C IobalAutomakers 4
January
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29, 2014
The Honorable Steve Kirby
437B Legislative Building
P0 Box 40600
Olympia, WA 98504-0600
RE: Oppose House Bill
2524
Dear Chairman Kirby,
The Association of Global Automakers’ appreciates the chance to comment on House Bill 2524, a bill that would
amend certain aspects of Washington law with respect to the rights and obligations of dealers and manufacturers
distributing or selling cars in Washington. Our member companies have significant concerns with several
provisions of HB 2524, and we request this letter be made a part of the official committee record. We would
note that the business relationship between automobile manufacturers and dealers in
Washington State is one of the most regulated in the country.
Negotiations with the Washington State Auto Dealers Association (WADA) have occurred, and while we can
report that some progress has been made, there remains significant ground to cover before our membership can
adopt a neutral position on your legislation.
I.
Definitions:
In the definitions section of the legislation, our members have concerns with the potential for oral contracts, not
just written, being considered to be a franchise agreement under the Washington auto dealer fl’anchise statute.
Franchise agreements are complex documents generally entered into with advice of counsel. Including an oral
declaration as part of or encompassing a contract to be awarded the exclusive right to sell motor vehicles in the
name of a manufacturer is not appropriate. In addition, franchise agreements contain the express
rights and obligations of both parties, entered into freely by both the dealer and the
manufacturer, and implied agreements do not belong in this definition.
Our member companies also object to the definition of “dealer management computer system”. The definition
sought by WADA is far too broad and includes applications that are external to the hardware located in
dealerships such as Internet websites. Global Automakers would be willing to discuss a more narrow definition
that does not encompass such a wide breadth of potential applications having sales and customer data
information.
‘The Association of Global Automakers represents international motor vehicle manufacturers, original equipment
suppliers, and other automotive-related trade associations. Global Automakers works with industry leaders,
legislators, regulators, and other stakeholders in the United States to create public policies that improve motor
vehicle safety, encourage technological innovation and protect our planet. Our goal is to foster an open and
competitive automotive marketplace that encourages investment, job growth, and development of vehicles that
can enhance Americans’ quality of life. Our members’ share of sales and production in the United States is nearly
40 percent and growing. For more information, visit www.globalautomakers.org.
Association of Global Automakers, Inc.
1050
K Street, NW, Suite 6o ‘Washington, DC 20001
TEL 202.650.5555
GLOBALAUTOMAKERS.ORG
GlobalAutomakers
We also would question the inclusion of “second stage manufacturer” as a defined term in the franchise statute.
WADA has so far not given any indication why this new term should be added to law and what its potential
function would be.
II. Allocation:
In section 3 of the proposed bill, WADA seeks more restrictions on how automakers can judge the performance of
a dealership. In current Washington law, a dealer can be terminated for good cause if a manufacturer believes
there was a failure by the dealer to comply with a provision of the franchise agreement that is both reasonable and
of material significance. Additionally, current law also protects the dealers by stating that if an automakers seeks
to terminate a dealer based on performance, the automakers must: i) notify the dealer in writing, 2) the dealer
must be provided notice of a failure of performance, 3) the automakers had given the dealer specific, reasonable
goals with a timetable for attaining the goals and the dealer gets an opportunity to remedy their situation over a
statutorily mandated i8o days or more, and 4) the dealer ultimately did not substantially comply with these
performance standards even after being warned and economic factors were not the ultimate reason for the
dealer’s failure. These standards already are in place to protect the dealer against arbitrary action
by the manufacturer.
The dealers wish to add a new section of law stating that good cause for terminating a dealer does not exist if the
automaker failed to provide sufficient inventory and vehicle product mix. The current Washington franchise
law contains more than enough statutory protections to protect the dealer in the event the dealer
feels an unfair termination occurs. Additionally, it is mandated in statute that the manufacturer holds the
burden of establishing that any termination of a dealer was done with good cause and with good faith.
III. Audit:
Currently, Washington has a time frame of 12-months for manufacturers to “look back” by auditing a dealerships
incentive and warranty claims submitted to the manufacturer for payment. A time frame of less than 12-months
exceeds the resources for our members to review thousands of claims from around the United States.
Our members often have small auditing staffs that can pursue only the worst aggressors nationwide. A time frame
of 12-months is a fair time frame and places Washington’s auto dealer franchise law consistent with 41 other states
around the country. Furthermore, we believe the 9-month audit would not cover the entire span of some
incentive programs manufacturers’ offer. Several manufactures offer incentive programs of 1-year in length, with
payments sometimes structured on a semi-annual basis and based on the overall performance in the completed
program. We are not aware and have not been provided by WADA with any systemic reason why the current
statutory time frame of 12-months is no longer workable.
TV. Facilities:
This bill would also enact unprecedented restrictions on the ability of a manufacturer to ensure its dealerships
reflect reasonable brand image and appearance standards. While Global Automakers member companies do not
require dealers to renovate or otherwise alter a dealership, there are image standards established to ensure
uniformity and a common experience among consumers. The language in HB 2524 would enable the dealer to
sidestep any dealership image program for a 15 year period, a time frame found in only one other state in the
country. This significant length of time ignores image changes a manufacturer may make periodically to improve
its reputation and sales appeal to customers, benefiting both dealers and manufacturers. Global Automakers
GLobaLAutomakers
0
has offered a 7-year time frame that several states, including Oregon just this past year, have
adopted as a fair compromise.
House Bill 2524 would also mandate that a manufacturer cannot require a dealer to purchase goods/services from
a specific manufacturer-designated vendor without affording the dealer an option to obtain goods or services of a
“like kind and quality” from a dealer-selected vendor. Our members can understand the desire to have goods and
services obtained locally when possible; however this should be a collaborative process and not one that
is imposed on the manufacturer whenever the dealer does not wish to use a manufacturer vendor.
There is also little guidance in the language as to what constitutes “like kind and quality” goods or services and no
protest opportunity for the manufacturer to identify goods or services that do not meet specifications. We can
understand why WADA seeks flexibility, but signage and trademark bearing materials should not
be included in any measure of “substantially similar”. We would be happy to share with your office and
the committee alternative language that has been adopted in other states, including Oregon, which met with
dealer approval.
V. Customer Data Protection
Autornakers and dealers routinely share information related to customers seeking to purchase motor vehicles or
who have purchased or had a vehicle serviced at a particular dealership. We believe it is important to ensure that
customer data is retained appropriately and not used in any illegal or unethical fashion. However, HB 2524 goes
far beyond that in prohibiting the manufacturer from accessing information that rightly should be shared. For
example, customer lists and service files are necessary at times for manufacturers to validate vehicle sales.
Another reason for manufacturers to access data is to ensure that incentive payments paid to the dealer are valid.
In addition, manufacturers use this type of information to support claims filed by the dealer for warranty work
and repairs.
We have shared with WADA language that we believe would satisfy their concerns about manufacturer usage of
customer data as well as provide the automaker with reasonable access to relevant information. We are happy to
share this language with the committee.
VI. Retroactive Application of Law
This legislation would have the current Washington auto dealer franchise law and any future changes apply to ll
existing contracts between automobile manufacturers and dealers regardless of when the agreement was adopted.
There is a long and storied history in states disfavoring retrospective application of laws. The framers of the U.S.
Constitution felt strongly enough about the sanctity of existing contracts to specifically prohibit states from
enacting any law that retroactively impairs existing contract rights.2
For the aforementioned reasons, Global Automakers must adopt an OPPOSE position on HB 2524
at this juncture. We remain hopeful that further discussions can be held with WADA and more common
ground can be found. Should you have any questions, please do not hesitate to contact our representative in
Olympia, Trent House (trenttrentmhoiise.c) or myself at gfrvglobalautomakers.org.
Sincerely,
2
U.S. Const. art. I,
§10
cl.
1.
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GlobatAutomakers 4j
S cerely,
ordon Fry
Director of State Relations