Analysis

Topic: Vehicle Manufacturer/Dealer Relationship
Sponsor: Representative Alley

Position: The Department of Consumer and Industry Services did not take a position on the bill. It does not affect the department. It affects the Department of State.

Background: For years there has been concern about the nature of the relationship between automobile manufacturers and dealers. In the past, attempts have been made to come to some sort of statutory agreement between the two parties. These attempts resulted in the passage of various legislation such as Public Act 331 of 1978, which defined ‘fair dealing' as it pertained to agreements between auto manufacturers and dealers, and it's replacement, Public Act 118 of 1981. Public Act 118 expanded many of the original provisions, especially those concerning what constituted ‘good cause' for termination of agreements between manufacturers and dealers. It is now asserted by many dealers that this statute no longer adequately protects dealers from the manufacturers who seem to have the upper hand in bargaining. There has been a recent move to consolidate dealerships into manufacturer-owned "mega dealerships" in an effort to better serve consumers. This is a concern to many dealers who own and operate smaller family dealership businesses.

Meanwhile, automobile sales are undergoing great changes. Many consumers are uncomfortable with the traditional method of buying an automobile in which they have to bargain with a sales person who is typically better at it than they are. This has led to an increase in the number of dealerships offering "one price". Consumers have also gravitated to brokers and the Internet for help in buying an automobile. From a manufacturer's standpoint there are concerns that there are too many dealerships in certain areas. The emergence of the "mega-dealers" in many areas is a response not only to consumer concerns but a recognition that the dynamics of automobile retailing has changed. Ford Motor Company has made progress in consolidating dealerships in Salt Lake City, San Diego and Tulsa.

Description of the Bill: This bill would amend sections 2, 3, 5, 13, and 14 of Public Act 118 of 1981, especially the sections dealing with what the manufacturers cannot do and what the manufacturers cannot require the dealers to do. A manufacturer cannot make a dealer participate monetarily in any advertising campaign or contest or purchase any promotional materials such as display devices. This bill would also ensure that a dealer did not have to pay any part of the cost of a refund or rebate made by the manufacturer or distributor, unless they voluntarily agreed to. The bill would also ensure that any dealer agreement made would be governed solely by the laws of Michigan. However, this doesn't prevent the involved parties from agreeing to conduct arbitration of a dispute at a location outside the state.

This bill would include distributors in the definition of "new vehicle distributor". It would also forbid a manufacturer, importer or distributor from requiring dealer financial participation in incentive programs. Dealers could participate voluntarily, however. Any provision in a dealer/manufacturer agreement requiring that disputes be referred to another jurisdiction or to arbitration would be null and void. However, the dealer and the manufacturer could agree to do so at the time of the controversy.

In addition, a manufacturer, importer or distributor would be prohibited from implementing any vehicle allocation plan that would be considered "arbitrary or capricious". In addition, information would have to be disclosed pertaining to how vehicles of the same make were distributed throughout the state and upon what basis these decisions were made. The bill would also prohibit manufacturers from refusing to deliver to any dealer with whom they have a contract any advertised vehicles.. The only exceptions to this would be delay of delivery due to an act of God, a work stoppage or delay due to a strike or labor difficulty, a shortage of materials, lack of manufacturing capacity, a freight embargo, or any other cause over which the manufacturer or distributor has no control. If a dealer would be required to purchase any essential service tools worth over $7,500, the manufacturer must provide the dealer a good faith estimate of the number of cars of that specific model which will be allocated to the dealer within the year that the tool was required to be purchased.

Finally, a manufacturer would be prohibited from objecting to a change in dealership executive management unless the manufacturer could prove that the individual was not ‘of good moral character' or didn't meet the equitable, preexisting standards of the manufacturer. In this case, the manufacturer would have the burden of proof. Upon notification of the intended change of dealership management, the manufacturer would have 60 days to notify the dealer of his discontent. After that, if no written notice has been given, the changes would be considered approved.

This bill is tie barred to House Bill 4738. Originally, there was a double tie bar, but the tie bar in House Bill 4738 was deleted.

Arguments :
Pro: This bill is a necessary shield of protection for automobile dealers who are facing a rapidly changing market. Dealers require additional help in their negotiations with the more powerful manufacturers. Many dealerships in Michigan are small, rural, family owned businesses that have been passed down for generations. When these dealerships are hurt, it in turn hurts the entire region that depends on them economically. With more and more manufacturers looking into the alternative of creating factory owned "megastores", the threat to these smaller dealers is all the more real.

The bill is a compromise. Many of the most controversial provisions have been removed from the bill. It reflects an admission by the manufacturers that the law needs some adjustment and a realization by the dealers that they are not going to get all of what they wanted in the face of opposition from the manufacturers.

The bill should have no effect on consumers. Although automobile retailing is changing slowly in some areas, major changes are coming. Consumers will continue to seek more consumer-friendly automobile purchasing options with their feet and modems. Manufacturers like Ford will continue to do what they have to do to maintain the most efficient and effective distribution network.

Con: It is not the government's place to champion the rights of dealership owners. Like any other industry, dealers must face the consequences of the changing face of the free market. There is no reason why dealers should be singled out and shielded from the discipline of the market place.

The bill is decidedly anti-consumer. The bill will effectively diminish healthy competition between dealers, thereby driving the prices of cars up and the quality of service down.

Supporters/Opponents: The bill was initially introduced on behalf of the Michigan Automobile Dealers Association. The Michigan Manufacturers Association supported earlier versions of the bill. Likewise, the Michigan Consumer Federation had no position on the bill. After opposing the original House bill, the American Automobile Manufacturing Association is reportedly neutral.

Fiscal Information: The bill would have no fiscal impact on State or local government.