BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 2597 (B. Berryhill)
As Amended June 2, 2010
Hearing Date: June 29, 2010
Fiscal: Yes
Urgency: No
BCP:jd
SUBJECT
Vehicles: Manufacturers and Distributors.
DESCRIPTION
This bill would prohibit a manufacturer or distributor from
offering or attempting to offer a customer or motorsports dealer
an incentive to promote the sale or lease of motorsports
vehicles that is conditioned on one or more of the following:
Purchase by the selling dealer of a minimum number of
vehicles.
The selling dealer maintaining a minimum number of
vehicles in inventory.
The date that the selling dealer acquired the vehicles
eligible for the incentive.
This bill would also prohibit those entities from discriminating
in favor of a motorsports dealer, and provide that unfair
discrimination includes the following:
Furnishing to the motorsports dealer a vehicle, part, or
accessory that is not made available to all dealers, as
specified.
Referring a prospective purchaser or lessee to a dealer
unless that person resides in the area of responsibility
assigned to that dealer, or unless the referral is
requested.
This bill would also prohibit a manufacturer or distributor from
requiring, or attempting to require, a motorsports dealer to
maintain a vehicle inventory in excess of a reasonable minimum
requirement not to exceed a 60-day supply, as specified.
(more)
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BACKGROUND
The New Motor Vehicle Board (NMVB) is a program within the
Department of Motor Vehicles (DMV) which operates in a quasi
judicial capacity to resolve disputes between franchise dealers
and manufacturers/distributors of new motor vehicles and
specified motorsports vehicles. Under existing law, the NMVB
may only take action on disputes when "a protest is presented to
the Board by a franchisee." (Veh. Code Sec. 3050.)
In 2008, AB 2976 (Keene) sought to address the concerns of
motorsport dealers that manufacturers were compelling them to
buy and inventory vehicles in numbers that exceeded what they
actually required. Those concerns were based on the practice of
manufacturers providing increasingly favorable terms based upon
the number of vehicles ordered. That bill was approved by this
Committee and moved to the inactive file for purposes of
reaching a compromise with the opposition. The compromise never
occurred and AB 2976 died on the inactive file.
This bill, sponsored by the California Motorcycle Dealers
Association, is substantially similar to AB 2976 as it was heard
by this Committee, although it does not contain the Committee's
previously suggested amendment that is discussed in Comment 3.
Specifically, this bill would prohibit a manufacturer or
distributor from offering an incentive to promote the sale or
lease of a motorsport vehicle that is conditioned on specified
requirements, prohibit the unfair discrimination in favor of a
dealer, as specified, and prohibit any requirement that a dealer
maintain an inventory in excess of a reasonable minimum
requirement, not to exceed a 60-day supply.
CHANGES TO EXISTING LAW
Existing law , Vehicle Code Section 11713.3, makes it unlawful
for a vehicle manufacturer or distributor to take specified
actions against a vehicle dealer or franchisee, including:
failing to pay a dealer within a reasonable time following
receipt of a valid claim by the dealer, for a payment agreed
to be made by the manufacturer or distributor to the dealer
because a new vehicle from a prior model year is in the
dealer's inventory at the time of introduction of new model
vehicles (subdivision (i));
offering refunds or other types of inducements to a person for
the purchase of a new motor vehicle of a certain line-make to
be sold in a market area without making the same offer to all
other dealers in the same line-make within the relevant market
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area (subdivision (k));
competing with a dealer in the same line-make operating under
a franchise agreement from the manufacturer or distributor in
the relevant market area (subdivision (o));
unfairly discriminating among its franchisees with respect to
warranty reimbursement or authority granted to its franchisees
to make warranty adjustments with retail customers
(subdivision (p)); and
unfairly discriminating in favor of any dealership owned or
controlled, in whole or in part, by a manufacturer or
distributor or an entity that controls or is controlled by the
manufacturer or distributor, including the referral of
prospective customers to that owned or controlled dealership
unless the prospective customer lives in that dealership's
assigned area of responsibility or requests the referral to
that dealership (subdivision (u)).
Existing law makes a violation of Section 11713.3 punishable as
a misdemeanor. Any unlawful act may also be the basis for an
unfair competition claim. (Bus. & Prof. Code Sec. 17200.)
This bill , applicable only to motorsports vehicles, would make
it unlawful for a motorsports vehicle manufacturer or
distributor to do any of the following:
To offer or attempt to offer a motorsports dealer incentive
program (e.g., customer or dealer rebate, discount,
promotional financing, or other incentive) to promote the
retail sale or lease of motorsports vehicles that is
conditioned on one or more of the following:
a) Purchase by the selling dealer of a minimum number of
motorsports vehicles.
b) The selling dealer maintaining a minimum number of
motorsports vehicles in inventory.
c) The date that the selling dealer acquired the
motorsports vehicles eligible for the incentive.
