BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
SB 155 (Padilla)
As Amended April 22, 2013
Hearing Date: April 30, 2013
Fiscal: Yes
Urgency: No
BCP
SUBJECT
Vehicles: Motor Vehicle Manufacturers and Distributors
DESCRIPTION
Existing law prohibits motor vehicle manufacturers and
distributors from engaging in specified actions with the dealers
of those vehicles.
This bill would make various changes to those prohibitions by,
among other things:
allowing the use of a nationally recognized flat-rate labor
guide as the basis for the amount of time necessary for a
warranty repair;
prohibiting manufacturers from establishing a performance
standard unless it is reasonable, as specified, and the
manufacturer provides all information about the standard
within 20 days of the dealer's request;
revising existing prohibitions regarding audits, warranty and
incentive claims, and the dealer's protest rights;
stating that it is unreasonable to require a dealer to
purchase goods or services from a specific vendor for the
facility when substantially similar goods are available from
another vendor; and
prohibiting a manufacturer from taking adverse action against
a dealer if a car is sold or leased to a customer who exported
the vehicle out of the country, as specified.
This bill would make other clarifying changes, and, include
findings and declarations about the perceived practices of
manufacturers.
(more)
SB 155 (Padilla)
Page 2 of ?
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.)
This bill, sponsored by the California New Car Dealers
Association, seeks to modify the relationship between dealers
and manufacturers by, among other things, making changes
regarding the use of flat-rate time schedules for warranty
reimbursement, warranty and incentive claims, audits, protest
rights, export policies, performance standards, and facility
improvements.
CHANGES TO EXISTING LAW
1. Existing law charges the Department of Motor Vehicles (DMV)
with licensing and regulating dealers, manufacturers, and
distributors of motor vehicles who conduct business in
California. (Veh. Code Sec. 3000 et seq.)
Existing law requires every franchisor (manufacturer) to
fulfill every warranty agreement and adequately and fairly
compensate each franchisee (dealer) for labor and parts used
to fulfill the warranty. A copy of the warranty reimbursement
schedule or formula must be filed with the New Motor Vehicle
Board (NMVB), and, the schedule or formula is required to be
reasonable with respect to the time and compensation. The
reasonableness of the warranty reimbursement schedule or
formula shall be determined by NMVB if a franchisee files a
notice of protest with NMVB. (Veh. Code Sec. 3065(a).)
Existing law requires all claims made by franchisees to be
either approved or disapproved within 30 days after receipt by
the franchiser. When any claim is disapproved, the franchisee
who submits it shall be notified in writing, and, each notice
shall state the specific grounds upon which the disapproval is
based. (Veh. Code Sec. 3065(d).)
Existing law allows for the audit of franchisee warranty
records to be conducted by the franchisor on a reasonable
basis and for a period of 12 months after a claim is paid or
SB 155 (Padilla)
Page 3 of ?
credit issued. Franchisee claims for warranty compensation
shall not be disapproved except for good cause, as specified.
(Veh. Code Sec. 3065(e).)
This bill would additionally apply the above warranty
provisions to diagnostics and servicing, and provide that if
the warranty reimbursement schedule or formula provides
compensation for franchisee labor on a flat-rate basis, the
franchisor shall allow the franchisee to use a published,
nationally recognized, flat-rate labor time guide as the basis
for determining the amount of time allocable for warranty
repairs if the franchisee primarily uses the time guide to
compute technician flat-rate compensation and charges for
nonwarranty labor.
