House Status:
Senate Status:
Senate Status:
Minutes for SB324 - Committee on Transportation
Short Title
Amending the vehicle dealers and manufacturers licensing act.
Minutes Content for Wed, Jan 31, 2018
Chairperson Petersen opened the hearing on this bill. Mr. Wells gave an overview. This bill would add two new sections to the Vehicle Dealers and Manufacturers Licensing Act regarding manufacturers requiring dealers to improve facilities and install new signs when they had done so within the past ten years; a choice of vendors for improvements in dealer buildings; and manufacturers using performance measures that do not take into consideration the local economy.
Don McNeely, President, Kansas Automobile Dealers Association (KADA), provided proponent testimony (Attachment 1). The Kansas new vehicle dealers operate under conditions known as franchise agreements. He stated under these agreements are contracts of adhesion, offered on a take-it-or-leave-it basis by the manufacturers, and which, if left unchecked, can result in onerous obligations, increased costs, and sometimes loss of local business. This new law provides for fairness.
Dealers go to meetings across the country and find out from dealers in other states what laws have passed. Four items were chosen that more and more states were adopting for their dealers. Mr. McNeely stated the bill was drafted and shared with GM, Ford, and the Alliance of Motor Vehicle Manufacturers. There were very detailed negotiations with GM. On January 29, Alliance asked for some alternative language and wanted to open up the negotiations again. Some of the language would gut the mission of this legislation, he said.
Mr. McNeely stated dealership remodels are required by a manufacturer to come into compliance for incentive programs which relate to the competitive pricing of the vehicle. This bill provides these upgrades need not be done within 10 years after the most recent required and approved remodel or rebuild. For small dealers the remodels can cost $400,000 while large dealer remodels can cost $1.5 million. A new dealership in The Legends, Kansas City Metro area, could cost $8 million to $10 million. The cost in the industry is quite high.
Mr. McNeely said with required builds or remodels, the manufacturer has a list of approved vendors for lighting fixtures, tile, etc. that are not locally based. This is problematic if a dealer had a local electrical facility company that sells lighting fixtures and has bought many vehicles, for example. This bill would say the dealer could buy from local vendors if there is similar quality of tile and fixtures. Signs that are leased by a dealer from a manufacturer could also be purchased by the dealer from a vendor if it is a similar item.
A third portion in the bill requires a manufacturer, when evaluating a dealer's sales performance, to consider local economic factors in the dealer's local market area. Industries affecting the local market might be oil and gas, aircraft, local manufacturers (e.g., Hostess Twinkie plant closure in Emporia), or 3,000 troops deployed for a year. It would be up to the dealer to inform the manufacturer of these market factors.
The last provision has to do with recall requirements, Mr. McNeely continued. Tens of millions of vehicles have been recalled in recent years for defective air bags and other problems. Under this bill, the manufacturer would compensate the vehicle dealer for new and used vehicle recalls if the vehicle cannot be sold before the fix and parts or a remedy are not available. A majority of states have passed this over recent years.
Mr. McNeely said he was very appreciative of GM sitting down to negotiate, and he welcomes discussion with Alliance. He said some Committee members have received a letter from the Motorcycle Industry Council asking to be carved out of the dealers act. Mr. McNeely said the results of an informal survey of states indicated there are 21 states that include motorcycle dealers with vehicle dealer statutes, 5 states have some carve outs; and 5 states have separate laws for motorcycle dealers and motor sport dealers. All states regulate relationships between the dealers and the manufacturers because of the disparity in bargaining power between a vehicle manufacturer and a dealership.
Senator Hardy asked if this should be handled at the national association level. Mr. McNeely said it is better handled at the state level.
Senator Hawk asked whether negotiations happened knowing this bill was introduced. Mr. McNeely noted the draft language was sent to GM, Ford, and Alliance, the same group for the past 27 years, when Mr. McNeely has worked in Kansas. After discussions, some proposed language was changed and the changes are included in the bill.
Chairperson Petersen said he asked that the bill be introduced conceptually to see if other organizations would join the discussion. Sandy Braden, representing the Alliance, asked to submit testimony, and she was asked to work with KADA.
Senator Skubal asked about the purchase of lights and said he felt there is an overreach in a manufacturer dictating the type of light to be used in a dealership. Mr. McNeely indicated the bill is merely allowing local dealers to use local suppliers if the quality of the product is similar.
Senator Doll added dealers can suffer from poor grain production, which reduces low car sales.
Senator Hardy asked if this bill would truly benefit the consumer. Mr. McNeely said all of this drives cost and cost is a concern of the consumer. The industry is extremely competitive. New car dealers operate at a loss and service work puts the dealer in the black.
Senator Hawk asked if the manufacturer could tell the dealer if the dealer doesn't comply, the relationship will be severed. Mr. McNeely said this has never been the case.
Senator Hawk asked whether other states have the four provisions. Mr McNeely stated that as of July 2017, 17 had the upgrade provision; 16 enacted vendor choice last year, and he would have to go back to look at earlier years. He said GM is reviewing 18 bills this session.
Senator Fitzgerald said an issue is state vs. federal jurisdiction. Most contracts are within the state and subject to state laws, so the bill should focus on what is best for Kansas. Mr. McNeely said that is correct under KSA 8-2402 and agreed. He noted the industry is changing rapidly. In the past, when stores were sold, they were bought by local dealers. Now, out-of-state auto dealers are buying Kansas dealerships. In considering the purchase, they review what types of laws are in Kansas.
Sandy Braden, Gaches, Braden and Associates, gave opposition testimony on behalf of the Auto Alliance (Attachment 2). The Alliance is a trade association representing 12 of the worlds leading car and light truck manufacturers. This bill addresses how dealers are serving consumers, how manufacturers can influence the facilities where the product is sold, and how dealers are compensated for a stop sale associated with a recall. She added that Alliance is working with KADA on a compromise to resolve the issues. She appreciates the patience by KADA, and KADA has been very transparent in this process.
Senator Hawk asked why are there no Chevy and Honda stores to buy parts. Mr. McNeely said the state prohibits the manufacturer from competing against its franchisees and noted there is a Tesla store in Missouri.
There was no neutral testimony.
The hearing was closed.
