHAIR MEYER thanked Ms. Perman for providing partial credit for the legislation but asserted that all the credit goes to her and Representative Claman. He conceded that he did not think it was possible to get both groups in agreement but somehow "A rabbit was pulled out of a hat." He noted that Senator Coghill has tried to get similar legislation passed for many years as well. He continued as follows: This "vehicle" has been "going many miles" and I want to thank you for not "wrecking this vehicle" and "keeping it on the road." 4:36:39 PM CHAIR MEYER opened public testimony. 4:36:47 PM MARTEN MARTENSEN, Owner, Continental Auto Group, Anchorage, Alaska, testified in support of HB 136. He disclosed that work began on the legislation four years ago. He detailed that the bill was over 30 pages long but Representative Claman recommended the bill be pared down. He revealed that Representative Claman mediated between the Alaska Auto Dealers Association and the manufactures. He asserted that the legislation protects dealers and its customers. CHAIR MEYER emphasized that the bill is neither for the auto dealers or the manufactures, but for consumers. 4:39:00 PM LESTER NICHOLS, Owner, Fairbanks Nissan, Fairbanks, Alaska, testified in support of HB 136. He opined that a good deal is only good if it was good for everybody and asserted that HB 136 "fits that criteria." He said the bill is good for Alaska consumers, dealers and manufactures. He emphasized that the bill helps Alaskans protect the work that he and other auto dealers have put in to create a legacy. He said having the ability to hand his dealership on to his children is important to him. He added that there are a lot of Alaskan consumers living in outlying areas that need assistance in warranty issues. 4:42:59 PM STEVE ALLWINE, President, Mendenhall Auto Center, Juneau, Alaska, testified in support of HB 136. He noted that he is also a member of the Alaska Auto Dealers Association board of directors as well as the state director for the National Automobile Dealers Association. He asserted that HB 136 serves to update state franchise law that has not been updated since originally written in 2002. He said HB 136 will serve dealers, employees and consumers throughout the state, especially those in remote areas. He added that HB 136 addresses dealer succession by clarifying the ability for qualified people within an organization to own the dealership without a manufacturer jumping in with a right of first refusal. He emphasized that the bill provides that a dealer will be compensated for warranty issues and recalls at the same retail level that's charged to a consumer that walks into a dealership for repairs. He added that the bill allows dealerships the ability to fix a warranty issue that is discovered while fixing an initial warranty issue, something that currently is not allowed. He summarized that the bill addresses consumers in outlying areas by providing the option to either find someone locally that is qualified for warranty repairs or to have the automobile sent back to the dealer. SENATOR COGHILL said he supported the bill. 4:48:50 PM CHAIR MEYER closed public testimony. 4:49:35 PM SENATOR GIESSEL noted that she has a bill that addresses a similar situation for heavy commercial equipment franchisers and she will be using HB 136 as a model. She moved to report CSHB 136(TRA), 30-LS0561\N from committee with individual recommendations and attached zero fiscal note. 4:50:14 PM CHAIR MEYER announced without objection the motion carried. 4:50:24 PM At ease.
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