California Gov. Jerry Brown, in a surprise move, vetoed a wide-ranging bill backed by the California New Car Dealers Association over his concerns regarding a formula automakers would have had to use to pay dealers for warranty and recall repairs.
The decision late Sunday was unexpected by the association, which said AB 2107 would have strengthened laws for franchised dealerships, because the legislation passed unanimously, said Brian Maas, president of the dealers association representing 1,300 franchised new-car dealerships in the state. But the Alliance of Automobile Manufacturers, a trade association representing a dozen automakers, had said measures in the bill would hurt automakers and consumers.
In a letter to the members of the California State Assembly, Brown wrote: "This bill modifies the statutory framework governing the relationship between new car dealers and manufacturers, including establishing a complex formula to determine the rate manufacturers will reimburse for warranty and recall repairs. Under current law, manufacturers are required to reimburse dealers for warranty and recall repairs at a 'reasonable' rate negotiated between the two parties. This framework appears to be working reasonably well and I see no reason to adopt the rather complicated formula authorized in this bill -- with perhaps unintended consequences."
The alliance confirmed it met with the governor's office once to discuss the bill.
“AB 2107 was a sweeping piece of legislation that would have drastically increased the cost of doing business in California and those costs would have been felt by California consumers,” the alliance said in an emailed statement Monday. “The additional costs sought to supplant the current procedures in place to ensure that warranty work is adequately compensated and consumer prices stay reasonable.
"We applaud Gov. Brown for vetoing this bill.”
Alliance spokesman Bryan Goodman previously told Automotive News that the alliance was particularly concerned about the reimbursement piece involving vehicle warranty claims. The alliance said changes could significantly raise costs for automakers, which would be passed on to consumers.
"If this bill is signed by Gov. Brown, it will become the most unreasonable warranty reimbursement law in the nation," Goodman said then. "And that will impact manufacturers, dealers and consumers."
Brown, a Democrat, is term-limited and a new governor will be elected in California in November.
Maas told Automotive News that the association is surprised and disappointed by Brown's veto, though he respects his authority to make his own decision. The association had lobbied for the bill since early this year.
"The fight continues and I think it's highly likely we'll introduce this bill or a version of this bill in the next legislative session," Maas said of the session that begins in December.
Maas said the reimbursement formula is similar to what other states have established and the association disagrees with Brown's conclusion that the framework is working.
"We don't think the dealers are getting paid anything close to retail," he said.
Now, if dealers don't agree with rate they are paid by a manufacturer they have to file a protest to the state's New Motor Vehicle Board, Maas said.
Maas said the association is willing to negotiate with the automakers over the reimbursement piece at any time.
"So far as we know, only one person didn't like it other than the manufacturers themselves," Maas said. "Unfortunately for us, it was the one person who mattered the most."
The bill also included a number of provisions that would have addressed what dealers called "inappropriate treatment of dealers by manufacturers." It also would have bolstered requirements around facility mandates and for the first time allow dealers to protest issues around performance standards with the New Motor Vehicle Board. Dealers also would have had a 10-year standstill on the frequency at which manufacturers could require dealership renovations.
Some measures such as a statewide ban against direct sales by automakers and a provision that would have prohibited automakers from offering subscription programs outside their dealer network were stripped or modified from legislation that was first proposed.
