BILL ANALYSIS
AB 2597
Page 1
ASSEMBLY THIRD READING
AB 2597 (Bill Berryhill)
As Amended April 8, 2010
Majority vote
TRANSPORTATION 10-1 APPROPRIATIONS 14-0
-----------------------------------------------------------------
|Ayes:|Bonnie Lowenthal, |Ayes:|Fuentes, Conway, Hill, |
| |Jeffries, | |Bradford, Charles |
| |Bill Berryhill, | |Calderon, Coto, Davis, |
| |Blumenfield, Buchanan, | |Hall, Miller, Nielsen, |
| |Eng, Furutani, Galgiani, | |Skinner, Solorio, |
| |Hayashi, Portantino | |Torlakson, Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Niello | | |
| | | | |
-----------------------------------------------------------------
SUMMARY : Prohibits motor vehicle manufacturers from taking
certain actions in regard to motorsport vehicle dealers.
Specifically, this bill :
1)Prohibits motor vehicle manufacturers and distributors from
offering or attempting to offer a customer or dealer rebate,
discount, promotional financing, or other incentive to promote
the retail sale or lease of motorsports vehicles that is
conditioned on one or more of the following:
a) The purchase by the selling dealer of a minimum number
of motorsports vehicles;
b) The selling dealer maintaining a minimum number of
motorsports vehicles in inventory; or,
c) The date that the selling dealer acquired the
motorsports vehicles eligible for the incentive.
2)Prohibits motor vehicle manufacturers and distributors from
unfairly discriminating in favor of a dealer when acting as a
manufacturer, manufacturer branch, distributor, or distributor
branch of motorsports vehicles.
3)Defines, for this purpose, "unfair discrimination" to include
AB 2597
Page 2
all of the following:
a) Furnishing to a dealer any of the following:
i) A vehicle, part, or accessory that is not made
available to all dealers at the same actual price and
pursuant to a reasonable allocation formula applied
uniformly and not based on the inventory size or
purchasing history or volume of the dealer; and,
ii) A vehicle, part, or accessory that is not made
available to all dealers on comparable financing and
delivery terms, including the time of delivery after the
placement of an order. Differences in delivery terms due
to geographic distances or other factors beyond the
control of the manufacturer, branch, or distributor,
however, would not constitute unfair discrimination.
b) Referring a prospective purchaser or lessee to a dealer
unless the prospective purchaser or lessee resides in the
area of responsibility assigned to that dealer or the
prospective purchaser or lessee requests to be referred to
that dealer.
4)Prohibits motor vehicle manufacturers and distributors from
requiring or attempting to require a dealer to maintain a
motorsports vehicle inventory in excess of a reasonable
minimum requirement not to exceed a 60-day supply based on the
rate of sales of the dealer for the preceding 90 days.
5)Defines, for this purpose, a "motorsports vehicle" to mean a
motorcycle, motor-driven cycle, motorized scooter, motorized
bicycle, all-terrain vehicle, or a snowmobile.
EXISTING LAW : Prohibits motor vehicle manufacturers from taking
specified actions in regard to motor vehicle dealers, such as:
1)Failing to deliver motor vehicles in reasonable quantities and
within a reasonable time after receipt of an order.
2)Preventing a dealer from receiving fair and reasonable
compensation for the value of the franchised business.
3)Increasing prices of motor vehicles that the dealer had
AB 2597
Page 3
ordered for private retail consumers prior to the dealer's
receiving official price increase notification.
4)Unfairly discriminating in favor of any dealership owned or
controlled, in whole or part, by a manufacturer.
FISCAL EFFECT : According to the Assembly Appropriations
analysis, minor costs, if any, to the Department of Motor
Vehicles in order to modify its regulatory structure governing
vehicle dealers and manufacturers.
COMMENTS : This bill is a reintroduction of AB 2976 (Keene) of
2008, a bill that passed the Assembly unanimously, but was held
on the Senate floor in anticipation of a nonlegislative
solution, as urged by various legislators, to be negotiated
between motorcycle manufacturers and dealers. Those
negotiations, from the point of view of the dealers, have
resulted in little or no effort by the manufacturers to reach a
settlement. The dealers have therefore introduced this bill.
According to the author of this bill, "Many major motorcycle
manufacturers (OEMs) will calculate the quota of vehicles that a
dealer must order on a dealer-by-dealer basis. The favored
terms are scaled into tiers that provide increasingly favorable
terms, i.e., Gold Silver and Bronze. If a dealer purchases the
quota of vehicles that the OEM has arbitrarily set for the
dealership, then the dealer is eligible to receive more favored
terms. If a dealer refuses to take the quota (which they may
feel is not reasonable for sales in their market area), then
that dealer will not receive favorable terms and its customers
will not receive the retail rebate. These are types of 'stair
step incentives,' but are particularly troubling because they
are based not only on a successful retail sale, but also on
wholesale purchase requirements. This means that dealers who do
not or economically cannot, purchase an OEM's unrealistic quotas
are at a comparative disadvantage versus dealers that do
purchase their quotas. Often, OEMs informally, subjectively and
arbitrarily set the quotas without disclosing to all of their
dealers their criteria."
This bill is described by the sponsor as "common sense, good
government legislation (that) will level the playing field
between California motorsport and motorcycle dealers and their
powerful franchisor manufacturers." It is intended to protect
AB 2597
Page 4
motorcycle dealers from being pressured to take what is
considered their "quota" of stock from motorcycle manufacturers.
Dealers contend that in these circumstances they are
effectively forced to take more inventory than they can
reasonably expect to sell and therefore often have to sell it at
a loss. In supporting the bill, motorcycle dealers complain,
"Manufacturers will not describe or show us the criteria for the
units we must take, regardless of whether we have too many of
last year's models in (our) inventory. When economic times are
slow, there should be no legal loopholes to allow manufacturers
to make dealers their warehouses."
Opponents of this bill deem it to be unnecessary. They contend
that this bill would insulate dealers from the business risks
common to other businesses and note that manufacturers are
already subject to dealer/manufacturer requirements in the
Vehicle Code that apply to the distribution of passenger
vehicles. Further, they assert that "this legislation will lead
to fewer choices for customers, higher operation costs and
increased litigation costs for OEMs." They also cite a somewhat
Montana statute governing dealer/manufacturer wholesale order
arrangements that was found to violate the Contract Clause of
the U.S. Constitution.
Policy Question: This bill seeks to involve the Legislature in
a business dispute between motorcycle manufacturers and dealers.
Thus, it implicitly poses the question: To what degree is it
appropriate for the Legislature to intercede in the relationship
between parties to franchising agreements? The Vehicle Code
offers precedent for such involvement in that certain facets of
the dealer/manufacturer relationship are already regulated by
statute. Most of these involve unethical or noncompetitive
behavior. It is not clear whether the issues raised by this
bill rise to that level.
Analysis Prepared by : Howard Posner / TRANS. / (916) 319-2093
FN: 0004410