Senate Committee on Business, Labor and Technology (03/29/2011)

Final
STAFF SUMMARY OF MEETING

SENATE COMMITTEE ON BUSINESS, LABOR AND TECHNOLOGY

Date:	03/29/2011	ATTENDANCE

Time:	09:59 AM to 11:58 AM	Harvey	E*
		Jahn	E*
Place:	SCR 354	Mitchell	X
		White	X
This Meeting was called to order by		Williams S.	X
	Senator Tochtrop	Aguilar	X
		Tochtrop	X
This Report was prepared by
	Kristen Johnson
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
HB11-1188		Witness Testimony and/or Committee Discussion Only

10:00 AM -- House Bill 11-1188

Senator Newell, sponsor of House Bill 11-1188, presented her bill to the committee. The bill affects franchise agreements between motor vehicle and powersports vehicle manufacturers and distributors, and their Colorado dealers. Specifically, the bill:

requires a manufacturer or distributor to notify a dealer at least 90 days before ending a franchise agreement or modifying a franchise agreement if the modification is detrimental to the dealer; and
prohibits a manufacturer or distributor from requiring, coercing, or attempting to coerce a dealer to substantially alter a facility or premises if the facility or premises has been altered within the last 10 years at the manufacturer's or distributor's request and the upgrade costs more than $250,000 for a motor vehicle dealer or $100,000 for a powersports dealer. An exception is made for improvements made to comply with health or safety laws or to accommodate the technology requirements necessary to sell or service a line make.

Upon receiving a complaint and upon a showing of specific facts that a violation has occurred, the Executive Director of the Department of Revenue shall issue a cease-and-desist order staying the termination, elimination, modification, or non-renewal of the franchise agreement. The bill also voids a site control provision of a franchise agreement if a manufacturer, distributor, or manufacturer representative terminates, eliminates, or does not renew the agreement unless the action was for just cause. The dealer may void a modification to a franchise agreement if the manufacturer or distributor fails to provide the required notice.

Senator Newell distributed copies of amendment L.048 (Attachment A), amendment L.051 (Attachment B), and amendment L.052 (Attachment C) to the members of the committee.

The following persons testified:

10:06 AM -- Jeff Perry, State Government Relations Manager, General Motors, expressed opposition to the bill. Mr. Perry stated that the bill sweeps all agreements made between the manufacturer and dealer under the franchise agreement provisions, even when it is a financial, property use, or other type of agreement. He stated that he is also concerned with the 90 day notice of termination provision included in the bill and feels that this notice should be set at approximately 30 days. He added that the retroactive language of the bill is concerning. Senator Jahn asked about property use agreements between the manufacturer and dealer. Mr. Perry stated that the property use contract still stands even if the dealer goes out of business and that, in most cases, if the manufacturer is keeping the property use agreement, the manufacturer intends to use the land for some purpose in the future. Senator Aguilar asked about time limits on property use contacts. Mr. Perry stated there is usually a time limit included as part of the property use agreement. Senator Harvey asked Mr. Perry to explain why he believes that the notice period should be limited to 90 days' notice. Mr. Perry stated that if the manufacturer were to wait 90 days, it becomes difficult to respond to market indicators and can effect marketing and the manufacturers' ability to respond to market fluctuations. Senator Aguilar asked about the appeals process. Mr. Perry stated that nothing in the bill states when an appeal hearing should take place and that the process might carry on forever if the dealer chose to appeal the termination.

10:24 AM -- Laura Dooley, Auto Alliance, expressed opposition to the bill. Ms. Dooley noted several concerns with the bill including: the definition of a sales, service, and parts agreement provided in the bill; the limits the bill places on facility improvements and how this will effect the brands' image; and the ability of manufacturers and dealers to enter into voluntary agreements. She stated that it is appropriate for the manufacturer, who may have spent several million dollars in research and in marketing the brand, to expect dealers to make upgrades to their facilities. Senator Harvey commented that manufacturers are working to change laws at the federal level and that dealers are working at the local level to protect themselves from manufacturers. Senator Harvey gave the example of a Volkswagen dealership in his district that put millions of dollars into their facility to renovate and then soon after received new orders for facility changes from the manufacturer. Senator Williams asked about the differences between this bill and those that have been seen across the nation. Ms. Dooley stated that the major difference is the facility improvement language that is included in Colorado's bill. Ms. Dooley added that sometimes incentives are given by the manufacturer to the dealer to make the upgrades.

