SENATE BILL REPORT

EHB 1645

BYRepresentatives Walk, Prince, Zellinsky, Ballard, R. Fisher, R. Meyers and Chandler

Regulating the relationship between motor vehicle dealers and manufacturers.

House Committe on Transportation

Senate Committee on Transportation

Senate Hearing Date(s):March 20, 1989; March 29, 1989

Majority Report:  Do pass as amended.

      Signed by Senators Patterson, Chairman; von Reichbauer, Vice Chairman; Bender, Benitz, Hansen, McMullen, Murray, Sellar, Thorsness.

Senate Staff:Brad Lovaas (786-7307)

                  March 31, 1989

AS REPORTED BY COMMITTEE ON TRANSPORTATION, MARCH 29, 1989

BACKGROUND:

Washington State new car/truck franchisees assert that there exist inequities in the contractual relationships with their manufacturers.  Examples of these inequities include the manufacturers denying the right of:  (1) transferability (selling, transferring, or exchanging the dealership to a qualified person, the dealer chooses); and (2) survivorship (willing the dealership to a qualified person the dealer chooses).

The dealers also assert that the manufacturers' right to terminate a franchisee without proving good cause and acting in good faith allows the manufacturers to dictate all franchise provisions with no negotiations, which amounts to a take it or leave it contract or be terminated situation for the dealers.

The relevant market area provisions are mandated in 38 other states, but vary widely in their application.  While the relevant market (10 miles) area applies to other franchise provisions (i.e., you must sell so many cars in your relevant market area), it is generally applied to the siting of a new or relocation of an existing franchisee (15 miles in counties of 400,000 plus, and 30 miles in counties under 400,000 population, or an area described in the franchise agreement, whichever is greater).

The other provisions are mandated in at least 30 states with the termination, cancellation, or nonrenewal provision in place in 46 states.  The survivorship provision is in place in 30 states, and the transferability provisions are in place in 38 states.

SUMMARY:

Statutory definitions of "good faith" and "good cause" are established for determining if actions taken by the franchisee or manufacturer were justified.

Provisions are established for an administrative hearing on whether actions (termination, cancellation, nonrenewal or siting of a new dealership) taken by the manufacturer were justified.  The protesting party must put up security to cover the costs of the hearing.  A "stay" is provided on any action by the manufacturer until the hearing process is completed.  An appeal may be made to superior court, but following a superior court ruling, any stay shall be lifted.

Criteria of a qualified person for purposes of survivorship and transferability are set out.

Prior notification of the affected franchisee by the manufacturers for termination, cancellation, nonrenewal, or for locating of a new dealership within the franchisee "relevant market area" is required.

The question of "packing" is also addressed; for example, siting a new dealership of the same line of cars and trucks in between two existing dealerships, or placing a new same line dealership right across the street.

A "relevant market area" is established around franchisee dealerships.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested February 8, 1989

SUMMARY OF PROPOSED SENATE AMENDMENTS:

Language was added that when a dealership is transferred through the survivorship or assignability provisions to an unqualified person, that the manufacturer has the right to demand that a qualified, experienced manager be hired.

The relevant market area distances are reduced from 30 miles in counties of less than 400,000 population to 15 miles, and reduced from 15 miles in counties of more than 400,000 population to 10 miles.

The hearings in the case of a relevant market area protest are changed from an administrative law judge hearing to an arbitration process.  Any appeal to the arbitration process to the superior court shall be based solely on the character of the arbitrators and not on the finding of facts.  The stay is limited to 120 days instead of all the way through the appeal process.

The provisions of this legislation are applicable to all franchisees in effect at the time of legislation becoming law.

Senate Committee - Testified: Ron Clauden, G.M. dealer; Dick Boyles, Chev. dealer; Janet Cunningham, Auto Dealers; Janet Lim, attorney, Auto Dealers; Jim Boldt, Auto Dealers; Dennis Heathman, G.M.; Terry Brown, PACCAR; Jill McDonald, Ford Motor; Jim Diamond, Chrysler