SACRAMENTO, Calif. — When General Motors ordered its dealers last summer to use a new disclosure form when non-GM service contracts, parts, and accessories are sold to customers — and said that failure to do so would be a material breach of the automaker’s Dealer Sales and Service Agreement — Brian Maas of the California New Car Dealers Association (CNCDA) hinted to F&I and Showroom that it might be time to revisit the state’s franchise laws.

“This seems to be following a pattern from GM. I don’t know what’s going on in the Renaissance Center in Detroit,” he said last August, just after GM issued its new disclosure policy. “Why they’re announcing all these policies that seem to make the relationship with their dealers more difficult boggles my mind.”

This week, the CNCDA announced that new legislation aimed at strengthening dealer protections under the state’s franchise laws is set to go before the Assembly Transportation Committee on Monday, April 23, for its first committee hearing. A spokesperson for the association said GM’s actions last summer are just one of a number of examples of why passage of AB 2107 is needed.

“Restoring balance to the relationship between manufacturers and dealers is the chief purpose of AB 2107,” said dealer Taz Harvey, who serves as chairperson of the CNCDA. “The bill will also better enable new-car dealers to provide the vehicles consumers demand while improving the resolution of warranty, recall and repair issues.”

The legislation, championed by Assemblywoman Eloise Reyes (D-San Bernardino, Calif.), also seeks to adapt recent actions taken in other states. For instance, AB 2107 would extend the prohibition against automakers competing against their own dealers statewide. The bill specifically lists subscription services as an example, noting that such programs would be prohibited unless the automaker uses franchisees to operate them.

The bill also addresses brand spin-offs and affiliates, such as when a manufacturer spins off a new line of an existing product and claims that the new model can be sold directly to consumers by the manufacture’s affiliate. In such cases, the bill specifies that a dealer who sold a vehicle to a customer can continue to provide service, parts, and accessories for the vehicle as long as the dealer maintains the same franchise. It also restricts the manufacturer’s ability to force dealers to repair a vehicle they are not allowed to sell or lease.

Additionally, the bill adds further clarifications related to retail reimbursements on warranty work and customer retail pay; expands the types of protests dealers can file with the state’s New Motor Vehicle Board regarding manufacturer encroachment; would deem a facility upgrade requirement as unreasonable if the dealer modified his or her facility in the last 15 years; and builds upon existing law requiring that all performance standards be reasonable with a dealer’s demographics, market characteristics, allocation, local and state economic circumstances, and historical performance of the line-make. In all, the bill contains provisions addressing 10 specific areas of the franchised dealer-to-manufacturer relationship.

As for the sales of non-factory service contracts, the CNCDA’s Maas said last August that the state prohibits manufacturers from discriminating against a franchised dealer for selling F&I products not endorsed by the manufacturer. However, the statute does not prohibit a franchiser from requiring its dealers to disclose to customers whether or not a service contract is backed by the manufacturer. Under AB 2107, however, the existing statutory disclosure dealers are required to give to customers when a non-OEM endorsed F&I product is sold would be preserved, thereby prohibiting OEMs from instituting their own disclosure form as GM did last summer.

The bill also clarifies that treating dealers differently when providing financing or advancing money because the dealer sold a non-approved product is prohibited.

“California’s new motor vehicle franchise system was established to protect dealers and their customers from onerous and continuous manufacturer requirements,” Harvey stated in the association’s press release. “The CNCDA and our members statewide are eager to work together with the author and stakeholders on this bill and we are committed to achieving a stronger, more equitable new motor vehicle franchise system.”

See also "Industry Reacts to GM's Disclosure Policy"