Senator Jahn asked how much notice is given for termination currently. Mr. Perry responded that he believes that 90 days notice is given, but that may vary between states. Senator Harvey asked what amount of time was provided for notice of termination to those dealers effected by General Motor's bankruptcy situation. Mr. Perry stated that over a year's notice was given.

10:40 AM -- Shawn McKenna, United Auto Workers, expressed opposition to the bill. Mr. McKenna described his experience working at a General Motors parts facility in Aurora. He stated that he is most concerned with the possibility of downsizing that this bill might create. He stated that General Motors is still a fragile company and that he is concerned that this bill might negatively affect the upswing that General Motors is experiencing. The committee discussed the marketing strategies and change in buying habits that are taking place in the new car industry.

10:53 AM -- Mike Feeley, Attorney, Brownstein Hyatt Farber Schreck, LLP, expressed support for the bill. Mr. Feeley stated that there are about 270 new car dealers throughout Colorado; that the average initial capital investment for a new car dealership is about $12 to $16 million; and that dealerships are very involved in their local community. He stated that the bill provides guidelines so that requirements from manufacturers are not abusive to dealers. Senator Harvey stated that he doesn't think that it is the government's role to be involved in contracts between private parties. Mr. Feeley responded that he doesn't believe the bill modifies the basic contractual elements, but provides guidance to these agreements. He added that the bill speaks to those situations where guidance is needed. Senator Mitchell asked if there should be room for other agreements, or if all agreements should be swept into the franchise agreement. Mr. Feeley stated that the bill provides guidance for what is placed in the sales, service, and parts agreement and that unless there is consideration of the other agreements, then it is all part of the basic contract. Senator Mitchell commented that the manufacturers should have reasons for not wanting to require too much, that it will drive up the prices on their vehicles. Mr. Feeley responded that the long term objective of both the manufacturer and the dealer is to make money and he does not believe that this bill interferes with the relationships, but that it addresses those circumstances when the relationship is not equitable.

11:13 AM -- Mike Dommermuth, an attorney representing new car dealers, expressed support for the bill. Mr. Dommermuth described his conversations with auto dealers in Colorado who have faced facility upgrade situations and stated that this bill will set limits on what can be required of dealers by manufacturers. He stated that dealers are afraid of retribution from manufacturers. Mr. Dommermuth distributed a handout to the members of the committee (Attachment D). He stated that brick and mortar facilities are becoming increasingly less important as consumers go on-line to research and make purchase decisions. He stated that he believes that manufacturers use facility upgrade demands as a way to weed out dealers and referenced a recent trend of manufacturers limiting the number of dealerships selling their brand. He stated that this practice is unfair to dealers who have already made a large investment and results in a loss of jobs, lost sales tax revenue, and lost employment tax revenue. He added that the margin on new car sales is very low and this is partly due to the internet and information which has increased consumers' negotiation power.

11:36 AM -- Dean Dowson, Empire Lakewood Nissan, expressed support for the bill. Mr. Dowson stated that new car sales for his dealership are not profitable and haven't been for a few years. He stated that his dealership makes money off of parts, used car sales, service, and financing. He stated that improvements to his facility are not supported by new car sales, but by other aspects of his business. He added that the playing field has changed a lot and dealers don't really stand a chance of protecting themselves from the manufacturers and that some of the demands from the manufacturer are making it hard to do business.

11:44 AM -- Jerry Abboud, Powersports Dealers Association of Colorado, expressed support for the bill. He stated that in the powersport industry, there is not a patterned way to deal with the visions of several manufacturers and that it is nearly impossible to anticipate what the manufacturer might want in a facility. He stated that amendment L.048 (Attachment A) addresses the concern as it relates to powersport dealers.

11:47 AM -- Richard Sox, Attorney, Bass Sox Mercer, expressed support for the bill. Mr. Sox stated that the legislative declaration demonstrates the General Assembly's intent to protect the automobile industry as a matter of public interest. He stated that the bill does not impose retroactivity. He stated that the intent of the bill is to wrap site agreements into the franchise agreement because manufacturers have been abusive of these agreements over the years and added that the bill applies the reasonableness of the franchise agreement to site agreements. He stated that the 90 day notice provision of the bill is important to dealers because a change in territory will effect the way the dealership's sales performance appears. The provision allows time for a study to be conducted to determine whether a certain census track should be followed in setting sales quotas.

11:57 AM

Senator Tochtrop stated that since the committee had not received the amendments to the bill prior to the meeting, she would lay the bill over to a future date for action only. This will give the members an opportunity to review the amendments.

11:58 AM

The committee recessed.