Legislature(2017 - 2018)BUTROVICH 205

04/13/2018 03:30 PM Senate STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Uniform Rule 23 Waived --
Moved CSHB 136(TRA) Out of Committee
<Bill Hearing Rescheduled from 04/12/18>
-- Public Testimony --
Moved SJR 9 Out of Committee
<Bill Hearing Rescheduled from 04/12/18>
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
             HB 136-MOTOR VEHICLE DEALER FRANCHISES                                                                         
4:22:24 PM                                                                                                                    
CHAIR MEYER announced the consideration of House Bill 136 (HB
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                                                                    
     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                                                                    
     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                                                                    
     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                                                                    
     Section 8                                                                                                              
     Repeals  and   reenacts  AS  45.25.160.   This  section                                                                    
     establishes a procedure for the  proposed transfer of a                                                                    
        • 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                                                                    
     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                                                                    
        • 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                                                                    
        • Require auto dealers to purchase a set number of                                                                      
          certified  pre-owned  vehicles   or  lease  return                                                                    
        • 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                                                                    
        • Require auto dealers to accept  vehicles, parts,                                                                      
          accessories or equipment  they did not voluntarily                                                                    
        • 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                                                                        
     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                                                                    
     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                                                               
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                                                               
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                                                               
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.                                                                                                                        

Document Name Date/Time Subjects
SJR 9 Sponsor Power Point Presentation.pdf SSTA 4/13/2018 3:30:00 PM