BILL ANALYSIS �
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 155|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: SB 155
Author: Padilla (D)
Amended: 5/7/13
Vote: 21
SENATE JUDICIARY COMMITTEE : 7-0, 4/30/13
AYES: Evans, Walters, Anderson, Corbett, Jackson, Leno, Monning
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Vehicles: motor vehicle manufacturers and
distributors
SOURCE : California New Car Dealers Association
DIGEST : This bill modifies the relationship between motor
vehicle 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.
ANALYSIS : 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. (Vehicle Code (VEH) Section 3000 et
seq.)
Existing law requires every franchisor (manufacturer) to fulfill
every warranty agreement and adequately and fairly compensate
CONTINUED
SB 155
Page
2
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 Section 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 Section 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 credit issued.
Franchisee claims for warranty compensation shall not be
disapproved except for good cause, as specified. (VEH Section
3065(e))
This bill permits the NMVB, in determining the adequacy and
fairness of the compensation, to consider published nationally
recognized flat-rate time guides. It also requires, if the NMVB
determines that the warranty reimbursement schedule or formula
fails to provide adequate compensation, the franchisor to
correct the failure by amending or replacing the warranty
reimbursement schedule and implementing the correction as to all
franchisees within 30 days after receipt of the board's order.
This bill revises the above provisions regarding disapproval of
claims to, instead, provide:
1. 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;
2. When a claim is disapproved, the franchisee must be notified
in writing, and each notice must state the specific grounds
CONTINUED
SB 155
Page
3
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 will have 30 days
to cure noncompliance. If the disapproval is rebutted, or
noncompliance is cured, the franchisor must approve the
claim;
3. 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
4. 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 will have
the burden of proof.
This bill revises the above audit provisions to, instead,
provide:
1. 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 is 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;
2. 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 will 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
CONTINUED
SB 155
Page
4
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;
3. A franchisor is 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 will have 90 days following
issuance of the final order or the dismissal with prejudice
to make the chargeback, as specified; and
4. 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 will have the burden of proof.
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 Section 3065.1(a))
This bill revises the above disapproval provision by, instead,
providing that:
1. Franchisee claims for incentive program compensation cannot
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 is
prohibited from disapproving a claim based upon an
CONTINUED
SB 155
Page
5
extrapolation from a sample of claims; and
2. Providing appeal, notice, and audit requirements similar to
the above warranty reimbursement requirements.
Existing law makes it unlawful for a vehicle manufacturer or
distributor to take specified actions against a vehicle dealer
or franchisee. (VEH Sections 11713.3, 11713.13)
This bill prohibits 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 is a rebuttable presumption that the dealer did not have
reason to know of the customer's intent to export or resell the
vehicle.
This bill prohibits 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:
1. 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
2. The manufacturer, distributor, or affiliate provides a
written summary used in establishing the performance
standard, sales objective, or program for measuring
CONTINUED
SB 155
Page
6
dealership sales or service within 30 days of a request for
information.
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 Section 11713.13 (c))
This bill provides that a required alteration, expansion, or
addition will not be deemed reasonable if it requires that the
dealer purchase goods or services from a specific vendor when
substantially similar goods or services are available from
another vendor. This 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. This
provision does not apply to a specific good or service if the
manufacturer or distributor provides the dealer with a lump-sum
payment of a substantial portion of the cost of the good or
service.
This bill makes other substantive, clarifying, and technical
changes relating to NMVB, and include findings and declarations
about the perceived practices of franchisors.
Background
NMVB is a program within 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 Section 3050)
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 5/17/13)
CONTINUED
SB 155
Page
7
California New Car Dealers Association (source)
OPPOSITION : (Verified 5/17/13)
Alliance of Automobile Manufacturers
Association of Global Automakers
ARGUMENTS IN SUPPORT : 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.
. . . [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
ARGUMENTS IN OPPOSITION : The Alliance of Automobile
Manufacturers and the Association of Global Automakers express
their concerns about the provisions of this bill regarding:
1. Flat rate time allowances : Opponents argue that these
issues are best resolved between dealers and Original
Equipment Manufacturers (OEMs), and that it is not
appropriate to settle these issues through legislation.
CONTINUED
SB 155
Page
8
2. Warranty and incentive claim/audits : Opponents argue that
the evidentiary burden placed on their members, "To prove
each and every claim submission individually would place and
administrative burden on the manufacturer that is both
unnecessary and punitive."
3. Performance standards : Opponents argue that the mandate
that the OEM provide "all information" used in establishing a
particular performance standard to a requesting dealer within
20 days "would put OEMs into the impossible position of
attempting to meet a standard that is over-broad and
burdensome given the various programs and metrics used
between different manufacturers."
4. Facilities : Opponents argue that language in this bill does
not provide enough guidance for manufacturers to identify
("substantially similar") goods and services that do not meet
their specifications pertaining to dealership purchases of
signage and trademark bearing material from non-OEM vendors.
AL:k 5/21/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED