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Minutes for SB426 - Committee on Transportation
Short Title
Making certain contract requirements for farm equipment and dealership agreements for farm equipment, outdoor power equipment and lawn and garden equipment.
Minutes Content for Wed, Mar 14, 2018
Chairperson Petersen opened the hearing and asked Scott Wells, Revisor's Office, to give an overview. Mr. Wells said the bill relates to agreements between farm retailers and their manufacturers and suppliers. How warranty work would be done after July 1, 2018 is contained in the bill as well as the definition of competitive circumstances and when manufacturers are to notify dealers of substantial changes in competitive circumstances, along with several other stipulations.
Senator Hawk asked when language changes had been added to the statute, and Mr. Wells said he would have to research.
Eric Wareham, Vice President, Government Affairs, Western Equipment Dealers Association (WEDA), provided proponent testimony (Attachment 1). Mr. Wareham, in answer to Senator Hawk's question, said the statute was enacted originally in 1979 and has not been updated since 2000 when there were 147 dealers. One of the major changes since 2000 has been mergers and acquisitions. Dealers now may have 10-25 store locations and this is a trend throughout the country. Mr. Wareham said his association does not take a position on whether a merger is good or bad, but does take a position that dealers should have control over decision making that involves business decisions and not be coerced into consolidation. So, this is the reason for this legislation, Mr. Wareham said, and other states such as Oklahoma and Texas have updated their statutes for the current business environment. The manufacturers are familiar with this bill. Warranty provisions are similar to bordering states, and Kansas dealers should be competitive with out-of-state dealers, he added.
Talking about the need for this statute, Mr. Wareham said the motor vehicles dealers association recently presented to this Committee a bill relating to adhesion contracts between the auto manufacturer and auto dealers. Mr. Wareham said this bill also is about regulating contracts of adhesion--where one party is a large company with bargaining strength, and dealers that get to take it or leave it and don't get an opportunity to negotiate their contracts. Because of that, the states created a regulatory framework for the relationship between manufacturers and independent equipment dealers. This legislation is an update that makes Kansas consistent with other states and has pro-competitive benefits for farmers and ranchers in Kansas. Dealers make sure farmers and ranchers are up and running and do warranty work to provide for their customers. Western Equipment works with manufacturers and strives for a good relationship. He said Oregon just passed a bill on the competitive circumstances and a similar bill passed the House and Senate unanimously in Idaho. WEDA looks forward to working with manufacturers on this bill and building for the future.
Senator Hawk asked whether the 15% surcharge for warranty is new, and Mr. Wareham said it is new, because equipment dealers do not get reimbursed for mileage or time to provide warranty work. Dealers get reimbursed for the hourly labor rate only, and parts are sent from the manufacturer.
Senator Hardy asked if equipment dealers include John Deere dealers. Mr. Wareham said independent dealers are separate from the manufacturers. They purchase their own inventory, build their own buildings, and hire their own personnel. They invest millions of dollars into their businesses.
Senator Goddard asked whether businesses with foreign manufacturers are impacted; Mr. Wareham said yes and mentioned Kubota as one that would be included.
Senator Skubal said he had a franchise at one time, and he could have purchased a different franchise. He added that he could walk away or could sign the contract, and asked whether the bill would change the rules in midstream. Mr. Wareham said WEDA dealers take great pride in their brands--John Deere, Case, etc., and they are not franchisees but independent dealerships. The decision to join a brand often was two or three generations ago. It is difficult to change brands. Many of these dealerships started in the early 1900's so as the relationship goes along, it becomes very uncomfortable for a dealer to get hard-nosed with a manufacturer. Through consolidation, the industry is changing, so there is pressure on dealers to grow or sell out. Some of the provisions in the bill address that and other sections provide more fairness, Mr. Wareham said.
