AN ACT MAKING REVISIONS TO CHAPTER 739 OF THE GENERAL STATUTES WITH RESPECT TO AUTOMOBILE MANUFACTURERS, DISTRIBUTORS, FRANCHISES AND DEALERSHIPS.

AN ACT MAKING REVISIONS TO CHAPTER 739 OF THE GENERAL STATUTES WITH RESPECT TO AUTOMOBILE MANUFACTURERS, DISTRIBUTORS, FRANCHISES AND DEALERSHIPS.

This bill revises portions of the law governing motor vehicle manufacturers, distributors, dealers, and the franchise agreements between them. It substantially revises provisions governing the way in which dealers are compensated for parts and labor in connection with pre-delivery preparation and warranty service. It also (1) revises provisions that govern compensation, termination, nonrenewal, or cancellation of a franchise agreement; (2) establishes new requirements when termination is due to discontinuation of a vehicle line-make; and (3) adds to the list of prohibited acts by manufacturers or distributors.

Finally, the bill (1) prohibits any agreement between the manufacturer or distributer and a dealer, rather than only the franchise agreement or a waiver, from superseding the statutory provisions for notice and setting standards for determining when good cause exists for terminating, canceling, or not renewing a franchise agreement and (2) if a franchisee has brought a court action challenging the termination, cancellation, or non-renewal, requires the franchise agreement to remain in full force and the franchisee to retain all rights and remedies under the agreement, including the right to sell or transfer ownership interest until a final court determination and any appeal of that decision. Current law limits this latter requirement to not more than six months following the final court determination.

Current law requires a motor vehicle manufacturer or distributor to provide a dealer with a schedule of compensation to be paid to the dealer for parts and labor in connection with preparation and service, and the time allowance for the labor. The schedule must include reasonable compensation for diagnostic work, as well as repair service and labor. Current law specifies that the principal factor considered in what constitutes reasonable compensation must be the prevailing wage rates paid by dealers in the community in which the dealer does business. Also, the hourly labor rate paid to a dealer for warranty service cannot be less than the rate the dealer charges for like service to non-warranty customers, provided this rate is reasonable.

The bill, instead, requires that compensation for parts and labor used in warranty service be fair and reasonable and establishes a specific set of statutory requirements for how this must be determined. It also eliminates the requirement for a specific compensation schedule for pre-delivery vehicle preparation, although dealer compensation is still required.

The bill requires the retail rate customarily charged by the dealer for parts to be established by the dealer submitting to the manufacturer or distributor (1) 100 sequential non-warranty customer-paid service repair orders that contain warranty-like parts or (2) 60 consecutive days of non-warranty customer-paid service repair orders that contain warranty-like parts, whichever is less, covering repairs made no more than 180 days before the submission and declaring the average percentage markup. The average markup rates must be presumed as fair and reasonable, but the manufacturer or distributor may rebut the presumption within 30 days by reasonably substantiating that the rate is unfair and unreasonable in light of the practices of all other franchised dealers in the vicinity offering the same line-make vehicles.

The bill requires the retail rate to go into effect 30 days after the declaration, subject to audit of the submitted repair orders by the franchisor and a rebuttal of the declared rate. If the rate is rebutted, the manufacturer or distributor must propose an adjustment of the average percentage markup based on the rebuttal within 30 days of the submission. If the dealer does not agree with the proposed markup, it may file a protest with the motor vehicle commissioner within 30 days of receiving the manufacturer's or distributor's proposal.

The commissioner must inform the manufacturer or distributor that a timely protest has been filed and that a hearing will be held. In the hearing, the manufacturer or distributor has the burden of proving that the dealer's declared rate was unfair and unreasonable and that the proposed adjustment is fair and reasonable pursuant to the law.

The bill permits the retail rate customarily charged by the dealer for labor to be established by submitting to the manufacturer or distributor all non-warranty customer-paid service repair orders covering repairs during the month prior to the submission and dividing the amount of the dealer's total labor sales by the number of total labor hours that generated those sales. The average labor rate must be presumed fair and reasonable subject to the manufacturer's or distributor's right to rebut within 30 days. The rest of the process for resolving the rate is the same as described above for parts.

The bill requires the following work to be excluded from the calculation of the retail rate customarily charged by the dealer for parts and labor:

3. engine assemblies and transmission assemblies;

4. routine maintenance not covered under any retail customer warranty, such as fluids, filters, and belts not provided in the course of repairs;

5. nuts, bolts, fasteners, and similar items that do not have an individual part number;

6. tires; and

7. vehicle reconditioning.

If a manufacturer or distributor furnishes a part or component to a dealer at no cost to use in performing repairs under a recall, campaign service action, or warranty repair, it must compensate the dealer in the same manner as warranty parts compensation under the bill by giving the dealer the average markup on the cost as listed in its price schedule less the cost for the part or component.

A manufacturer or distributor may not require a dealer to establish a retail rate customarily charged by the dealer for parts or labor by an unduly burdensome or time consuming method or by requiring information that is unduly burdensome or time consuming to provide, including through part-by-part or transaction-by-transaction calculations. The bill prohibits a dealer from declaring an average percentage markup or average labor rate more than twice in a calendar year.