To unfairly discriminate in favor of a motorsports dealer in
any of the following manner:
a) Furnishing to a motorsports dealer a vehicle, part, or
accessory that is not made available to all dealers at the
same actual price and pursuant to a reasonable allocation
formula applied uniformly and not based on the inventory
size or purchasing history or volume of the dealer, or that
is not made available to all dealers on comparable
financing and delivery terms, including the time of
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delivery after the placement of an order. Differences in
delivery terms due to geographic distances or other factors
beyond the control of the manufacturer, branch, or
distributor would not constitute unfair discrimination.
b) Referring a prospective customer to a motorsports dealer
unless the prospective customer resides in the area of
responsibility assigned to that dealer or the prospective
customer requests to be referred to that dealer.
To require or attempt to require a motorsports dealer to
maintain a motorsports vehicle inventory in excess of a
reasonable minimum requirement not to exceed a 60-day supply
based on the rate of sales of the dealer for the preceding 90
days.
This bill would define a "motorsports vehicle" to mean a
motorcycle, motor-driven cycle, motorized scooter, motorized
bicycle, all-terrain vehicle, or a snowmobile.
This bill would define a "motorsports dealer" as a person
licensed to engage in the sale of more than one type of
motorsports vehicle that is manufactured by the same company or
by a subsidiary of the same company.
This bill would provide that a motorsports dealer that is
engaged in more than one active franchise agreement, except for
those franchise agreements from a subsidiary of the same parent
company, shall not be considered to be a multiline motorsports
dealer if those franchise agreements cover one type of
motorsports vehicle.
COMMENT
1. Stated need for the bill
According to the author,
Many major motorcycle manufacturers (OEMs) will calculate
the quota of vehicles [on] a dealer-by-dealer basis. The
favored terms are scaled into tiers that provide
increasingly favorable terms, i.e., Gold, Silver, and
Bronze. If a dealer purchases the quota of vehicles that
the OEM has arbitrarily set for the dealership, then the
dealer is eligible to receive more favored terms. If a
dealer refuses to take the quota (which they may feel is not
reasonable for sales in their market area), then that dealer
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will not receive favorable terms and its consumers will not
receive the retail rebate. These are types of "stair step
incentives," but are particularly troubling because they are
based not only on a successful retail sale, but also on
wholesale purchase requirements.
The California Motorcycle Dealers Association (CMDA), sponsor,
further contends:
Motorcycle manufacturers, taking advantage of the vast
disparity in economic and bargaining power between dealers
and manufacturers, often offer favored dealers better terms
and conditions when they sell them motorcycles, parts and
accessories. Good public policy, and basic fairness,
dictate that all dealers must be treated similarly to be
able to compete on a level playing field.
All of the job losses in California's motorcycle industry,
estimated at between 30 and 40% of what used to be a $3
billion industry in this state, can not be blamed on the
OEMs' discriminatory inventory allocation, favoritism and
dumping practices, but it is estimated that hundreds of jobs
may be reclaimed if the funds currently used to pay high
flooring bills for unneeded inventory were available for
new, or re-hire, employees' pay.
2. Opposition's arguments
The Motorcycle Industry Council (MIC), in opposition, expresses
concerns that a similar Montana law was found to violate the
Contracts Clause of the United States Constitution, that
government intervention into these contractual agreements
creates an increasingly complicated and difficult business
environment, that this bill would not permit OEMs to offer
greater support for a dealer that wants to take on greater risk
and grow its business, and that by eliminating incentives based
upon date of purchase, this bill would eliminate the dealer's
opportunity to take advantage of OEM overstock situations. MIC
further contends that their incentive programs are optional -
dealers are under no obligation to participate, that if this
bill were enacted, OEMs would likely quit offering promotional
programs in California in order to avoid potential violations of
the law, and that this bill would place the burden entirely on
the OEM for warehousing all products. Bombardier Recreational
Products, in opposition, further asserts that the recent
amendments applying the bill to dealers who carry more than one
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type of motorsports vehicle would create an uneven playing
field.