This bill would revise the above provisions regarding
disapproval of claims to, instead, provide:
a franchisor is prohibited from disapproving a claim
unless it is false or fraudulent, repairs were not properly
made, repairs were inappropriate, or for material
noncompliance with a documentation and claims submission
requirements, as specified, and a franchisor is prohibited
from disapproving a claim based upon an extrapolation from
a sample of claims;
when a claim is disapproved, the franchisee must be
notified in writing, and each notice must state the
specific grounds of disapproval. The franchisor must
provide a reasonable appeal process allowing the franchisee
at least 30 days after receipt of the disapproval to
provide additional information. If disapproval is based on
noncompliance with documentation or submission
requirements, the franchisee would have 30 days to cure
noncompliance. If the disapproval is rebutted, or
noncompliance is cured, the franchisor must approve the
claim;
if the franchisee provides additional information
purporting to rebut the disapproval, attempts to cure
noncompliance, or otherwise invokes the appeal process, and
the franchisor continues to deny the claim, the franchisor
is required to provide the franchisee with a notification
of final denial, as specified; and
within six months after receipt of the written notice,
as specified, a franchisee may file a protest with NMVB for
determination of whether the franchisor complied with the
above requirements. In any protest, the franchisor would
have the burden of proof.
SB 155 (Padilla)
Page 4 of ?
This bill would revise the above audit provisions to, instead,
provide:
audits of franchisee warranty records may be conducted
on a reasonable basis for a period of nine months after a
claim is paid or a credit is issued, and only if the
franchisor has substantial evidence of a pattern of
improper warranty claims, as specified. A franchisor would
be prohibited from disapproving or charging back a
previously approved claim unless the claim is false or
fraudulent, repairs were inappropriate, or there was
material noncompliance;
if a franchisor disapproves of a previously approved
claim following an audit, the franchisor must provide the
franchisee with a written disapproval notice stating the
specific grounds upon which the claim is disapproved. The
franchisor must provide a reasonable appeal process, and,
if the franchisee rebuts the disapproval or cures
noncompliance, the franchisor would be prohibited from
charging that claim back to the franchisee. If the
franchisee provides additional supporting documentation or
information purporting to rebut the disapproval or attempts
to cure noncompliance and the franchisor continues to deny
the claim, the franchisor must provide written notification
of the final denial, which must contain a specified
statutory notice about the right to file a protest with
NMVB;
the franchisor would be prohibited from placing a
chargeback to the franchisee until 45 days of receipt of
the written notice, as specified, following an audit. Any
chargeback to a franchisee for warranty parts or service
must be made within 90 days of receipt of that notice, and,
if the franchisee files a protest, the franchisor must
collect the chargeback until NMVB issues a final order on
the protest. If NMVB sustains the chargeback or the
protest is dismissed with prejudice, the franchisor would
have 90 days following issuance of the final order or the
dismissal with prejudice to make the chargeback, as
specified; and
within six months after receipt of the written
disapproval notice or completion of the franchisor's appeal
process, a franchisee may file a protest with NMVB for
determination of whether the franchisor complied with the
above requirements. In any protest, the franchisor would
have the burden of proof.
SB 155 (Padilla)
Page 5 of ?
2. Existing law requires all claims made by a franchisee for
payment under the terms of a franchisor incentive program to
be either approved or disapproved within 30 days after receipt
by the franchisor. When any claim is disapproved, the
franchisee who submits it must be notified in writing of its
disapproval within the required period, and each notice must
state the specific grounds upon which the disapproval is
based. Following disapproval, a franchisee has one year from
receipt of the notice in which to appeal the disapproval to
the franchisor and file a protest with NMVB, as specified.
All claims must be paid within 30 days following approval.
(Veh. Code Sec. 3065.1(a).)
This bill would revise the above disapproval provision by,
instead, providing that:
franchisee claims for incentive program compensation
could not be disapproved unless the claim is false or
fraudulent, the claim is ineligible under the terms of the
incentive program, as specified, or for material
noncompliance with documentation and submission
requirements. A franchisor would be prohibited from
disapproving a claim based upon an extrapolation from a
sample of claims; and
providing appeal, notice, and audit requirements similar
to the above warranty reimbursement requirements.
3. Existing law makes it unlawful for a vehicle manufacturer
or distributor to take specified actions against a vehicle
dealer or franchisee. (Veh. Code Secs. 11713.3, 11713.13.)
