HOUSE BILL ANALYSIS

                     HB 2529

Brief Description:  Prohibiting unfair competition by motor vehicle dealers and manufacturers.

Sponsors:  Representatives Clements and Hurst

Hearing:  January 27, 2000

                 Brief Summary of Bill

$Prohibits manufacturers, or their agents, from discriminating between new auto dealerships.

CProhibits the sale of new autos through any other method than through a franchised dealership.

CProhibits the ownership, operation or control of new auto dealerships and service facilities by manufacturers, or their agents.

BACKGROUND:

Changes in The Auto Industry

Late last year, press articles reported that the General Motors Corporation planned to buy 5-10 percent of its dealerships and operate them itself.  Other reports described Ford=s experimentation with buying stakes in dealerships in several cities.

At the same time, the press has reported that some auto manufacturers are linking with Internet companies to direct buyers to dealerships, or even to allow cars to be sold directly on-line.  Reverse relationships are also occurring.  Internet companies are buying dealerships to use as distribution centers for cars that can be sold on-line.

Relevant Law

Auto manufacturers maintain a franchise relationship with their dealers.  This relationship is governed by state law in several respects.  Generally, the law dictates when a manufacturer may refuse to sell a franchise, when it may add or relocate a franchise within an area, and when terminating, canceling, or not renewing  a dealer=s franchise is improper.

More specifically, a manufacturer must provide notice to other area dealers whenever it intends to relocate or add a new franchise to the area.  If an area franchise protests the action, the manufacturer has the burden of proof to show to an administrative judge or arbitrator that the relocation or expansion is for good cause.

Similarly, a manufacturer may not terminate, cancel, or not renew a franchise without providing notice.  If the dealer requests, the action may be reviewed by an administrative judge to determine if the manufacture had good cause and acted in good faith.

Auto manufacturers and dealers must also be licensed to operate in Washington.

Federal law requires auto manufacturers to act in good faith in performing or complying with any of the terms of a franchise agreement with a dealer.   All businesses are prohibited from discriminating in price between different purchasers and selling at unreasonably low prices for the purpose of eliminating competitors.

SUMMARY OF BILL:

The ability of manufacturers, distributors, factory branch, factory representative, or agents of these entities to conduct retail sales of new vehicles in Washington is restricted. 

These entities may not discriminate between new motor vehicle dealers by the following means:

CSelling like vehicles at a lower actual price than sold or offered to another dealer.

CSelling parts or accessories at a lower actual price than sold or offered to another dealer.

CUsing a promotional plan that results in one dealer being charged a lower actual price for vehicles, parts, or accessories than another dealer.

CUnfairly delivering, scheduling, or allocating vehicles.

CFailing or refusing to deliver new vehicles, parts, or accessories in a reasonable time and reasonable quantity when they are delivered to other dealers.

CRequiring a dealer to purchase unreasonable advertising displays or other material.

CRequiring a dealer to remodel or renovate facilities in order to receive vehicle models.

These entities may discriminate as to price, however, when vehicles are being resold to a government or a driver=s education program.

These entities are also prohibited from selling a new vehicle to a consumer by any method other  than through a franchised dealership.

They are also prohibited from owning, operating, controlling, or acting in the capacity of a retail dealership or a service facility.

Exceptions are made for the following ownership or operating relationships:

CTruck manufacturers owning or operating truck dealerships if they have been continuously selling trucks since 1993.

CTemporary ownership of a dealership, for less than a year, while the dealership is being offered for sale to any qualified independent buyer at a reasonable price.

CDealer development programs.  These programs allow an independent person to make initial capital outlays and then slowly acquire the dealership, according to reasonable terms, over no longer than five years.

CManufacturer ownership of less than 45 percent of a dealership that sells only vehicles of the manufacturer=s line and has been continuously engaged in selling vehicles through the dealership since 1993.

COwnership or control of a service facility providing maintenance or service work on vehicles owned by the manufacturer, distributor, factory branch, or factory representative.

AControl@ is generally defined as having title or control of at least 10 percent of the voting stock, or the power to direct the management or policies of a dealership.

AOwnership@ is generally defined as holding at least 1 percent of any class of stock of a dealership.

Upon the request of a dealer, these entities must disclose their method for allocating, delivering, or scheduling vehicles, parts, and accessories to dealers handling the same line or make.

Violations of these prohibitions subject the violator to the Consumer Protection Act.

RULES AUTHORITY:  The bill does not contain provisions addressing the rule making powers of an agency.

FISCAL NOTE:  Not requested.

EFFECTIVE DATE:  Ninety days after adjournment of a session in which bill is passed.