The California Motorcycle Dealers Association (CMDA), in
response, contends that the decision regarding the Montana
statute has "absolutely no bearing on the vetting of AB 2597,
since this bill pertains to California motorsports dealers,
only, not to dealers in any other state." (CMDA notes that the
court declared the definition of "dealer" in the Montana statute
to be limited to "those retailers physically located in the
state of Montana only, and not to every dealer in the United
States.") CMDA further contends that because the current "stair
step incentives" are based not only on a successful retail sale,
but also on wholesale purchase requirements, "dealers who do
not, or economically cannot, purchase an OEM's unrealistic
quotas are at a comparative disadvantage versus dealers that do
accept their quotas. Often, OEMs informally, inconsistently,
subjectively, and arbitrarily set the quotas without disclosing
to all their dealers the selection criteria. This is clearly
discriminatory and cries out for legislative redress. Consumers
can't take advantage of retail rebates, discounts, better terms
and incentives if their local dealer cannot offer them because
of OEM policy favoritism."
3. Should these franchise agreements (for the sale of
motorsports vehicles) be singled out from other vehicle
franchise agreements?
Dealer incentive programs currently exist in both the passenger
car industry as well as the motorsports vehicle industry. Yet,
this bill singles out the motorsports vehicle industry for its
special protections. Committee staff is not aware if the dealer
incentive programs offered in the motorsports industry are more
predatory or invasive on a dealer's business practices than
programs offered in the passenger car industry.
Even still, as structured, AB 2597 would appear to prohibit any
type of dealer incentive program in the motorsports industry,
reasonable or not, that is based on the dealer buying a minimum
number of motorsports vehicles. Thus, pursuant to this bill, a
motorsports dealer in California could be eligible for special
financing, or a flooring rebate, or another form of dealer
incentive whether that dealer sold one or one thousand
motorsports vehicles. Whether it is at the wholesale level or
the retail level, intuitively, a buyer should always get a
better price if he or she buys an item in large or bulk
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quantity.
SHOULD DEALER INCENTIVE PROGRAMS BASED ON THE DEALER'S VEHICLE
SALES BE MADE UNLAWFUL?
Striking that one provision would be one solution, but the
bigger question remains: Should special protections be enacted
for motorsports vehicle dealers?
Without more expertise, committee staff cannot gauge whether the
other prohibited conditions for participation in a dealer
incentive program are reasonable and common to the motor vehicle
industry, or are unique to the motorsports vehicle industry and
therefore should be prohibited. For instance, a minimum
inventory requirement as a condition of preferred dealer
financing may be reasonable if the minimum inventory requirement
is reasonable. However, the bill would prohibit any minimum
inventory requirement as a condition of preferred financing or
another dealer incentive. (Committee staff notes that when this
Committee heard AB 2976, the author of that bill and the present
sponsor amended the bill pursuant to the following suggestion.)
SHOULD THE PROPOSED RESTRICTIONS ON DEALER INCENTIVE PROGRAMS BE
DELETED?
Suggested amendment
On page 10, strike out lines 25 to 34, inclusive, and renumber
the unfair discrimination provision accordingly.
However, the provisions proposing to ban specified forms of
unfair discrimination seem reasonable and justifiable, as do the
restriction on inventory requirements. With regard to the
latter, committee staff would observe that the proposed
provision on page 11, beginning on line 17, (making it unlawful
for a motorsports vehicle manufacturer to require a dealer to
maintain a motorsports vehicle inventory in excess of a
reasonable minimum requirement not to exceed a 60-day supply
based on the rate of sales for that dealer in the preceding
90-days) would appear to address the sponsor's concerns about
unreasonably high inventory requirements, without also having to
enact the dealer incentive program restrictions.
4. Prior requests to negotiate, not legislate
CMDA notes that when they sponsored AB 2976 in 2008, "CMDA bowed
to legislative calls to meet with the manufacturers and their
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trade association representatives to determine if enough
compromise could be reached on outstanding issues, so that the
legislative solution would not be necessary." CMDA submitted a
detailed description of the subsequent failed attempts to
compromise and asserts that:
With this recent history behind it, the CMDA has had no
other recourse but to introduce AB 2597, authored by
Assemblyman Bill Berryhill. These are issues that cry out
for legislative redress; the CMDA went into the 2009
negotiations hoping that fair play by the manufacturers
would prevail. Fortunately, the unfair business practices
that AB 2597 seeks to cure are not universally employed by
all of the manufacturers. Some like the Harley-Davidson
Motor Company, are in general compliance with the provisions
of AB 2597, so they will be unaffected by its passage.
Support : None Known
Opposition : Bombardier Recreational Products; Motorcycle
Industry Council
HISTORY
Source : California Motorcycle Dealers Association
Related Pending Legislation : None Known
Prior Legislation : AB 2976 (Keene, 2008) See Background.
Prior Vote :
Assembly Transportation Committee (Ayes 10, Noes 1)
Assembly Appropriations Committee (Ayes 14, Noes 0)
Assembly Floor (Ayes 68, Noes 4)
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