This bill would additionally prohibit a manufacturer or
distributor from taking or threatening to take any adverse
action against a dealer pursuant to a published export or
sale-for-resale prohibition because the dealer sold or leased
a vehicle to a consumer who either exported the vehicle to a
foreign country or resold the vehicle in violation of the
prohibition, unless the dealer knew or reasonably should have
known of the customer's intent to export or resell the vehicle
in violation of the prohibition at the time of sale or lease.
If the dealer causes the vehicle to be registered in this or
any other state, and collects or causes to be collected any
applicable sales or use tax due to this state, there would be
a rebuttable presumption that the dealer did not have reason
to know of the customer's intent to export or resell the
vehicle.
SB 155 (Padilla)
Page 6 of ?
This bill would additionally prohibit a manufacturer or
distributor from establishing or maintaining a performance
standard, sales objective, or program for measuring a dealer's
sales, service, or customer service performance that may
materially affect the dealer, including, but not limited to,
the dealer's right to payment under any incentive or
reimbursement program or establishment of working capital
requirements, unless both of the following requirements are
satisfied:
the performance standard, sales objective, or program
for measuring dealership sales, service, or customer
service performance is reasonable in light of all existing
conditions, including, but not limited to demographics,
geographical and market characteristics, availability and
allocation of vehicles and parts, economic circumstances,
and historical performance, as specified; and
the manufacturer, distributor, or affiliate provides all
information used in establishing the performance standard,
sales objective, or program for measuring dealership sales
or service within 20 days of a request for information.
This bill would provide that in any proceeding in which the
reasonableness of a performance standard, sales objective, or
program for measuring dealership sales, service, or customer
service performance is an issue, the manufacture, distributor,
or affiliate would have the burden of proof. A performance
standard that requires a dealer to achieve a minimum
performance level based on average, median, or ranked metrics
achieved by all or a comparative group of dealers with respect
to sales, service, or customer service would be presumed to be
unreasonable.
4. Existing law makes it unlawful for a manufacturer or
distributor to require, by contract or otherwise, a dealer to
make a material alteration, expansion, or addition to any
dealership facility, unless the required alteration,
expansion, or addition is reasonable in light of all existing
circumstances. In any proceeding in which a required facility
alteration, expansion, or addition is an issue, the
manufacturer or distributor would have the burden of proving
the reasonableness of the requirement. (Veh. Code Sec.
11713.13 (c).)
This bill would additionally provide that a required
alteration, expansion, or addition shall not be deemed
reasonable if it requires that the dealer purchase goods or
SB 155 (Padilla)
Page 7 of ?
services from a specific vendor when substantially similar
goods or services are available from another vendor. This
provision would not authorize a dealer to impair or eliminate
the intellectual property rights of the manufacturer or
distributor, or, permit a dealer to erect or maintain signs
that do not conform to the intellectual property usage
guidelines of the manufacturer or distributor. This provision
would not apply to a specific good or service if the
manufacturer or distributor provides the dealer with a
lump-sump payment of a substantial portion of the cost of the
good or service.
5. This bill would make other substantive, clarifying, and
technical changes relating to NMVB, and include findings and
declarations about the perceived practices of franchisors.
COMMENT
1. Stated need for the bill
According to the author:
The sale and service of motor vehicles is important to
California's economy. California motor vehicle franchises
employ over 110,000 people and in 2011, motor vehicle sales
and service resulted in over $60 billion in economic activity.
To protect such an important industry, California, like every
other state, has enacted motor vehicle franchise laws.
In addition to preserving a well-organized and cost-effective
distribution system of motor vehicles, franchise laws seek to
address the disparity in bargaining power between
multi-national auto manufacturers and California's motor
vehicle franchises that are primarily owned and operated as
family businesses.
California's motor vehicle franchise protection laws however,
did not anticipate certain punitive practices taken by
automobile manufacturers, which have become a growing concern.
The punitive actions include:
Undercompensating California motor vehicle franchises by
unilaterally reducing the flat-rate time schedules for
factory warranty repairs, even when a franchise is using a
nationally recognized flat rate schedule for non-warranty
SB 155 (Padilla)
Page 8 of ?
repair work.
