After battling with automakers since February over sweeping proposed changes to dealer franchise law, California retailers won a limited victory in the state Legislature last week — in part by setting aside their most contentious proposals.
A day before its session ended at midnight Friday, the California Legislature passed a wide-ranging bill backed by the California New Car Dealers Association and opposed by the Alliance for Automobile Manufacturers, a trade association representing 12 automakers. The bill is now headed to Gov. Jerry Brown’s desk. If enacted, the dealers association says the measures will strengthen laws for franchised dealers, while the alliance says they will hurt automakers and consumers.
The dealers association, which represents 1,300 franchised new-car dealers in the state, had lobbied for the bill, AB 2107, since early this year. It includes provisions addressing what dealers call “inappropriate treatment of dealers by manufacturers” and bolsters warranty reimbursement terms and requirements around facility mandates, among other points. But several measures — including a statewide ban against direct sales by automakers — were either stripped out or modified from the legislation as first proposed to remove certain objections by automakers and gain passage by legislators.
“This has been a long and difficult battle,” Brian Maas, president of the California association, told Automotive News. “The manufacturers are obviously worthy combatants in the legislative process. I think our dealer leadership and dealer body will be pleased.”
Perhaps the key compromise: dropping a proposed statewide prohibition on automaker direct sales. That means California will continue under the current guideline — that an automaker cannot compete against a same-brand dealership within a relevant market area of 10 miles.
That rule most recently tripped up Chrysler, which agreed in 2011 to pay as much as $955,000 to settle a complaint by the California Department of Motor Vehicles for improperly operating a factory-owned store.
Stripped from the bill earlier this summer was another provision that would have prohibited automakers from offering subscription programs outside of their dealer networks.
“We’re not opposed to subscriptions,” Maas said. “We’re opposed to subscriptions that don’t use franchised dealers.”
The association and the alliance have agreed to negotiations beginning this month over these concerns and others, Maas said. The association has said it would consider resubmitting AB 2107’s language on subscriptions if the dealer and automaker groups can’t resolve their differences.
Alliance spokesman Bryan Goodman said his group is disappointed with the bill’s passage and is reviewing its options. Of particular concern is how the legislation treats reimbursement on vehicle warranty claims to dealers. It could significantly raise costs for automakers that would be passed on to consumers, according to the alliance.
“If this bill is signed by Gov. Brown, it will become the most unreasonable warranty reimbursement law in the nation,” Goodman said. “And that will impact manufacturers, dealers and consumers.”
Maas said the legislation will help make it easier for dealers to get retail reimbursement for warranty work. The retail labor rate annual increase would be capped at 10 percent.
Another key win for dealers, Maas said, is the expansion of the types of protests dealers could take to the New Motor Vehicle Board, including, for the first time, issues around performance standards. Dealers also would get a 10-year standstill on the frequency at which manufacturers could require dealers store renovations. That was reduced from a 15-year interval in the original bill.
A consumer advocacy group — Consumers for Auto Reliability and Safety, in Sacramento, Calif. — dropped its opposition to the bill after an amendment eliminated its concern about the scope of California’s New Motor Vehicle Board, which includes dealers, to overrule disciplinary actions against dealerships or automakers, Rosemary Shahan, the group’s president, told Automotive News.
Brown has until Sept. 30 to veto or sign the bill. If no action is taken, the bill takes effect Jan. 1, 2019.
“We're cautiously optimistic that he’ll view the bill favorably and sign it next month,” Maas said.