BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 642|
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UNFINISHED BUSINESS
Bill No: SB 642
Author: Padilla (D)
Amended: 7/13/11
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-0, 4/26/11
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 38-0, 5/19/11
AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon,
Cannella, Corbett, Correa, De León, DeSaulnier, Dutton,
Emmerson, Evans, Fuller, Gaines, Hancock, Harman, Huff,
La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod,
Padilla, Pavley, Price, Rubio, Runner, Simitian,
Steinberg, Strickland, Vargas, Walters, Wolk, Wright,
Wyland, Yee
NO VOTE RECORDED: Hernandez, Kehoe
ASSEMBLY FLOOR : 72-1, 8/25/11 - See last page for vote
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
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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
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.
Assembly Amendments (1) add language to explain what the
bill does not do, and (2) make clarifying changes.
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
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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 from a dealer or enforce
against a dealer an agreement, provision, release,
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.
However, this bill does not prohibit arbitration before an
independent arbitrator, provided that whenever a motor
vehicle franchise contract provides for the use of
arbitration to resolve a controversy arising out of or
relating to that contract, arbitration may be used to
settle the controversy only if, after the controversy
arises, all parties to the controversy consent in writing
to use arbitration to settle the controversy. For the
purpose of this subparagraph, the terms "motor vehicle" and
"motor vehicle franchise contract" shall have the same
meaning as defined in Section 1226 of the Title 15 of the
United States Code. If arbitration is elected to settle a
dispute under a motor vehicle franchise contract, the
arbitrator shall provide the parties to the arbitration
with a written explanation of the factual and legal basis
for the award.
This bill does not do any of the following:
Limit or restrict the terms upon which parties to a
protest before the board, civil action, or other
proceeding can settle or resolve, or stipulate to
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evidentiary or procedural matters during the course of, a
protest, civil action, or other proceeding.
Affect the enforceability of any stipulated order or
other order entered by the board.
Affect the enforceability of any provision in a contract
if the provision is not prohibited under this subdivision
or any other law.
Affect the enforceability of a provision in any contract
entered into n or before December 31, 2011.
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 of the same-line make 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
manufacturer or distributor.
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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 provides that the provisions of this bill do not
prohibit a manufacturer, manufacturer's brand or
distributor from requiring a franchise that sells a used
vehicle as 'certified' to provide a service contract
endorsed or offered by the manufacturer or distributor.
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
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SUPPORT : (Verified 8/25/11)
California New Car Dealers Association (source)
Association of California Insurance Companies
California Recreational Vehicle Dealers Association
OPPOSITION : (Verified 8/25/11)
Ford Motor Company
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 : Ford Motor Company states, "At
issue is how and whether a consumer gets notified of the
type of extended service plan he or she is purchasing when
buying a new vehicle from a dealer. Extended service
contracts provide coverage for mechanical failures after a
new car warranty expires. Like most manufacturers, we
offer our own factory-backed plan, while third party
vendors offer a variety of plans, many of which are of
questionable quality and reliability. Often the third
party plans appear to be less expensive up front and many
dealers aggressively market these products. Typically,
these plans call for widespread use of aftermarket parts
(which do not meet factory standards), and they are often
quite limited in terms of service locations that can be
chosen by the customer. Our Ford plan, on the other hand,
provides for only original factory equipment to replace
mechanical parts and is honored by every single Ford brand
dealer in the United States.
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"We hear every day from our customers who have unwittingly
purchased extended service contracts backed by third party
vendors. At the time of purchase, the consumer believes he
or she is buying a plan backed by our company which is,
after all, the brand name of their vehicle. After the new
car warranty expires, when it comes time to seek coverage
if a mechanical failure of some sort occurs, the consumer
finds out the hard way that Ford Motor Company has nothing
to do with the service contract they purchased. For
instance, there are numerous consumer horror stories
involving a third party contract which requires service at
the dealership where the car was purchased, then the dealer
goes out of business and the consumer has no recourse
whatsoever and a worthless service contract.
"We have worked very hard to improve the quality of our
products, to improve our fuel economy, and to maintain the
integrity of the Ford brand. Our customer satisfaction
matters greatly to us. When one of our customers gets hurt
because he purchased a plan he didn't understand from one
of our dealers, we take issue with that. The motto of
"buyer beware" is inappropriate when it comes to something
as complex and as subject to aggressive sales tactics as
these products.
"The new amendments to SB 642 state that a franchisor is
not prohibited from requiring a franchisee to disclose to
the consumer that he or she is buying a plan not backed or
provided by the franchisor/manufacturer. In theory, this
appears to provide for disclosure. In reality, this means
that the parties would have to mutually agree to provide
consumer disclosure which (1) is solely dependent on the
dealer's willingness to agree to do so; (2) is extremely
challenging for the franchisor to track; and, (3) is not
enforceable on behalf of the consumer who is not a party to
the agreement between the factory and the dealer.
Therefore, this is not a disclosure requirement. It is, at
best, a disclosure suggestion.
"Your sponsor believes that dealers are entitled to various
protections in the context of their sales of extended
service contracts or plans; however, they are not willing
to extend even the most basic protection to the very
consumers who are buying these products from the dealer.
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We find this to be an unjust result, and believe it makes
SB 642 a lopsided measure.
"As we have expressed, we believe a mandated consumer
disclosure will ensure that consumers know what they are
buying. We are more than willing to work with your office
and your sponsor to determine where this fits best into
existing statutory schemes and to ensure even-handed
enforcement. We are not looking to make this punitive, but
rather we are simply seeking a real right to disclosure to
consumers."
ASSEMBLY FLOOR : 72-1, 8/25/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill
Berryhill, Block, Blumenfield, Bradford, Brownley,
Buchanan, Butler, Campos, Carter, Cedillo, Chesbro,
Conway, Cook, Davis, Dickinson, Donnelly, Eng, Feuer,
Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani,
Garrick, Gatto, Gordon, Grove, Hagman, Harkey, Hayashi,
Roger Hernández, Hill, Huber, Hueso, Jeffries, Jones,
Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor,
Mendoza, Miller, Mitchell, Monning, Morrell, Nestande,
Nielsen, Olsen, Pan, Perea, V. Manuel Pérez, Portantino,
Silva, Skinner, Smyth, Solorio, Swanson, Valadao, Wagner,
Wieckowski, Williams, Yamada, John A. Pérez
NOES: Huffman
NO VOTE RECORDED: Bonilla, Charles Calderon, Gorell,
Halderman, Hall, Norby, Torres
RJG:do 8/26/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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