A manufacturer or distributor may not otherwise recover its costs from dealers in Connecticut, including an increase in the wholesale price of a vehicle or an imposed surcharge solely intended to recover the cost of reimbursing a dealer for parts and labor pursuant to the bill's requirements. However, the manufacturer or distributor is not prohibited from increasing prices for vehicles or parts in the normal course of business.

The law establishes requirements for fair and reasonable dealer compensation upon termination, cancellation, on non-renewal of a franchise agreement. The bill limits the application of these requirements only to situations where the termination, cancellation, or non-renewal is initiated by the manufacturer, distributor, or dealer. The bill also specifies that the compensation requirement does not apply in the event of a sale of the assets or stock of a dealership.

Currently, when a franchise agreement is terminated, canceled, or not renewed, the dealer must receive fair and reasonable compensation for several things, including the current and one prior model year vehicle inventory. The bill modifies the provision with respect to non-current model year inventory to cover vehicles (1) from the prior model year, acquired within the 12 months preceding the termination; (2) with fewer than 300 miles registered on the odometer; (3) acquired from the manufacturer, distributor, or a same line-make dealer; and (4) in the ordinary course of business. It also modifies the provision that the vehicles be unaltered to exempt the addition of customary manufacturer-approved accessories. As under current law, they must be undamaged.

If a dealer leases space from someone other than the manufacturer or distributor or owns the dealership facilities, it must be compensated for a reasonable rent. Currently, reasonable rent must be paid only to the extent that the dealership premises are recognized in the franchise and are (1) used solely for performance in accordance with the franchise and (2) not substantially more than that recommended by the manufacturer or distributor. The bill expands the requirement to compensate a dealer in the case of a facility used by more than one franchise to include that portion of the facility used by the franchise.

Currently, one possibility if the facility is either owned or leased by the dealer is for the manufacturer or distributor to lease the dealership facility for two years. The bill reduces this to one year.

The bill similarly limits applicability of the statutory requirements governing rent only to situations where the termination, cancellation, or non-renewal of an agreement is by the manufacturer, distributor, or dealer as it does for compensation for inventory.

The bill establishes new requirements when termination, cancellation, or non-renewal of a franchise agreement is due to discontinuation of a line-make. In this case, in addition to all other compensation and repurchase requirements, the bill requires a manufacturer or distributor to pay the fair market value of the goodwill of the franchise as of the date immediately preceding the manufacturer's announcement of the discontinuation action. The dealer may request immediate payment following the announcement in exchange for any further franchise rights, except payments owed the dealer in the ordinary course of business, or the dealer may request payment upon final termination, cancellation, or nonrenewal of the franchise. In either case, payment must be made within 90 days of the dealer's request.

By law, a manufacturer or distributor is prohibited from performing certain acts. The bill specifies that the terms, provisions, or conditions of any franchise or other agreement between a manufacturer or distributor cannot supersede the law's requirements.

The bill prohibits a manufacturer or distributor from requiring a dealer to construct or make substantial alterations to its facilities unless the manufacturer or distributor can show that such requirements are reasonable and justifiable in light of current and reasonably foreseeable economic conditions, financial expectations, availability of additional vehicle allocation, and the dealer's market for vehicle sales.

1. unreasonably preventing or refusing to approve the relocation of a dealership to another site within the dealership's relevant market area, including a refusal of a relocation of the dealership or for any franchise currently located at the proposed new location;

2. selling or offering to sell any new motor vehicle to a dealer at a lower actual price than that offered to any other franchised dealer of the same, similarly-equipped model, or to use any device, including sale promotion plans, funds, or financing to upgrade facilities, discounts, or programs that result in a lesser actual price, except for sales to a dealer for (a) resale to a governmental unit or (b) donation or use by the dealer in a driver education or other special events program (The bill prohibits this provision from being read to prevent the offering of sales incentives or discount programs as long as they are reasonably and practically available to all Connecticut dealers on a proportionally equal basis. );

3. withholding directly, or through the loss of any benefit made available to other same line-make dealers in Connecticut because of a dealer's refusal to engage in conduct or take action unrelated to the benefit; and

4. failing to begin the accrual of any express warranty for a new motor vehicle by the date of the original delivery to the consumer, provided (a) if the warranty is expressed in terms of time, such timeframe must begin on the original delivery date or (b) if expressed in terms of miles, the mileage, not exceeding 500 miles, must be the mileage on the vehicle's odometer on the original delivery date to the consumer.

With respect to dealership relocations, the bill requires the dealer to provide written notice to the manufacturer or distributor that includes the address of the proposed new location and a reasonable site plan for the proposed facility. The manufacturer or distributor must grant or deny the dealer's request within 60 days of such reasonably requested information. Failure to do so within the 60-day period is deemed consent to the relocation.

Finally, the bill modifies the current prohibition on a manufacturer or distributor failing to respond in writing within 60 days of a dealer's request for consent to the sale, transfer, or exchange of the franchise to a qualified buyer capable of being licensed as a dealer to specify that the 60-day period applies once the dealer provides all the information reasonable and customarily required by the manufacturer or distributor.