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 --