BILL ANALYSIS
SB 424
Page 1
Date of Hearing: May 21, 2009
ASSEMBLY COMMITTEE ON TRANSPORTATION
Mike Eng, Chair
SB 424 (Padilla) - As Amended: May 18, 2009
SENATE VOTE : 35-0
SUBJECT : Motor vehicle dealers
SUMMARY : Prohibits vehicle manufacturers from taking certain
acts in regard to their franchised dealers. Specifically, this
bill :
1)Makes various findings and declarations regarding the
importance of new motor vehicles to the general economy of the
state, the closure of over 170 new motor vehicle dealerships
since January of 2008, and the Legislature's intent to ensure
that facility requirements imposed by franchisors are
reasonable, that assistance for terminated dealers is
adequate, and that dealers are properly indemnified for
actions of auto manufacturers or distributors that are beyond
the control of dealers.
2)Makes it unlawful for any licensed vehicle manufacturer,
manufacturer branch, distributor, or distributor branch to:
a) Prevent a dealer from acquiring, adding, or maintaining
a sales or service operation for another line make of motor
vehicles at the same or expanded 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.
b) 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, with
the burden of proof of reasonableness falling on the
manufacturer or distributor.
c) Require a dealer to make a material alteration,
expansion, or addition to any dealership facility, unless
the action is reasonable in light of all existing
circumstances, including economic conditions, with the
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burden of proof of reasonableness falling the manufacturer
or distributor.
d) Fail to pay to a dealer (other than one who sells new
recreational vehicles (RVs)), within 90 days of
termination, cancellation, or nonrenewal of a franchise,
all of the following:
i) The dealer cost, plus any charges made by the
manufacturer or distributor for vehicle distribution or
delivery and the cost of any dealer-installed original
equipment accessories, less any amount invoiced to the
vehicle and paid by the manufacturer or distributor to
the dealer, for all new and undamaged vehicles with less
than 500 miles in the dealer's inventory that were
acquired by the dealer from the manufacturer,
distributor, or another new motor vehicle dealer
franchised to sell vehicles of the same line-make, in the
ordinary course of business, within 18 months of
termination, cancellation, or nonrenewal of the
franchise;
ii) The dealer cost for all unused and undamaged
supplies, parts, and accessories listed in the
manufacturer's current parts catalog and in their
original packaging, except that sheet metal may be
packaged in a comparable substitute for the original
package;
iii) The fair market value of each undamaged sign owned
by the motor vehicle dealer and bearing a common name,
trade name, or trademark of the manufacturer or
distributor if acquisition of the sign was required or
made a condition of participation in an incentive program
by the manufacturer or distributor;
iv) The fair market value of all special tools, computer
systems, and equipment that were required or made a
condition of participation in an incentive program by the
manufacturer or distributor that are in usable condition,
excluding normal wear and tear; and,
v) The dealer costs of handling, packing, loading, and
transporting any items or inventory for repurchase by the
manufacturer or distributor.
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(The provisions listed under i) through v) do not apply to
a termination that is implemented as a result of the sale
of substantially all of the inventory and fixed assets or
stock of a franchised dealership if the dealership
continues to operate as a franchisee of the same
line-make.)
e) Fail, upon demand, to indemnify any existing or former
franchisee and the franchisee's successors and assigns from
any and all damages sustained and attorney's fees and other
expenses reasonably incurred by the franchisee that result
from or relate to any claim made or asserted by a third
party against the franchisee to the extent the claim
results from any of the following:
i) The condition, characteristics, manufacture,
assembly, or design of any vehicle, parts, accessories,
tools, or equipment, or the selection or combination of
parts or components manufactured or distributed by the
manufacturer or distributor;
ii) Service systems, procedures, or methods the
franchisor required or recommended the franchisee to use
if the franchisee properly uses the system, procedure, or
method;
iii) Improper use or disclosure by a manufacturer or
distributor of nonpublic personal information obtained
from a franchisee concerning any consumer, customer, or
employee of the franchisee; and,
iv) Any act or omission of the manufacturer or
distributor for which the franchisee would have a claim
for contribution or indemnity under applicable law or
under the franchise, irrespective of and without regard
to any prior termination or expiration of the franchise.
f) Fail to pay a dealer of new RVs, within 90 days of
termination, cancellation, or nonrenewal of his or her
franchise for an RV line-make, the dealer's cost for a new
RV, plus charges made for distribution, delivery and
dealer-installed accessories, less any amount invoiced to
the vehicle and paid by the manufacturer or distributor to
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the dealer, when the franchise action is initiated by the
manufacturer. This provision would apply only to RVs with
odometer readings of 1,500 miles or less in addition to the
number of miles involved in the delivery of the RV to the
dealer's location.
g) Fail to pay a dealer of new RVs, within 90 days of
termination, cancellation, or nonrenewal of his or her
franchise, the dealer cost for all unused supplies, part
and accessories that meets certain packaging requirements;
the fair market value of undamaged signs that were required
or were a condition of a manufacturer's or distributor's
incentive program, and of special tools, computer systems,
and equipment that are in usable condition; and the dealer
cost of returning items or inventory for repurchase by the
manufacturer or distributor.
