BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
                              Senator Jim Beall, Chair
                                2015 - 2016  Regular 

          Bill No:          AB 1178           Hearing Date:     7/7/2015
           ----------------------------------------------------------------- 
          |Author:   |Achadjian                                             |
          |----------+------------------------------------------------------|
          |Version:  |6/23/2015                                             |
           ----------------------------------------------------------------- 
           ----------------------------------------------------------------- 
          |Urgency:  |No                     |Fiscal:      |Yes             |
           ----------------------------------------------------------------- 
           ----------------------------------------------------------------- 
          |Consultant|Randy Chinn                                           |
          |:         |                                                      |
           ----------------------------------------------------------------- 
          

          SUBJECT:  Vehicles:  manufacturers and distributors


            DIGEST:  This bill provides that an automobile manufacturer may  
          take an adverse action against a dealer pursuant to export  
          prohibitions only if the manufacturer has provided the dealer  
          with the export policy and a known exporter list in writing at  
          least 48 hours before the vehicle is sold to a known exporter.  

          ANALYSIS:
          
          Many aspects of the relationship between automobile  
          manufacturers and dealers are regulated in state law.  In 2013,  
          the Legislature passed SB 155 (Padilla, Chapter 512) which  
          revised many aspects of those regulations, including provisions  
          dealing with export prohibitions by dealers.

          Existing law restricts an automobile manufacturer from taking  
          any adverse action against a dealer pursuant to export  
          prohibitions unless the export prohibition policy was provided  
          to the dealer in writing prior to the sale, and the dealer knew  
          or reasonably should have known of the customer's intent to  
          export the vehicle in violation of the prohibition.  If the  
          dealer causes the vehicle to be registered in California or any  
          other state and causes to be collected any applicable sales or  
          use tax, a rebuttable presumption is established that the dealer  
          did not have reason to know of the customer's intent to export  
          or resell the vehicle.

          This bill replaces the known or should-have-known construct with  








          AB 1178 (Achadjian)                                   PageB of?
          
          a more specific standard:

          1)The manufacturer may not take an adverse action against a deal  
            if the dealer causes the vehicle to be registered in any state  
            and collects any applicable sales tax.

          2)Notwithstanding the above, a manufacturer may take an adverse  
            action if the dealer sells the car to a known exporter, and  
            the manufacturer had provided to the dealer in writing its  
            export prohibition policies and a list of known exporters at  
            least five days prior to the sale.

          COMMENTS:
          
          Purpose of bill.  According to the author, this bill is  
          necessary because an automobile manufacturer is ignoring a  
          recently passed law dealing with automobile exports.  That law  
          established a rebuttable presumption that a dealer did not know  
          or should not have known that an automobile was being exported  
          if the dealer caused the vehicle to be registered and sales  
          taxes were paid.  Effective November 2014, the policy of this  
          manufacturer is to punish a dealer if a specified number of its  
          sales are exported, a clear violation of California's law  
          according to the author.  This bill strengthens and clarifies  
          California law.

          Opponents' arguments.  Opponents argue that this bill upends a  
          recent agreement which establishes a rebuttable presumption that  
          the sale was legitimate provided the car was registered and the  
          taxes paid.  Only if the dealer knew or should have known that  
          the purchaser was planning to sell the vehicle overseas would  
          there be an effect on the dealer.  While one automobile  
          manufacturer has allegedly established a new policy which is  
          contrary to California law, that policy has not been implemented  
          and is nevertheless not a reason to change a finely balanced law  
          which the Legislature so recently enacted.

          It's still not legal.  If an automobile dealer believes that a  
          manufacturer is violating California's automobile export law, as  
          California dealers believe one manufacturer is doing, the New  
          Motor Vehicle Board is the venue for sorting that out.  Creating  
          a new, more stringent law may punish all manufacturers for the  
          (alleged) sins of one, and may simply create just another law  
          for the manufacturer to ignore.  










          AB 1178 (Achadjian)                                   PageC of?
          
          Good for the dealer, good for California.  The state has a clear  
          interest in increasing in-state vehicle sales, as this generates  
          sales tax revenue and profits for California dealers.  This may  
          conflict with the interests of automobile manufacturers who have  
          an interest in segmenting their markets and maximizing profits  
          in each.

          Trying, and failing, to crack down.  Buying luxury cars in the  
          United States and exporting them to countries like China can be  
          lucrative, as automobile manufacturers price their cars much  
          more expensively overseas, according to two recent articles in  
          Autoweek<1> and the Financial Times<2>.  Some manufacturers have  
          responded by charging auto dealers and threatening future  
          vehicle allocations, according to the articles.  The federal  
          government has also been investigating whether such exports may  
          be illegal, but in its first case against an alleged illegal  
          exporter, a judge in Ohio ruled that the federal government had  
          failed to make its case.<3>  A more recent report notes that at  
          least a dozen other similar cases have been dropped by federal  
          authorities.<4>

          Double referred.  This bill has also been referred to the Senate  
          Judiciary Committee.

          Related Legislation:
          
          SB 155 (Padilla, Chapter 512, Statutes of 2013) - this bill  
          revised many aspects of the legal framework governing the  
          relationship between automobile manufacturers and dealers,  
          including export policies.

          Assembly Votes:

            Floor:    80-0
            Appr:     17-0
            Trans:    16-0
          
          ---------------------------
          <1>"Exporting New Luxury Cars Is Lucrative, Legally  
          Questionable," Autoweek; July 22, 2014.
          <2> "Carmakers Face Fresh China Import Threat," Financial Times;  
          January 18, 2015.
          <3> "U.S. Ordered to Return Assets Held in Crackdown of Luxury  
          Cars Exported to China," New York Times, April 3, 2014.
          <4> "Prosecutors Ease Crackdown on Buyers of China-Bound Luxury  
          Cars," New York Times, April 1, 2015.








          AB 1178 (Achadjian)                                   PageD of?
          
          FISCAL EFFECT:  Appropriation:  No    Fiscal Com.:  Yes     
          Local:  Yes


            POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,
                          July 1, 2015.)
          
            SUPPORT:  

          California Motorcycle Dealers Association
          California New Car Dealers Association

          OPPOSITION:

          Global Automakers
          Honda North America, Inc.


                                      -- END --