BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 424|
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UNFINISHED BUSINESS
Bill No: SB 424
Author: Padilla (D), et al
Amended: 6/15/09
Vote: 27 - Urgency
SENATE TRANSPORTATION & HOUSING COMM. : 10-0, 4/14/09
AYES: Lowenthal, Huff, Ashburn, DeSaulnier, Harman,
Hollingsworth, Kehoe, Pavley, Simitian, Wolk
NO VOTE RECORDED: Oropeza
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 35-0, 5/6/09 (Consent)
AYES: Alquist, Ashburn, Benoit, Calderon, Cogdill,
Corbett, Correa, Cox, Denham, Ducheny, Dutton, Florez,
Hancock, Harman, Hollingsworth, Huff, Kehoe, Leno, Liu,
Lowenthal, Maldonado, Negrete McLeod, Oropeza, Padilla,
Pavley, Romero, Simitian, Steinberg, Strickland, Walters,
Wiggins, Wolk, Wright, Wyland, Yee
NO VOTE RECORDED: Aanestad, Cedillo, DeSaulnier, Runner,
Vacancy
ASSEMBLY FLOOR : 72-0, 6/18/09 (Consent) - See last page
for vote
SUBJECT : Vehicles: manufacturers and distributors
SOURCE : California New Car Dealers Association
DIGEST : This bill makes certain acts of vehicle
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manufacturers or distributors illegal.
Assembly Amendments added specific language pertaining to
dealers of new recreational vehicles, and added language to
allow a licensed vehicle dealer to sell a new vehicle of a
line-make for which the dealer does hold a franchise if the
vehicle was acquired in the ordinary course of business and
specified conditions are met.
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 law makes it a violation of the Vehicle Code for
the holder of a vehicle dealer's license to commit
specified actions, including, among other things, to
advertise for sale, sell, or purchase for resale a new
vehicle of a line-make for which the dealer does not hold a
franchise. Existing law also lists various exceptions to
this requirement.
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:
1. 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.
2. Require a change in the executive management team,
capital structure, or ownership structure of a
dealership having a franchise with that manufacturer.
3. Deny a dealer the right of free association with another
dealer.
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4. Compete with a dealer in the same line make.
5. Offer rebates through one dealership in an area, but not
all dealerships.
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.Allows a licensed vehicle dealer to sell a new vehicle of
a line-make for which the dealer does hold a franchise if
the vehicle was acquired in the ordinary course of
business and the following conditions are met:
A. The manufacturer or distributor of the vehicle
files a bankruptcy petition.
B. The franchise agreement of the dealer is
terminated, canceled, or rejected by the manufacturer
or distributor as part of the bankruptcy proceedings
and the termination, cancellation, or rejection is not
a result of the revocation by the department of the
dealer's license or the dealer's conviction of a
crime.
C. The vehicle is held in the inventory of the dealer
on the date the bankruptcy petition is filed.
D. The vehicle is sold by the dealer within six months
of the date the bankruptcy petition is filed.
3.Makes it unlawful for any licensed vehicle manufacturer,
manufacturer branch, distributor, or distributor branch
to:
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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 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
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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.
(The provisions listed under D. above 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
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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 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;
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and the dealer cost of returning items or inventory
for repurchase by the manufacturer or distributor.
4.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.
5.Provides that none of the provisions in #3E 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 6/19/09)
California New Car Dealers Association (source)
California Conference of Machinists
California Motorcycle Dealers Association
California Recreation Vehicle Dealers Association
Cerritos Regional Chamber of Commerce
City of Buena Park, Mayor Donald W. McCay
City of El Cajon, Mayor Mark Lewis
City of Garden Grove, Mayor William Dalton
City of La Mesa, Mayor Art Madrid
City of Newport Beach, Mayor Keith D. Curry
City of Placentia, Mayor Greg Sowards
City of Rancho Santa Margarita, Mayor Gary Thompson
City of Santa Clara, Mayor Patricia Mahan
Councilmember Jerry Holloway, City of Rancho Santa
Margarita
Councilmember Joe Brown, City of Laguna Niguel
Councilmember Joe Carchio, City of Huntington Beach
Councilmember Lucille Kring, City of Anaheim
Councilmember Nancy Gardner, City of Newport Beach
Councilmember Sam Allevato, City of San Juan Capistrano
Councilmember Vincent Sarmiento, City of Santa Ana
Gateway Chambers Alliance
Greater San Fernando Valley Chamber of Commerce
Janet Nguyen, Orange County Supervisor
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
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National City, Mayor Ron Morrison
Oceanside Chamber of Commerce
Southland Motor Car Dealers Association
ARGUMENTS IN SUPPORT : The California New Car Dealers
Association states 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. They also point 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.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Carter, Chesbro, Conway,
Cook, Coto, Davis, De La Torre, De Leon, DeVore, Duvall,
Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes,
Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore,
Hagman, Hall, Harkey, Hayashi, Hernandez, Hill, Huber,
Huffman, Jeffries, Jones, Knight, Krekorian, Ma, Mendoza,
Miller, Monning, Nava, Nestande, Niello, Nielsen, V.
Manuel Perez, Portantino, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Audra Strickland, Swanson, Torlakson,
Torres, Torrico, Villines, Yamada, Bass
NO VOTE RECORDED: Charles Calderon, Lieu, Logue, Bonnie
Lowenthal, John A. Perez, Solorio, Tran, Vacancy
JA:nl 6/19/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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