BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 155|
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UNFINISHED BUSINESS
Bill No: SB 155
Author: Padilla (D)
Amended: 9/6/13
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
SENATE FLOOR : 36-0, 5/24/13
AYES: Anderson, Beall, Block, Calderon, Cannella, Corbett,
Correa, De Le�n, DeSaulnier, Emmerson, Fuller, Gaines,
Galgiani, Hancock, Hernandez, Hill, Hueso, Huff, Jackson,
Knight, Lara, Leno, Lieu, Monning, Nielsen, Padilla, Pavley,
Price, Roth, Steinberg, Torres, Walters, Wolk, Wright, Wyland,
Yee
NO VOTE RECORDED: Berryhill, Evans, Liu, Vacancy
ASSEMBLY FLOOR : Not available
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,
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protest rights, export policies, performance standards, and
facility improvements.
Assembly Amendments make changes to legislative findings and
declarations and make several clarifying changes to sections of
the bill relating to warranty repairs, claims and denials and
dealership facility changes, and make technical and clarifying
changes.
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
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 the franchisee's
effective labor rate and other relevant criteria. It also
requires, if the NMVB determines that the warranty reimbursement
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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.
2. 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 allow 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 and to cure noncompliance, 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.
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's incentive and 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. A franchisor
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shall not select a franchisee for an audit, or perform an
audit, in a punitive, retaliatory, or unfairly discriminatory
manner. A franchisor may conduct no more than one random
audit of a franchisee in a nine-month period. The
franchisor's notification to the franchisee of any additional
audit within a nine-month period shall be accompanied by
written disclosure of the basis for that additional audit.
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 to cure
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 attempts to
cure noncompliance and the franchisor continues to deny the
claim or otherwise appeals denial of the claim, the
franchisor must provide written notification of the final
denial within 30 days of completion of the appeals process
which will conspicuously state "Final Denial" on the first
page;
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, the
franchisor will have 90 days following issuance of the final
order or the dismissal 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.
5. If a false claim was submitted by a franchisee with the
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intent to defraud the franchisor, a longer period for audit
and any resulting chargeback may be permitted if the
franchisor obtains an order from the board.
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
extrapolation from a sample of claims; and
2. Providing appeal, notice and audit are requirements similar
to the above warranty reimbursement requirements.
This bill prohibits a franchisor from replacing, modifying, or
supplementing a warranty reimbursement schedule to impose a
fixed percentage or other reduction in the time and compensation
allowed for warranty repairs not attributable to a specific
repair.
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 an export or sale-for-resale prohibition because the dealer
sold or leased a vehicle to a consumer who either exported the
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vehicle to a foreign country or resold the vehicle in violation
of the prohibition, unless the export or sale-for-resale
prohibition policy was provided in 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 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 inventory, local and
regional 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
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
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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
goods of substantially similar kind and quality 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 , or series of payments, 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 9/10/13)
California New Car Dealers Association (source)
California Motorcycle Dealers Association
OPPOSITION : (Verified 9/10/13)
Alliance of Automobile Manufacturers
Association of Global Automakers
Ford Motor Company
ARGUMENTS IN SUPPORT : According to the author:
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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 : Ford Motor Company states:
After months of negotiations over SB 155, a significant issue
involving audit time periods for warranty repair reimbursement
and performance incentive payments remains unresolved.
CNCDA [California New Car Dealers Association] seeks to
restrict audit times for warranty and incentive claims to
become among the most restrictive in the country. Current law
requires us to make warranty repair and performance incentive
payments within 30 days of submission by a dealer and allows
up to 18 months to audit claims. SB 155 artificially and
imprudently compresses the audit period to nine months. 43
states currently allow at least a 12 month audit period. The
nine month audit period is too short to adequately ensure that
such payments are deservedly entitled and does not reflect
standard accounting practices of either government agencies or
private sector entities.
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As a member of the Alliance of Automobile Manufacturers, we
have consistently opposed 9-month audit time periods as too
brief and thereby creating a disparate and unfair relationship
between two businesses. We are unaware of any long-term
systemic issue with the current statutory time frames allowed
in California law.
AL:k 9/10/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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