TodayApril 15, 2022

California legislature to strengthen car dealer franchise laws

SACRAMENTO, CA – The California New Car Dealers Association, representing more than 1,150 new car dealers statewide, has achieved a significant milestone in its aggressive efforts to strengthen and update California’s new motor vehicle franchise laws.

In the final hours of the 2018 legislative session, AB 2107, authored by Assemblymember Eloise Reyes (D-San Bernardino), received unanimous bipartisan support, with a final vote of 77 – 0, closing out the session without a single no vote. AB 2107 contains many provisions that will improve California’s franchise laws while continuing to protect the California franchise system, California new car buyers, and local businesses. Critical components of the bill include:

Strengthening California’s franchise laws

1. Addressing inappropriate treatment of dealers by manufacturers.

2. Enforcing manufacturer accountability for unlawful actions against dealers.

Conforming California franchise laws to recent actions in other states

“Thanks to the stewardship of Assemblymember Reyes, the passage of AB 2107 is a huge victory for all Californians, local businesses, and consumers alike. If signed by the Governor, the passage of this bill brings California’s new motor vehicle franchise laws further into the 21st century by establishing a level playing field between local independently-owned dealerships and multinational vehicle manufacturers,” said California New Car Dealers Association President, Brian Maas.

“Franchise laws exist to govern the relationship between dealers and manufacturers, and California was overdue for significant improvements in the laws that will continue to protect dealers, their businesses, and their customers. We are pleased and encouraged that the California State Legislature unanimously agrees and supports our approach to improvements in California’s franchise laws.”

Retail reimbursement of warranty

Existing law states that dealers should be reasonably compensated for warranty work and customer retail pay should be included. AB 2107:

* Clarifies reasonableness and establishes a process for how a dealer can demonstrate the retail rates for parts and labor and be reimbursed at those retail rates for warranty work.

* Defines how the factory can respond to a request for retail rates including notification guidelines and timeline.

* Establishes protections for dealers pursuing this newly established retail reimbursement on warranty process from adverse actions and penalties from the manufacturer including assessing surcharges, limiting vehicle or parts allocations, and conducting retaliatory audits.

New dealer protest authority at the new motor vehicle board

The New Motor Vehicle Board has limited authority to hear only certain types of protests from a dealer – franchise terminations, additional dealership locations, and warranty reimbursement claims.
AB 2107:

* Expands the types of protests that a dealer can file at the Board, including performance standards of incentive programs.

California Ten-year facility upgrade standard

Presently, California only requires a dealer to upgrade their facility if the requirement is reasonable in light of existing circumstances, including economic conditions and advancements in vehicular technology.
AB 2107:

* Adds a new standard that a required facility upgrade is not reasonable if the dealer has modified their facility in the last ten years. Unless facility improvements are necessary to the sale and service of ZEVs, compliance with health and safety laws, or specialized equipment to repair vehicles.

* Expands the definition of a facility to include all structures and signs on the dealership.

Association protest ability at the new motor vehicle board

Following CNCDA’s last franchise bill, the Association was granted the authority to bring a protest against an automaker’s export and sale-for-resale policies. CNCDA filed a protest against Jaguar Land Rover and won.
AB 2107:

* Extends this protest authority beyond 2019, which is when this authority is set to end, to 2024.

* Clarifies the definition of adverse actions often threaten or taken by manufacturers in response
to questions raised by the NMVB.

* Deters against future egregious export and sale-for-resale policies by the manufacturers.

Addressing brand spin-offs and affiliates

When a manufacturer is allowed to spin-off a new line-make of an existing product or alleges that a new vehicle model can be sold directly by the manufacturer’s affiliate solely to exclude dealers who previously sold those same vehicles, California’s franchise laws are undermined.
AB 2107:

* Restricts the manufacturer’s ability to force dealers to repair a vehicle that the dealer is not allowed to sell or lease.

* Clarifies what affiliates mean under the Vehicle Code to ensure all factory affiliates are captured.

Non-factory service contracts

California allows dealers to sell ancillary products – like service contracts or debt cancellation agreements – to customers free of any penalty from the manufacturer for not selling the manufacturer’s approved or endorsed product.
AB 2107:

* Clarifies that treating dealers differently when providing access to financing because the dealer sold a non-approved product is prohibited.

* Preserves the existing statutory disclosure that dealers must give to customers when selling an ancillary product that is not approved or endorsed by the manufacturer

Indemnification of dealers

While manufacturers indemnify their dealers for causes that result in the dealers being sued, manufacturers and their affiliates are increasingly requiring dealers to indemnify them for actions that the dealers are forced to perform.
AB 2107:

* Prohibits requiring a dealer to indemnify the manufacturer or affiliate for any program or requirement imposed on the dealer.

E.V. sales forecast - California will lead
E.V. sales forecast – California will lead

Digital service vendors

Increasingly manufacturers are limiting the types of vendors dealers can select to use for websites, dealer management systems, and other digital services.
AB 2107:

* Restricts the manufacturer’s ability to select specific vendors for a dealer’s digital services including websites, data management systems, and advertising.

* Allows a dealer to select their own digital service vendors, with manufacturer approval.

Other California franchise law changes

AB 2107 has several other provisions that seek to balance the inequities on dealers.
AB 2107:

* Eliminates the ability of the manufacturer to limit dealer access to new vehicles, parts, and accessories to only a select few dealers in California.

* Prevents the manufacturer from restricting or discouraging dealers from checking about the eligibility of customer service bulletins and campaigns.

Lou Ann Hammond

Lou Ann Hammond is the CEO of Carlist and Driving the Nation. She is the co-host of Real Wheels Washington Post carchat every Friday morning and is the Automotive, energy correspondent for The John Batchelor Show and a Contributor to Automotive Electronics magazine headquartered in Korea. Hammond is a founding member of the Women's World Car of the Year #WWCOTY, and board member of the Women in Automotive.

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