Disapproving California motor vehicle franchise warranty
and incentive program claims for technical reasons, such as
disapproving a claim based on an improper signature. Some
manufacturers do not offer an appeals process to correct
the simple, technical mistake.
Auditing samples of California motor vehicle franchise
warranty claims and then extrapolating the number of
disapproved claims from the sample to arrive at a final
disapproval rate.
Holding California motor vehicle franchises strictly
liable for exported vehicles, even if the export occurred
unbeknownst to the franchise.
Implementing unreasonable performance standards for
California motor vehicle franchises based upon statewide
data that do not take into account differences in local
markets.
Requiring that California motor vehicle franchises use
factory-mandated vendors for dealer facility improvements,
even when similar goods or services are available for a
better price from local California vendors.
. . . [SB 155] would strengthen California's dealer franchise
protection laws by implementing various provisions to protect
California motor vehicle franchises from punitive actions
taken by manufacturers
2. Flat rate time allowances
Under existing law, manufacturers are required to reimburse
dealers for the cost of warranty repairs made to their vehicles.
Those reimbursements generally occur on a "flat rate" basis
pursuant to the manufacturers' flat-rate time schedule. In
other words, for each warranty repair, the manufacturer has a
warranty reimbursement schedule (which must be filed with the
New Motor Vehicle Board (NMVB), and the dealer is compensated
based upon that schedule. This bill would, instead, provide
that if the warranty reimbursement schedule provides
compensation on a flat-rate basis, the manufacturer must allow
the dealer to use a published, nationally recognized flat-rate
labor time guide as the basis for determining the amount of time
allocable for warranty repairs if the franchisee primarily uses
that guide to compute technician flat-rate compensation and
charges for nonwarranty labor.
SB 155 (Padilla)
Page 9 of ?
To demonstrate the problem faced by dealers using the
manufacturer's flat-rate time schedule, the author's office
provided several examples of the schedule for a particular
repair being reduced over time by the manufacturer. In both of
the examples provided, the third-party time guide (such as
Alldata) allowed for a greater amount of time to make the
repair. Staff notes that, as a practical matter, the amount of
time is important to dealers because it reflects the amount of
reimbursement they receive from the manufacturer for the repair.
While third-party time guides may, in fact, allot more time for
a repair, it is unclear whether those time allotments are
appropriate given that it is assumed that dealer technicians
have specialized training and tools from the manufacturer to
complete the job. The Association of Global Automakers (Global
Automakers) and the Alliance of Automobile Manufacturers
(Alliance), in opposition, assert that "[original equipment
manufacturers (OEMs)] conduct extensive internal time studies to
ensure dealers are fairly compensated for work performed. The
'option' to use a flat-rate time schedule would in fact become
the de-facto choice for dealers and would create an artificially
inflated industry standard that is not reflective of actual
reimbursement rates spread across all manufacturers."
The California New Car Dealers Association (CNCDA), sponsor,
asserts that the allowance for third party flat-rate time
schedules would resolve recent problems where manufacturers have
"significantly and unrealistically reduced their time allowances
for repairs and diagnostics - thereby reducing the amount of
warranty reimbursement without affecting hourly compensation
rates." In response to the opposition's expressed concerns, and
in an effort to reach a compromise, the author offers an
amendment to, instead, prohibit a manufacturer from imposing a
general reduction in time or compensation for warranty repairs,
but, allow a manufacturer to reduce the time and compensation
allowed under a warranty reimbursement schedule with respect to
specific parts or labor operations if there is a 30-day written
notice to the dealer. The amendment would further provide that
the manufacturer would have the burden of proof in any protest
filed by a dealer with respect to a reduction in time and
compensation, and that a published nationally-recognized flat
rate labor time guide would be relevant in determining the
adequacy and fairness of compensation. Staff further notes that
the amendment would appear to directly address the problem
identified by the dealers, and arguably strikes a balance
between the ability for a manufacturer to reduce the time under
appropriate circumstances, while preserving the ability for a
SB 155 (Padilla)
Page 10 of ?
dealer to have notice and object to any reduction.
