BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 642|
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THIRD READING
Bill No: SB 642
Author: Padilla (D)
Amended: As introduced
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-0, 4/26/11
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Vehicles: manufacturers and distributors
SOURCE : California New Car Dealers Association
DIGEST : This bill provides, among other things, that
motor vehicles manufacturers, distributors, and their
affiliates are prohibited from: (1) obtaining or enforcing
an agreement that modifies or disclaims a duty of the
manufacturer or a right of the dealer, limits the right of
a dealer to file evidence with the New Motor Vehicle Board,
provides for termination of a franchise by a dealer, or
requires a controversy to be referred to a person for a
binding determination; (2) unfairly discriminating in favor
of a dealership owned by a manufacturer or distributor by
allowing that dealership to receive sales or service
incentives, discounts, or promotional programs that are not
available to all franchises on an equivalent basis; and (3)
unfairly discriminating against a franchisee selling a
service contract, debt cancellation agreement, or similar
product not approved by the manufacturer or distributor, as
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specified. This bill additionally narrows the
circumstances where a manufacturer is permitted to operate
a dealership, and augment the disclosure requirements when
a manufacturer or distributor does own an interest in a
dealership.
ANALYSIS : 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
franchise, including:
Requiring a dealer to prospectively assent to a
release, assignment, novation, waiver or estoppel that
would relieve any person from liability, as specified,
or requiring any controversy to be referred to any
person other than the board, if that referral would be
binding on a dealer, as specified;
Competing with a dealer in the same line-make
operating under an agreement or franchise from a
manufacturer or distributor in the market area, except
that competing does not include: (1) temporarily
owning or operating a dealership, as specified; (2)
owning an interest in a dealer as part of a bona fide
development program, as specified; or (3) owning a
subsidiary corporation of a distributor that sells
motor vehicles at retail if, for at least three years
prior to January 1, 1973, the subsidiary corporation
has been wholly owned, and notice is given to the
board each time it commences or terminates operation
of a dealership and each time it acquires or divests
itself of an ownership interest.
Unfairly discriminating in favor of a 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,
as specified.
This bill revises the above prohibitions as follows:
Makes it unlawful to obtain or attempt to obtain
from a dealer, or to enforce or attempt to enforce
against a dealer an agreement, provision, release,
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assignment, novation, waiver or estoppel that does any
of the following: (1) modifies or disclaims a duty or
obligation of the manufacturer, distributor, or a
right or privilege of a dealer; (2) limits or
constrains the right of a dealer to file, pursue or
submit evidence in connection with a protest before
the board; (3) provides for the termination of the
franchise by a dealer; or (4) requires a controversy
to be referred to a person for a binding
determination. An agreement in violation of the above
would be void.
Requires manufacturers or distributors that compete
with dealers through the temporary ownership or
operating exception: (1) to do for not more than one
year at the location of a former dealership of the
same line-make that has been out of operation for less
than six months; (2) provide written notice to the
board each time it changes a temporary ownership
interest in the dealership; and (3) provide written
notice to the board of the name of the bona fide
dealer develop owner and the ownership interests of
each owner when the ownership is part of a development
program.
This bill adds that the following is unlawful actions on
the part of a manufacturer or distributor:
Sales or service incentives, discounts, or
promotional programs that are not made available to
all California franchises on an equivalent basis;
Unfairly discriminating against a franchisee
selling a service contract, debt cancellation
agreement, maintenance agreement, or similar product
not approved, endorsed, sponsored, or offered by the
manufacturer, distributor, or affiliate. Unfair
discrimination would be defined as including, but not
limited to:
o Express or implied statements that the dealer
is under an obligation to exclusively sell or
offer to sell service contracts, debt cancellation
agreements, or similar products offered by the
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manufacturer or distributor.
o Express or implied statements that selling or
offering service contracts, debt cancellation
agreements, maintenance agreements, or similar
products not approved or offered by the
manufacturer or dealer, or the failure to sell
those products, will have any negative
consequences for the dealer.
o Measuring a dealer's performance under a
franchise agreement based upon sale of service
contracts, debt cancellation agreements, or
similar products approved or offered by the
manufacturer or distributor.
o Requiring a dealer to actively promote
specified products.
o Conditioning access to vehicles or parts, or
vehicle sales or service incentives upon the sale
of service contracts, debt cancellation
agreements, or similar products approved or
offered by the manufacturer or distributor.
This bill provides that unfair discrimination does not
include, and that nothing shall prevent a manufacturer
from, offering an incentive program to vehicle dealers who
voluntarily sell or offer to sell service contracts, debt
cancellation agreements, or similar products approved,
endorsed, sponsored, or offered by the manufacturer or
distributor, if the program does not provide vehicle sales
or service incentives.
This bill expands the above prohibitions to apply to
actions taken directly or indirectly through an affiliate.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 5/10/11)
California New Car Dealers Association (source)
Association of California Insurance Companies
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California Recreational Vehicle Dealers Association
OPPOSITION : (Verified 5/10/11)
Alliance of Automobile Manufacturers
Association of Global Auto Makers
Motorcycle Industry Council
Nissan North America
ARGUMENTS IN SUPPORT : According to the author's office,
despite dealer franchise protection laws, dealers are being
pressured by manufacturers to waive their rights by signing
"voluntary" agreements and to sell manufacturer products
and are discriminated Ýagainst] if they do not. There are
also renewed concerns and fear of unfair competition among
franchises of the same manufacturer. The state needs to
step in and level the playing field for all the
participants in the new vehicle market. This bill updates
and augments California's dealer franchise protection laws
by prohibiting statutory protest right waivers, addressing
product discrimination and unfair competition by
factory-owned dealerships.
ARGUMENTS IN OPPOSITION : Nissan North America, Inc.
writes, "While Nissan Is sensitive to the situation facing
dealers in California, as in other states, due to the
recession and the bankruptcy filings of both Chrysler and
General Motors, we do not believe that all manufacturers
should be tainted by the situation crated by these two
automakers. Nissan therefore provides the following
comments with the goal of reaching an acceptable middle
ground which will benefit both manufacturers and dealers in
California and help sustain and grow the local automotive
economy.
"Most problematic from our perspective is the proposed
change to section 11713.3 (g) which establishes a
prohibition on voluntary agreements by dealers to waiver
certain rights. The proposal makes it unlawful for
manufacturer to attempt to obtain from a dealer or enforce
against a dealer an agreement that, among other things,
provides for a termination of franchise by a dealer (i.e.
an agreed upon voluntary termination), unless the agreement
is negotiated in connection with the settlement of a
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protest. While the prior statute included an anti-waiver
provision this proposed modification expands the scope of
this to separately negotiated agreements outside the dealer
agreement.
"This type of prohibition raises serious constitutionality
issues. It directly interferes with the rights of private
parties to negotiate contract terms. It is difficult to
see the objective sought in enacting a law that would
flatly prohibit the enforceability of agreements
specifically negotiated that provide for a voluntary
parting of ways upon the occurrence of specific negotiated
events. The law should not prohibit, for example, an
agreement entered into between a manufacturer and a dealer
where the parties agree that the dealer will surrender the
franchise on the occurrence of specified criteria,
especially if this is a separately negotiated agreement
made for consideration. Certainly both manufactures and
dealers should be given the choice whether to enter into a
separate contract for their mutual benefit, and should not
be prohibited by statute from reaching such an agreement.
"The proposed bill also impacts the sales of extended
service contracts, which are offered by many manufactures.
The proposed bill seeks to limit a manufacturer's ability
to assess dealer performance based on sales of service
contracts, and to limit the requirement that authorized
dealers actively promote the sale of such contracts. The
proposed bill essentially limits a manufacturer's ability
to seek the sale of this type of product, and could
encourage the sale of other products that may be less
reliable for consumers. Dealers currently sell their own
products, and most manufactures do not limit this, as long
as the manufacturer's products are sold as well."
RJG:do 5/10/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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