Relates to automobile manufacturers and unfair practices by franchisors

Summary of provisions

Section 1 amends subdivision 5 of section 415 of the vehicle and traffic law by adding a new paragraph b-2 to clarify the extent of the interest that a franchisor, including a manufacturer or distributor and other listed entities, may have in an automobile dealer.

Section 2 makes several amendments to paragraph f of Subdivision 7 of section 415 of the vehicle and traffic law. The amendments to subpara- graphs (i) clarify the language of that subparagraph in accordance with the intent of the legislature in enacting section 6 of Chapter 490 of the Laws of 2008. This amendment makes clear that the prohibition on a manufacturer owning or controlling a motor vehicle franchise is not limited manufacturers owing dealerships of the same brand as those owned by their franchisees, but is a prohibition on any manufacturer, without regard to brand, and without regard to whether the manufacturer has agreements with independent franchisees.

To avoid any ambiguity about the extent of the section 2 prohibition, the amendment references not only franchisors, but also manufacturers, distributors, distributor branches and factory branches, all terms defined in section 462 of the vehicle and traffic law, and their subsid- iaries, affiliates or controlled entities. As clarified, subparagraph (i) prohibits the commissioner of motor vehicles from issuing a new motor vehicle dealer certificate to any manufacturer in which a franchi- sor has an interest, unless an applicable statutory exception applies.

Subparagraph (i) states the first of the exceptions, permitting the renewal of certain certificates issued prior to July 1, 2006.

Subparagraph (ii) restates exceptions in current law that has been stat- ed in section 463 of the vehicle and traffic law, including them now in section 415 to clarify that the exception is to be applied and enforced by the commissioner of motor vehicles.

Subparagraph (iii) adds a new exception, permitting the commissioner to renew the new motor vehicle dealer certificate to a franchisor, manufac- turer, etc. or its subsidiary, affiliate or controlled entity, provided the certificate was first issued prior to March 26, 2014, and the manufacturer, etc., produces only zero emission vehicles and has not transferred ownership to an unrelated entity.

Section 3 amends subdivision 1 of section 463 of the vehicle and traffic law by adding a new paragraph (e) to allow dealers to sell extended service contracts of their choice and not necessarily those offered by a franchisor.

Section 4 makes a technical change to paragraph (b) of subdivision 2 of section 463 of the vehicle and traffic law.

Section 5 amends paragraph (c) of subdivision 2 of section 463 of the vehicle and traffic law by adding new subparagraphs 2, 3 and 4 to prohibit franchisors from forcing dealers to perform repeated facility upgrades or rejecting materials or services that are chosen by dealers that are substantially similar to those required by franchisors for construction or upgrade projects.

Section 5 also adds a new subparagraph 5 under paragraph c of subdivi- sion 2 of section 463 that prohibits a franchisor from requiring a deal- er to operate dealership facilities that are exclusive to a particular line make, unless such a restriction is justified by current and reason- ably expected future economic conditions in the area of the dealership.

Section 5 also adds a new subparagraph 6 under paragraph (c) of subdivi- sion 2 of section 463 that would prohibit a franchisor from requiring a site control provision that would survive or continue after the termi- nation of a dealership if the termination is due to the discontinuation of the line-make.

Section 6 amends paragraph (o) of subdivision 2 of Section 463 of the vehicle and traffic law to require franchisors to repurchase signage and other items upon termination; reimbursement of facilities upgrades occurring within three years of a termination without cause; and reimbursement for liability on Dealer Management System contracts in the event of a termination.

Section 7 amends paragraph (z) of subdivision 2 of section 463 of the vehicle and traffic law to require notice prior to assessing charge- backs for exported vehicles.

Section 8 amends subparagraph 2 of paragraph (bb) of subdivision 2 of section 463 of the vehicle and traffic law to provide that the exception stated in that subparagraph is not available to a franchisor, manufac- turer, distributor or distributor branch that holds a new motor vehicle dealer certificate pursuant to section 415 (7)(f)(iii).

Section 9 amends subdivision 2 of section 463 of the vehicle and traffic law is amended by adding a new paragraph (ii) to require franchisors to give credit to dealers, for inventory allocation purposes, for sales of new motor vehicles to persons from areas outside a franchisees assigned sales territory.

Section 9 also adds new paragraphs (jj) and (kk) to subdivision 2 of section 463 of the vehicle and traffic law to require fair vehicle allo-

cations, disclosure, upon request, to dealers of the franchisor's vehi- cle allocation methodology and the actual allocations to individual dealers.

Section 10 amends subdivision 1 of section 465 of the vehicle and traf- fic law to address issues that arose with the warranty reimbursement provision of the law since its amendment in 2008.

Section 11 amends subdivisions 3 of section 465 of the vehicle and traf- fic law to require franchisors to provide dealers with either a system or a process that provides a franchised motor vehicle dealer particular- ized information where the dealer may have been making errors in warran- ty and sales submissions if the franchisor intends to audit the same.

Also amends subdivisions 4, 6 and 7 of section 465 of the vehicle and traffic law to include sales and marketing payments into existing chargeback protections.

Section 12 provides that if any provision of the bill is determined to be invalid that such determination shall not invalidate the remainder of the bill.

Justification

In 1983, the state Legislature passed the Franchised Motor Vehicle Deal- er Act (Chapter 815). In passing the Act, the Legislature found that the distribution of motor vehicles within the state vitally affects its general economy and therefore it is necessary to regulate motor vehicle manufacturers, distributors and factory or distributor representatives.

The Act has been amended several times since 1983, including comprehen- sive amendments in 2008. The provisions of this bill are necessary to clarify the intent of the 2008 Act, add to it several provisions that have become necessary following restructuring efforts by several automo- bile manufacturers' as a result of the automotive industry crisis of 2008-2010, and to further minimize the possibility of arbitrary or unfair demands in the franchisor-franchisee relationship so as to main- tain the health and vitality of the retail automobile industry. The amendments in section 2 of this legislation, in particular, provide clarity to current law, underscoring the legislative intent that, except in limited circumstances, motor vehicle franchises are not to be controlled by manufacturers, and that the Commissioner of Motor Vehicles may not issue new motor vehicle dealer licenses to franchisor-controlled dealerships.

Preserving the franchise system ensures that important consumer benefits remain in the market. For instance, the franchise system has worked well as a low-cost means for the distribution and sale of motor vehicles in the State. Independent franchised motor vehicle dealers provide consum- ers with competition on price and service quality, as well as convenient access to inventories of new automobiles and accessory products. Fran- chised dealers also provide consumers with convenient access to warran-

ty, safety recall and repair services. Dealers also create a market for used vehicles, aiding buyers in their next purchase by accepting trade- in vehicles. Also, New York's broad network of independent franchised dealers and their employees generate substantial economic activity, activity that creates valuable businesses, and benefits the State in jobs and taxes.

Given the benefits, the State has a compelling interest in ensuring the continued viability of the motor vehicle franchise system.

Legislative history

New Legislation.

Fiscal implications

None.

Effective date

Immediately.