BILL ANALYSIS Ó
SB 155
Page 1
SENATE THIRD READING
SB 155 (Padilla)
As Amended September 6, 2013
Majority vote
SENATE VOTE :36-0
TRANSPORTATION 15-0 JUDICIARY 10-0
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|Ayes:|Lowenthal, Linder, |Ayes:|Wieckowski, Wagner, |
| |Achadjian, Ammiano, | |Alejo, Chau, Dickinson, |
| |Bonta, Buchanan, Daly, | |Garcia, Gorell, |
| |Frazier, Gatto, Holden, | |Maienschein, Muratsuchi, |
| |Logue, Morrell, Nazarian, | |Stone |
| |Patterson, | | |
| |Quirk-Silva | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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APPROPRIATIONS 16-0
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|Ayes:|Gatto, Harkey, Bigelow, | | |
| |Bocanegra, Bradford, Ian | | |
| |Calderon, Campos, Eggman, | | |
| |Gomez, Hall, Holden, | | |
| |Linder, Pan, Quirk, | | |
| |Wagner, Weber | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Modifies the relationship between motor vehicle
dealers and manufacturers to improve protections for dealers.
Specifically, this bill :
1)Modifies automobile warranty repair rules regarding
disapproval, appeal, notice, protest, and audit requirements,
including:
a) Imposes limits on changes to the warranty reimbursement
schedule, as specified, including requiring 15 days' prior
written notice for reduction in time and compensation.
b) Provides that a protest challenging a warranty
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reimbursement reduction must be filed within six months of
the franchisee's notice of the reduction, and the
franchisor shall have the burden of proof, as specified.
c) Prohibits a franchisor from disapproving a claim unless
the claim is false or fraudulent or for other specified
reasons.
d) Requires notification in writing of disapproval of a
claim, as specified.
e) Requires a reasonable appeal process, including a right
to cure material noncompliance and notification of final
denial, as specified.
f) Allows a franchisee to protest to the New Motor Vehicle
Board (NMVB) a denial of an appeal, in which protest the
franchisor has the burden of proof.
g) Regarding audits:
i) Limits the availability and frequency of audits of
franchisee warranty records by the franchisor, as
specified.
ii) Provides similar disapproval, notice, appeal, and
protest processes to those in 1) above.
iii) Prohibits disapproving or charging back a claim
based upon an extrapolation from a sample of claims,
unless the sample of claims is selected randomly and the
extrapolation is performed in a reasonable and
statistically valid manner.
2)Modifies the franchisor incentive program provisions with
disapproval, appeal, notice, protest, and audit requirements
similar to the warranty requirements in 1) above.
3)Prohibits manufacturers from taking adverse action against a
dealer because the dealer sold or leased a vehicle to a
customer who exported the vehicle to a foreign country or
resold the vehicle in violation of an export or resale
prohibition, unless the prohibition was provided to the dealer
in writing prior to the sale or lease, and the dealer knew or
reasonably should have known of the customer's intent to
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export or resell the vehicle, as specified.
4)Prohibits a manufacturer from establishing or maintaining a
performance standard or like program, as specified, that may
materially affect the dealer unless both of the following
requirements are satisfied:
a) The performance standard or like program is reasonable
in light of all existing circumstances, including such
factors as demographics in the dealer's area of
responsibility.
b) Within 30 days after a request by the dealer, the
manufacturer provides a written summary of the methodology
and all data used in establishing the performance standard
or like program in detail sufficient to permit the dealer
to determine how the standard was established and applied
to the dealer.
5)Provides that a required facility alteration, expansion, or
addition shall 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, with specified limitations, including
that the manufacturer may require pre-approval for alternative
goods or services, as specified.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, any costs to the NMVB would be absorbable with the
board's normal operations. (NMVB is a program within DMV which
operates in a quasi-judicial capacity to resolve disputes
between franchise vehicle dealers and manufacturers/distributors
of new motor vehicles and specified motorsports vehicles.)
COMMENTS : 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, the author
states, 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
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and operated as family businesses. Nevertheless, California's
motor vehicle franchise protection laws, did not anticipate
certain punitive practices allegedly taken by automobile
manufacturers, which the author states have become a growing
concern.
Currently, manufacturers reimburse dealers for the cost of
repairs that dealers make under manufacturer warranty. A
manufacturer typically reimburses according to a schedule that
it has prepared, and the sponsor states that manufacturers have
recently made unrealistic cuts to reimbursements. This bill
requires 15 days' prior written notice before the manufacturer
may change its reimbursements, which may give franchisees time
to adjust to the change.
Also, existing law requires that manufacturer reimbursements be
reasonable, and it allows dealers to protest these
reimbursements to the NMVB. The sponsor writes that it is not
clear when and under what circumstances these protests can take
place, and this bill clarifies those conditions. Specifically,
the bill provides that, within six months after receipt of a
written notice of a denial of a claim, a franchisee may file a
protest with the board for determination of whether the
franchisor complied with the claim denial requirements.
The sponsor states, "Manufacturers 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 upon a final chargeback amount."
This bill requires that manufacturers not disapprove a claim
unless it has specified defects, such as that the claim is false
or fraudulent or repairs were not properly made. Also, the bill
prescribes procedures for notifying a dealer of disapproval of a
claim, providing an appeal process (including attempts to cure
noncompliance), and other related activities. Finally, the bill
restricts chargeback based on extrapolation, requiring that the
sample of claims be selected randomly and the extrapolation be
performed in a reasonable and statistically valid manner.
Supporters believe that these provisions will reduce problems
relating to disapprovals.
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According to the sponsor, "Given 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 - most on a strict
liability basis where dealer knowledge of the planned
exportation is irrelevant."
This bill would prohibit manufacturers from taking adverse
action against such dealers based on their consumers' actions
unless the dealers 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. Additionally,
this bill specifies that state registration or tax collection
creates a rebuttable presumption that the dealer did not have
reason to know of the consumer's intent. Effectively, this
reverses the manufacturers' allegedly common practice.
Existing law prohibits manufacturers from requiring dealers to
make certain changes to any dealership facility, unless the
required change is reasonable in light of all existing
circumstances. This bill specifies that a change is not
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, but the bill also
contains protections for manufacturers' intellectual property,
for example regarding signage. This bill also allows
manufacturers to require pre-approval, which shall not be
unreasonably withheld, for alternative goods and services. The
sponsor argues that this provision allows a "Buy California"
policy that improves upon current practice.
This bill imposes two requirements on manufacturer performance
standards for measuring a dealer's sales, service, or customer
service performance that may materially affect the dealer. The
first is that the standard be reasonable in light of all
circumstances, including some of the dealer's local and
individual circumstances as specified in the bill. The second
is that, upon dealer request, the manufacturer must provide
certain details, as specified in the bill, such that the dealer
can determine how the standard was established and applied to
the dealer. The sponsor contends that this corrects a common
manufacturer practice.
Finally, the bill also addresses audit timelines. Manufacturers
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are entitled to audit dealers' records regarding claims made
under warranty and incentive programs. Currently, warranty
records may be audited every 12 months, and incentive claims may
be audited every 18 months. The frequency of these audits is a
sensitive point between manufacturers, who are legitimately
concerned about the potential for false or inflated claims, and
dealers who are justifiably eager to avoid undue recordkeeping
and disruption of settled accounts. The bill changes these
periods to 9 months for both types of audits.
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
FN: 0002429