Author's amendment :
On page 13, line 13, strike out "If the warranty
reimbursement" and lines 14 through 26, inclusive, and insert:
The reasonableness of the warranty reimbursement schedule
or formula shall be determined by the board if a franchisee
files a protest with the board. A franchisor shall not
replace, modify, or supplement the warranty reimbursement
schedule to impose a fixed percentage or other general
reduction in the time and compensation allowed to the
franchisee for labor or parts. A franchisor may reduce the
allowed time and compensation applicable to specific parts
or labor operations only upon 30 days prior written notice
to the franchisee. In any protest challenging a reduction
in time and compensation applicable to specific parts or
labor operations and filed within one year following the
franchisee's receipt of notice of the reduction, the
franchisor shall have the burden of establishing the
reasonableness of the reduction and adequacy and fairness
of the resulting compensation.
(b) In determining the adequacy and fairness of the
compensation, published, nationally-recognized flat-rate
labor time guides and the franchisee's effective labor rate
charged to its various retail customers may be considered
together with other relevant criteria. If in a protest
permitted by this section filed by any franchisee the board
determines that the warranty reimbursement schedule or
formula fails in any manner to provide adequate and fair
compensation or fails in whole or in part to conform with
the other requirements of this section, within 30 days
after receipt of the board's order the franchisor shall
correct the failure by amending or replacing the warranty
reimbursement schedule or formula and implementing the
correction as to all franchisees of the franchisor.
3. Performance standards
This bill would also prohibit manufacturers and distributors
from establishing a performance standard that may materially
affect a dealer unless: (1) the performance standard is
reasonable in light of all existing circumstances, as specified;
and (2) the manufacturer or distributor provides all information
SB 155 (Padilla)
Page 11 of ?
used in establishing the performance standard within 20 days
upon request by a dealer. In a proceeding in which the
reasonableness of the standard is at issue, the manufacturer or
distributor would have the burden of proof, and, a performance
standard based upon an average, median, or ranked metrics would
be presumed to be unreasonable. CNCDA, in support, asserts that
"[m]anufacturers measure dealer performance under a franchise
agreement or incentive program based upon standards established
solely by the manufacturer that are based upon statewide or
regional performance metrics. They often fail to account for
crucial differences in local market conditions and the failure
to meet 'average' standard can lead to negative consequences
ranging from disqualification for incentives to franchise
termination."
The Global Automakers and the Alliance, in opposition, object to
the requirement that OEMs provide "all information" used in
establishing a particular performance standard to a requesting
dealer within 20 days due to the contention that the provision
"would put OEMs in the impossible position of attempting to meet
a standard that is over-broad and burdensome given the various
programs and metrics . . . ." The opposition further contends
that to be of any value, such a disclosure would include
production of information about other dealers that is
confidential, and objects to the requirement to consider the
local, statewide, and national economic circumstances, and,
oppose the "effort to eliminate the industry-wide practice of
using a performance standard that requires a dealer to achieve a
certain performance level as measured against the average of a
comparative group of dealers."
Staff notes that, as a practical matter, performance standards
arguably act to encourage a dealership to excel in various ways
(including customer service) that may actually result in a
better experience for consumers. If a dealer actually knows the
standards that are used, it may help the dealer meet the
expectations of the manufacturer and improve the customer's
experience. Furthermore, given that vehicle preference and
socio-economic conditions vary throughout the state, arguably,
any fair performance standard should take into account all the
relevant circumstances faced by a dealer - for example, a dealer
in the mountains may sell a lot of four-wheel drive vehicles due
to the snow, while a dealer in the Central Valley may have
difficulty moving those same vehicles due to lack of demand.
It should also be noted that, as a practical matter, providing a
SB 155 (Padilla)
Page 12 of ?
presumption that a performance standard is unreasonable if it
requires a dealer to achieve a minimum performance level based
on an average, median, or ranked metrics would essentially
remove the ability to compare a dealer to any other dealer -
absent the ability to make that comparison, it is unclear how a
manufacturer could create a reasonable standard that takes into
account the current real-world conditions.
In response to the opposition's concerns, the author offers an
amendment to strike the proposed presumption, and, increase the
time in which a manufacturer must respond to a request for
information about a performance standard. Staff notes that the
author's amendment further clarifies the data that must be
provided with respect to a performance standard, and, that the
author and sponsor should continue to work with the opposition
regarding any remaining concerns about the language.
Author's amendments :
1. On page 39, strike out lines 1 through 5, inclusive and
insert:
(B) Within 30 days after request by the dealer, the
manufacturer, manufacturer branch, distributor, distributor
branch, or affiliate provides a written summary of the
methodology and all studies, reports, minutes and other
data used or considered in establishing the performance
standard, sales objective, or program for measuring
dealership sales or service performance. The summary shall
be in detail sufficient to permit the dealer to determine
how the standard was established.
2. On page 39, line 11, strike out "A performance standard
that requires a dealer to" and lines 12 through 15,
inclusive.
4. Warranty and incentive claims
This bill would also revise existing provisions that cover the
disapproval of warranty and incentive claims, audits, and
chargebacks. Specifically, this bill would prohibit a
franchisor from disapproving a claim unless false or fraudulent,
repairs were not properly made, repairs were inappropriate, or
if there was material noncompliance. If a claim is disapproved,
the dealer must be notified in writing, the manufacturer must
provide an appeal process, allow a dealer to cure noncompliance
SB 155 (Padilla)
Page 13 of ?
with submission requirements, and the manufacturer must provide
a final notice of denial which includes a notice that the dealer
may file a protest with NMVB. Similarly, audits of warranty and
incentive claims may occur within nine months after a claim is
paid, and previously approved claims shall not be disapproved or
charged back except under certain circumstances, including where
the claim was false or fraudulent. If a claim is ultimately
disapproved after an audit (following any appeal and attempt to
cure noncompliance), the manufacturer must provide a notice of
final denial that informs the dealer of their right to file a
protest with NMVB. The bill would also prohibit a manufacturer
from disapproving a claim based upon an extrapolation from a
sample of claims, as specified.
CNCDA, in support, asserts that "[m]anufacturers often
disapprove (pre- or post- audit) warranty claims for very
technical reasons and some do not offer an opportunity to
correct mistakes - costing the dealer tens to hundreds of
thousands of dollars in reimbursement for work already
performed. Growing numbers of manufacturers are auditing
samples of claims, and extrapolating the result to arrive on a
final chargeback amount." The Global Automakers and Alliance
oppose the bill's provisions that would allow audits within
nine months after a claim is paid (existing law allows one year)
and contends that the provision would negatively impact programs
and payouts to dealers that currently run for an entire year.
The opposition further opposes the "novel language" that would
prohibit a disapproval based upon an extrapolation of data and
contends that "[t]his requested change flies in the face of
evidentiary laws in many states, including California, that
permit extrapolation when the amount of subject data is
voluminous or the trier of fact would be assisted with such an
analysis. To prove each and every claim submission individually
would place an administrative burden on the manufacturer that is
both unnecessary and punitive." Staff notes that the case cited
by the opposition in support of the need to use extrapolation
for audits dealt with audits by public agencies, not
manufacturers. Regarding the use of extrapolation, the Ninth
Circuit Court of Appeals held that: "We now join other circuits
in approving the use of sampling and extrapolation as part of
audits in connection with Medicare and other similar programs,
provided the aggrieved party has an opportunity to rebut such
evidence. To deny public agencies the use of statistical and
mathematical audit methods would be to deny them an effective
means of detecting abuses in the use of public funds. Public
SB 155 (Padilla)
Page 14 of ?
officials are responsible for overseeing the expenditure of our
increasingly scarce public resources and we must give them
appropriate tools to carry out that charge." (Ratanasen v. Cal.
