Dealer franchise legislation back on in California

Wide-ranging dealer franchise legislation is back on the table in the California State Assembly following last year's veto of a similar bill by then-Gov. Jerry Brown over concerns about a warranty reimbursement formula.

The California New Car Dealers Association is backing the new bill and says it will improve the state's vehicle franchise laws. The Alliance of Automobile Manufacturers, which opposed last year's legislation, still has concerns about the warranty reimbursement language in the new bill. AB 179 was introduced Wednesday by Assemblywoman Eloise Reyes, a Democrat from San Bernardino, who also introduced the AB 2107 bill in 2018.

The California dealer association calls the new bill "nearly identical" to the legislation that last year unanimously passed in both houses of the state Legislature, and Brian Maas, president of the association, said the warranty reimbursement language in the new bill is the same as it was in the last bill.

"We feel strongly that Governor Brown made a mistake by vetoing AB 2107 last year. He ignored similar franchise laws across the country, disregarded that the bill had the unanimous support of all legislators and suggested unspecified unintended consequences would follow the passage of AB 2107. He was wrong," Maas said in a statement. "The reintroduction of this bill, now AB 179, is a testament to the commitment of the author, Assembly member Reyes, and hundreds of franchised new car dealers across the state to continue to improve and strengthen laws that help both local businesses and consumers."

The proposed change would require manufacturers to pay dealerships for parts and labor “at rates not less than the franchisee’s retail labor rate and retail parts rate.” 

Maas has said the proposed reimbursement formula is similar to what other states have established and that he doesn’t believe dealers are getting paid close to retail.

Why it was vetoed

Brown's veto, which came as a surprise to many, centered on the formula automakers would have had to use to pay dealerships for warranty and recall repairs. Brown, a term-limited Democrat, left office Jan. 7 and was replaced by Gavin Newsom, also a Democrat.

In a letter to members of the California State Assembly, Brown at the time wrote that the bill modified the framework that governs 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 of Automobile Manufacturers, a trade association representing a dozen automakers, was opposed to last year's bill and said warranty reimbursement changes could significantly raise costs for automakers, which would be passed on to consumers.

Alliance spokesman Bryan Goodman said the automaker association still has "the same concerns with its language."

"We will be fully engaged as this bill moves forward," Goodman wrote in an email to Automotive News.

Little change

Maas said the only real change from last year's bill deals with the authority that an association, such as the California New Car Dealers Association, could have to challenge the legality of an export or sale-for-resale prohibition policies of automakers before the New Motor Vehicle Board.

That authority expired at the end of 2018, and AB 179 includes language to give associations that authority rather than extend the sunset as was proposed as part of AB 2107, Maas said.

AB 179, like AB 2107, also would bolster requirements around dealership facility mandates and for the first time allow dealers to protest issues around performance standards with the New Motor Vehicle Board. If the legislation is adopted, dealers would have a 10-year standstill on the frequency at which manufacturers could require dealership renovations.