3)Requires damaged RVs held by dealers whose franchises are not
renewed or otherwise terminated to be repurchased by the
manufacturer, if the damage is not material and there is an
offset in value for damages.
4)Provides that none of the provisions in 2) e) above are to be
construed to limit, in any way, the existing rights, remedies,
or recourses available to any person who purchases or leases
vehicles at retail.
5)Includes an urgency clause allowing this bill to become
effective immediately upon signature.
EXISTING LAW :
1)Requires the Department of Motor Vehicles (DMV) to license and
regulate dealers, manufacturers, and distributors of motor
vehicles who conduct business in California.
2)Defines 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.
3)Makes it illegal for a vehicle manufacturer to:
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a) 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;
b) Require a change in the executive management team,
capital structure, or ownership structure of a dealership
having a franchise with that manufacturer;
c) Deny a dealer the right of free association with another
dealer;
d) Compete with a dealer in the same line make; and,
e) Offer rebates through one dealership in an area, but not
all dealerships.
FISCAL EFFECT : Unknown. This bill was withdrawn from the
Senate Appropriations Committee pursuant to Senate Rule 28.8.
COMMENTS : The sponsor of this bill, 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 having 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. Finally, there is a concern that with major vehicle
manufacturers seeking or contemplating bankruptcy protection,
there is an urgent need to establish a statutory framework for
dealing with the issues that arise when a dealership goes out of
business or its franchise is terminated.
The author points out that California is one of only three
states where the issues of termination assistance, dealerships
with multiple franchises, and facility improvements, are not
addressed in statute. "This bill brings California in line with
the vast majority of other state requirements," he asserts.
According to the New Car Dealers Association, which is
sponsoring this bill, "In light of the current economic
conditions facing new car dealers throughout California, this
bill is needed to ensure that facility requirements imposed by
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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." Motorcycle dealers and RV dealers also support this
bill, with the motorcycle dealers declaring, "These reasonable
requirements will make the treatment of motor vehicle dealers,
who have fallen victim to the unfortunate and dire economic
times in which many of our members find themselves, as fair as
possible. These reasonable and common sense provisions will help
to rebuild California's motor vehicle retail sales industry and
fuel California's economic recovery."
While the car dealers are sponsoring this bill, it reflects 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.
This bill sets out detailed procedures and delineates
responsibilities of manufacturers and distributors in
repurchasing and reimbursing dealers for their vehicle
inventories and other items that are returned when a dealer no
longer holds a franchise. The bill also specifies the rights of
ongoing dealerships to carry competing lines of vehicles and to
control the use of their facilities, personnel, and display
space. These provisions make several references to a standard
of "reasonableness." Reasonableness is, of course, in the eye
of the beholder. Nevertheless, the stakeholders in this effort
believe this bill will provide them with the criteria and tools
necessary to take resolve disagreements on these issues whenever
they may arise.
Double referral : This bill is also referred to the Judiciary
Committee. Recently-adopted amendments, however, may serve to
take the bill out of the Judiciary Committee's jurisdiction.
REGISTERED SUPPORT / OPPOSITION :
Support
California New Car Dealers Association (sponsor)
California Conference of Machinists
California Motorcycle Dealers Association
California Recreational Vehicle Dealers Association
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Cerritos Regional Chamber of Commerce
City of El Cajon
City of Santa Clara
Council Member, City of Anaheim
Council Member, City of Huntington Beach
Council Member, City of Laguna Niguel
Council Members (2), City of Newport Beach
Council Member, City of San Juan Capistrano
Council Member, City of Santa Ana
Council Member, City of Santa Margarita
Gateway Chamber Alliance
Greater San Fernando Valley Chamber of Commerce
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
Mayor, City of Buena Park
Mayor, City of Garden Grove
Mayor, City of La Mesa
Mayor, City of Placentia
Mayor Pro Tem, City of Newport Beach
Oceanside Chamber of Commerce
National City
Southland Motorcar Dealers Association
Opposition
None received
Analysis Prepared by : Howard Posner / TRANS. / (916) 319-2093