Dept. of Health Servs. (1993) 11 F.3d 1467, 1471.)
It should be noted that, as introduced, this bill would have
required audits to be performed within six months after a claim
is paid and that recent amendments extended that time period to
nine months. Similarly, the introduced bill would have allowed
dealers to file protests within one year of a denial of a claim
by a manufacturer - recent amendments reduced that time frame to
six months. Accordingly, the author and sponsor should continue
to work with the opposition to see if consensus can be reached
with respect to warranty and incentive claims.
5. Facilities
Under existing law, a manufacturer cannot require a dealer to
make a material alteration, expansion, or addition to any
dealership facility unless it is reasonable in light of all
existing circumstances. This bill would provide that a required
facility alteration, expansion, or audition would not be
reasonable if it requires the dealer to purchase goods or
services from a specific vendor when substantially similar goods
are available from another vendor. CNCDA, in support, asserts
that "SB 155 implements a 'Buy California' provision specifying
that a facility-related requirement providing that the dealer
must purchase goods or services from a specific vendor is
unreasonable if substantially similar goods or services are
available from another vendor." The opposition expresses
concern given the importance of signage and trademark bearing
material in dealerships. The opposition also expresses concern
that there is little guidance as to what constitutes
substantially similar goods or services and that there is no
protest opportunity. On the other hand, the opposition states
that it is understandable why CNCDA seeks flexibility, but
signage and trademark bearing materials should not be included
in any measure of "substantially similar."
Staff notes that, in an attempt to respond to the opposition's
concerns, the bill was recently amended to include language
stating that the provision does not authorize a dealer to impair
or eliminate the intellectual property rights of the
manufacturer or distributor, or, permit a dealer to erect or
maintain signs that do not conform to the intellectual property
usage guidelines of the manufacturer or distributor.
SB 155 (Padilla)
Page 15 of ?
Accordingly, the author and sponsor should continue to work with
the opposition to see if there can be consensus on the issue of
allowing dealers to pick a vendor, provided that the use of the
vendor does not infringe upon the intellectual property of the
manufacturer, and that the goods and services are truly
"substantially similar."
6. Adverse actions by a manufacturer regarding exported
vehicles
This bill would additionally prohibit a manufacturer from taking
or threatening to take any adverse action against a dealer
pursuant to a published export or sale-for-resale prohibition
because the dealer sold or leased a vehicle to a customer who
either exported the vehicle to a foreign country or resold the
vehicle in violation of the prohibition. Staff notes that
recent amendments added language allowing a manufacturer to take
such an action if the "dealer knew or reasonably should have
known of the customer's intent to export or resell the vehicle
in violation of the prohibition at the time of the sale or
lease."
Regarding the need for the prohibition, CNCDA asserts that
"[g]iven vehicle allocation limits to high-demand countries like
China and Korea, a large number of 'straw purchaser' rings
acquire new vehicles from California dealers for export. All
manufacturers have policies prohibiting dealers from selling
vehicles for export - mostly on a 'strict liability' basis where
the dealer knowledge of the planned exportation is irrelevant."
Accordingly, this bill seeks to address concerns relating to
those policies by essentially protecting a dealer in cases where
the dealer did not know, or reasonably could have known, that
the vehicle was going to be exported.
Support : California Motorcycle Dealers Association
Opposition : Alliance of Automobile Manufacturers; Association
of Global Automakers
HISTORY
Source : California New Car Dealers Association
Related Pending Legislation : None Known
SB 155 (Padilla)
Page 16 of ?
Prior Legislation :
SB 642 (Padilla, Chapter 342, Statutes of 2011) modified and
expanded the existing statutory framework regulating the
relationship between vehicle manufacturers and their franchised
dealers.
SB 424 (Padilla, Chapter 12, Statutes of 2009) regulates actions
that vehicle manufacturers may take with regard to their
franchised dealers, and allows franchisees that have contracts
terminated because of a manufacturer's or distributor's
bankruptcy to continue to sell new cars in their inventory for
up to six months.
**************