Vernon Schmidt, Executive Vice President, Farm Equipment Manufacturers Association (FEMA), St Louis, provided opponent testimony (Attachment 2). Most people start thinking about tractors and combines when they think of farm equipment; however, FEMA has 50 members in Kansas and members in most cities in the nation. He noted most FEMA members are small, family-owned companies. Over 11 FEMA presidents have come from Kansas. The relationship between small manufacturers and dealers is extremely different. For most of the manufacturers, the contract with the dealer is a handshake, and has been for decades. The member manufacturers are smaller and represent far less than 15% of the annual volume. There are many "short-line" manufacturers of specialty equipment designed for a certain part of the country. Dealers and manufacturers negotiate terms and have for many years. Having the state Legislature step in maybe works for major tractor corporations, but it doesn't work with member manufacturers, and puts stress where there was none. Mr. Schmidt added that in Oklahoma, it took six to eight years to work through that legislation. In other states, the only protection was a carve-out. If a manufacturer's line is less than 15%, the company can't be forced to sign an equity contract. In Kansas, things are working extremely well and this legislation is not needed.
Senator Hawk asked how current law operates for a short-line manufacturer, such as Landoll Corporation, to decide not to do business with a dealer if the dealer is not performing service or selling. Mr. Schmidt said the bill adds additional requirements.
Senator Skubal asked who introduced the bill, and Mr. Schmidt said the WEDA. Senator Skubal said current law is working well for the manufacturers, and there has been no request to work on legislation. Mr. Schmidt said this is not a good time for agriculture. With the additional tariffs, it is not known what steel will cost. In addition, a 15% increase for warranty would create additional cost for the farmer.
Stephanie See, Director, State Government and Industry Affairs, Association of Equipment Manufacturers (AEM), gave opponent testimony (Attachment 3). AEM is the North American-based international trade association representing over 950 companies in the off-highway machinery market. AEM members in Kansas include Deere, CNH, Kubota, and AGCO as well as many small and medium-sized manufacturers.
Ms. See said AEM is opposed to this bill as it is an unnecessary intrusion into the business relationship between an equipment manufacturer and an equipment dealer. Ms. See said manufacturers and their dealers have developed close business relationships that have stood the test of time and the market place. SB426 is similar to a bill introduced in Oregon, and AEM and WEDA are currently attempting to negotiate outside the legislative process.
Senator Schmidt asked about the similar bill introduced in Oregon. Ms. See said it was introduced last session in a larger version, differences are being discussed, and agreement has not yet been reached.
Ted Martin, Service and Warranty Manager, Landoll Corporation, Marysville, provided opponent testimony (Attachment 4). Landoll Corporation has been in business since 1963, has 826 employees, and is diversified in product lines. Some of the company's concerns, include the 15% markup on parts supplied for the warranty repair plus freight charges. Freight can be a large cost to a manufacturer. A $10 part that must get to a farmer in a short amount of time could involve a UPS freight charge of $45. Landoll does not require dealers to stock parts, but parts are kept at the plant and are readily available to the dealership network. Landoll pays 100% of its dealer's cost for parts. Warranty is not a very large percentage for a manufacturer's business or about 1.4% for Landoll, which also does business in Texas, New York, California, Minnesota, Oregon, and North Carolina. All of those states mandate markup. Mr. Landoll is an end user supporter and today, the farmers are struggling. Adding additional exposure to manufacturers will have to be passed on to the customer which Landoll would like to avoid.
Written-only opponent testimony was furnished by:
George Whitaker, State Government Affairs, Racine, WI; and Jeff Bolander, Wichita Plant Manager, CNH Industrial America, LLC (Attachment 5)
Daniel Mustico, Vice President, Government and Market Affairs, Outdoor Power Equipment Institute, Inc., Alexandria, VA (Attachment 6)
Ray Garvey, Moridge Manufacturing/The Grasshopper Company, Moundridge, KS (Attachment 7)
Robert Crain, Senior Vice President and General Manager, AGCO Corporation, Duluth, GA (Attachment 8)
Jonathan Zerger, General Counsel, Excel Industries, Hesston, KS (Attachment 9)
Jarah Hauger, State Affairs Representative, John Deere & Company, Olathe, KS (Attachment 10)
Bruce Shanahan, Deputy General Counsel, Kubota Tractor Company, Grapevine, TX (Attachment 11)
There was no neutral testimony.
The hearing was closed.
