BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 424
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: padilla
VERSION: 4/2/09
Analysis by: Carrie Cornwell FISCAL: yes
Hearing date: April 14, 2009
SUBJECT:
Vehicle: manufacturers and distributors (urgency)
DESCRIPTION:
This bill makes certain acts of vehicle manufacturers or
distributors illegal.
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.
Existing provisions of the California Vehicle Code define a
"franchise" as a written agreement in which the franchisee
(dealer) is granted the right to sell new motor vehicles or
trailers as part of the franchisor's (manufacturer's)
distribution system. The dealer's business must be
substantially reliant on the manufacturer for the supply of
vehicles.
Existing law prescribes many aspects of the relationship between
new car dealers and vehicle manufacturers, including making it
illegal for a manufacturer to:
Fail to deliver adequate quantities in a timely fashion to
a dealer who has a franchise to sell new motor vehicles made
by that manufacturer.
Require a change in the executive management team, capital
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structure, or ownership structure of a dealership having a
franchise with that manufacturer.
Deny a dealer the right of free association with another
dealer.
Compete with a dealer in the same line make.
Offer rebates through one dealership in an area, but not
all dealerships.
This bill is an urgency measure that makes it illegal for any
manufacturer or distributor to:
1)Prevent, or attempt to prevent, a vehicle dealer from
acquiring, adding, or maintaining a sales or service operation
for another line make of motor vehicles at a facility at which
the dealer currently operates a dealership if the dealer
complies with any reasonable facilities and capital
requirements of the manufacturer or distributor.
2)Require a dealer to establish or maintain exclusive
facilities, personnel, or display space, if the imposition of
the requirement would be unreasonable in light of all existing
circumstances, including economic conditions.
3)Require, by contract or otherwise, a dealer to make a material
alternation, expansion, or addition to any facility, unless it
is reasonable in light of all existing circumstances,
including economic conditions.
4)Fail to pay a dealer within 90 days of termination,
cancellation, or nonrenewal of a franchise all of the
following:
i) The dealer cost for all new vehicles in the dealer's
inventory;
ii) The dealer cost for all unused, undamaged, and still
packaged supplies, parts, and accessories listed in the
manufacturer's currents parts catalogue;
iii) The fair market value of each undamaged sign owned by
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the dealer and bearing the common name, trade name, or
trademark of the manufacturer, if the dealer had to buy the
sign under an incentive program of the manufacturer.
iv) The fair market value of all special tools, computer
systems, and equipment that were required as part of an
incentive program of the manufacturer.
v) The dealer costs of returning these items for repurchase
by the manufacturer.
5)Fail to indemnify, upon demand, any existing or former
franchisee or his successors from damages, plus reasonable
attorneys fees and expenses, that result from a claim made or
asserted against a franchisee because of:
i) The condition, characteristics, manufacture, assembly,
or design of any vehicle, parts, accessories, tools, or
combination thereof manufactured by the manufacturer.
ii) Service systems, procedures, or methods the franchisor
required or recommended that the franchisee used, so long
as the franchisee used them properly.
iii) Any act or omission of the manufacturer for which the
franchisee would have a claim under applicable law or under
the franchise without regard to a termination or expiration
of that agreement.
COMMENTS:
1.Purpose . The sponsor, the California New Car Dealers
Association, notes that while every state has laws regulating
the relationship between vehicle manufacturers and franchised
dealers, California has not updated its rules for nearly a
decade. The sponsor also points out that with over 170 new
car dealerships closed in the last 15 months, this bill is
needed to ensure that facility requirements imposed by
franchisors are reasonable, that assistance for dealers upon
termination, nonrenewal, or cancellation of a franchise is
adequate, and that dealers are properly indemnified for
actions of auto manufacturers or distributors that are beyond
their control.
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2.Dealers and manufacturers . While this New Car Dealers
Association is the sponsor of this bill, the April 2nd
amendments reflect an agreement between the dealers'
representatives and the representatives of motor vehicle
manufacturers. The organizations representing major motor
vehicle manufacturers are neutral on the bill in its current
form.
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
April 8, 2009)
SUPPORT: California New Car Dealers Association (sponsor)
California Motorcycle Dealers Association
California Recreational Vehicle Dealers
Association
OPPOSED: None received.