BILL ANALYSIS
SB 424
Page 1
Date of Hearing: June 11, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
SB 424 (Padilla) - As Amended: May 18, 2009
Policy Committee:
TransportationVote:9-0
Urgency: Yes State Mandated Local Program:
No Reimbursable:
SUMMARY
As proposed to be amended, this bill regulates actions that
vehicle manufacturers may take with regard to their franchised
dealers, and allows franchisees that have contracts terminated
because of a manufacturer's or distributor's bankruptcy to
continue to sell new cars in their inventory for up to six
months.
FISCAL EFFECT
The Department of Motor Vehicles (DMV) reports that the bill
will result in minor, probably absorbable, costs to the New
Motor Vehicle Board, which is located within the DMV and is
responsible for mediation of disputes between auto manufacturers
and their franchisees.
SUMMARY (CONTINUED)
Specifically, this bill:
1)Makes it unlawful for a licensed vehicle manufacturer or
distributor to:
a) Prevent a dealer from acquiring or maintaining a sales
or service operation for another make of motor vehicle at
an existing facility.
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.
SB 424
Page 2
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.
2)Places the burden of proof relating to reasonableness on the
manufacturer or distributor.
3)Requires a manufacturer or distributor terminating a franchise
contract to repurchase, within 90 days, the dealer's
inventories of new vehicles, dealer-installed original
equipment accessories, unused and undamaged supplies, parts,
and accessories, and various other items. Requires
reimbursement to include dealer costs associated with
handling, packing, loading, and transporting inventory for
repurchase.
4)Requires a manufacturer or distributor to indemnify existing
or former franchisees, and the franchisees' successors, from
claims related to the manufacturers' components and service
systems, and from claims arising from improper use or
disclosure by the manufacturer or distributor of nonpublic
personal information obtained from a franchisee concerning any
consumer, customer, or employee of the franchisee.
5)Allows a dealer that has a franchise agreement terminated,
cancelled or rejected by the manufacturer or distributor as
part of a bankruptcy petition filed by the manufacturer or
distributor to continue to sell new cars in its inventory for
up to six months. This would only be allowed if the
termination, cancellation or rejection is not the result of
the revocation by the department of the dealer's license or
the dealer's conviction of a crime.
COMMENTS
1)Background . Existing law defines a franchise agreement as one
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. Only franchise dealers
are permitted to sell a manufacturer's line of motor vehicles,
except in specified circumstances.
2)Purpose. This bill is intended to update laws regulating the
SB 424
Page 3
relationship between vehicle manufacturers and dealers. The
author notes that "in light of the current economic conditions
facing new car dealers throughout California, this bill is
needed to ensure that facility requirements imposed by
franchisors are reasonable, that assistance for dealers upon
termination, non-renewal, 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."
The bill is sponsored by the California New Car Dealers
Association, but 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.
3)Proposed amendments . These amendments are specifically meant
to address the effects of the Chrysler bankruptcy, which,
according to the sponsor, will result in 32 California dealers
immediately losing their franchises. The amendments allow such
dealers to continue selling new cars from their inventory six
months following the loss of their franchise agreement.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081