The Florida Senate BILL ANALYSIS AND FISCAL IMPACT STATEMENT (This document is based on the provisions contained in the legislation as of the latest date listed below.) Prepared By: The Professional Staff of the Committee on Rules BILL: CS/CS/CS/SB 712 INTRODUCER: Rules Committee; Commerce and Tourism Committee; Transportation Committee; and Senator Avila and others SUBJECT: Motor Vehicle Sales DATE: April 25, 2023 REVISED: ANALYST STAFF DIRECTOR REFERENCE ACTION 1. Jones Vickers TR Fav/CS 2. McMillan McKay CM Fav/CS 3. Jones Twogood RC Fav/CS Please see Section IX. for Additional Information: COMMITTEE SUBSTITUTE - Substantial Changes I. Summary: CS/CS/CS/SB 712 amends the Florida Automobile Dealers Act (Act), which primarily regulates the contractual business relationship between franchised motor vehicle dealers (dealers), and manufacturers, factory branches, distributors, and importers (manufacturers) and provides for the licensure of manufacturers. The Act prohibits certain manufacturers with established dealerships from conducting direct-sales or owning or operating a motor vehicle dealership; however, a manufacturer without a franchised dealership is exempt from this prohibition. The bill revises provisions related to the licensure of, and contractual agreements between, dealers and manufacturers, as follows: Broadens the definition of “common entity” and expands the prohibitions on direct-to- consumer motor vehicle sales, and dealer ownership, by manufacturers that have established dealers. Broadens the definition of “sell” to include additional types of financial agreements. Prohibits new franchise agreements with manufacturers that do not include all types of “line- make.” Prohibits manufacturers from reserving or incentivizing the sale or lease of a motor vehicle. Prohibits manufacturers from requiring or incentivizing dealers to sell or lease vehicles at a specified price or profit margin, or restricts the price that a dealer may sell or lease a vehicle. Prohibits manufacturers from engaging in certain motor vehicle dealer activities. BILL: CS/CS/CS/SB 712 Page 2 Authorizes manufacturers to sell certain motor vehicle features or improvements through remote electronic transmission; Requires the manufacturer to pay the dealer a percentage of at least eight percent of the payment received from the sale of a motor vehicle feature or improvement through remote electronic transmission if it is made within two years after the sale or lease of the new vehicle if the ownership of the vehicle has not changed. Prohibits manufacturers from refusing to provide a dealer with an “equitable supply” of new vehicles by model, mix, or color as it offers or allocates to dealers. Prohibits manufacturers from using the number of motor vehicles pre-ordered or reserved by consumers when determining allocations to dealers. Provides that neither a distributor nor an affiliate thereof may be licensed as a motor vehicle dealer or own or operate a dealership that sells or services motor vehicles of the line-make of motor vehicles distributed by the distributor. Limits the administrative authority of the Department of Highway Safety and Motor Vehicles (DHSMV) to provide certain exceptions to the restriction on dealer ownership by manufacturers that have established dealers. Prohibits manufacturers from controlling by contract, agreement or otherwise a dealership for any “line-make” which is or has been offered for sale in Florida by a franchise agreement with an “independent person.” Creates a timeline and process for DHSMV to conduct an inquiry of a manufacturer relating to a written complaint alleging a violation of the Act, when such complaint is made by a franchised motor vehicle dealer or a motor vehicle dealer association with at least one member with a current franchise agreement issued by the manufacturer. The bill may have a negative indeterminate fiscal impact on DHSMV to the extent that the bill results in increased written complaints against manufacturers. The bill takes effect July 1, 2023. II. Present Situation: Background of Motor Vehicle Dealer Franchise Agreements The first automobile franchise in the United States was established by General Motors in 1898.1 Franchise agreements were initially voluntary.2 Most state auto franchise laws now extensively regulate the contractual obligations between manufacturers and dealers. In an effort to protect consumers, these laws prevent manufacturers from selling new vehicles, new brands, and related services directly to the public.3 1 Francine Lafontaine and Fiona Scott Morton, State Franchise Laws, Dealer Terminations, and the Auto Crisis, 24 J. ECON. PERSP. 233, 234 (2010), available at https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.24.3.233 (last visited April 5, 2023). 2 Id. at 238-239. 3 Congressional Research Service, R40712, U.S. Motor Vehicle Industry Restructuring and Dealership Terminations (January 8, 2010), available at https://www.everycrsreport.com/files/20100108_R40712_461532aa2624faaa80c6e8f950d6b0ad0719195e.pdf (last visited April 5, 2023). BILL: CS/CS/CS/SB 712 Page 3 Florida has substantially regulated motor vehicle manufacturers and dealers since before 1950.4 Initially, Florida implemented consumer protections aimed at preventing consumer abuse by dealers.5 In 1970, more comprehensive regulations were adopted, embodied in Ch. 320, F.S.,6 which regulates the contractual relationship between manufacturers and franchised dealers,7 requires the licensing of manufacturers, and regulates numerous aspects of the contracts between the manufacturers and dealers. Florida’s Automobile Dealer Franchise Law states that “it is the intent of the Legislature to protect the public health, safety, and welfare of the citizens of the state by regulating the licensing of motor vehicle dealers and manufacturers, maintaining competition, providing consumer protection and fair trade and providing minorities with opportunities for full participation as motor vehicle dealers.”8 Certain manufacturers with established dealer franchises have recently indicated an intent to separate their electric vehicle (EV) and internal combustion vehicle business models, similar to how they currently separate cars and trucks into separate dealership agreements. Some manufacturers indicate they plan to offer a business model that is a hybrid between the current model and the direct-to-consumer model used by some EV manufacturers for both EV and internal combustion vehicle lines.9 Certain EV manufactures have developed a cost-effective method of auto distribution known as build-to-order.10 Newer automakers that do not have franchise agreements with auto dealers have been using captive (manufacturer-owned) dealerships and the direct-to-consumer model in which consumers custom-design their vehicles on the internet and receive them directly from the manufacturer. However, for in-person needs, these automakers provide their own dealerships and service centers. State franchise laws protect independent dealerships and thus, auto manufacturers that already have franchise agreements with dealers are unable to offer this new way of buying a vehicle to consumers.11 Recently, manufacturers and dealers have engaged in public disputes about how vehicles should be sold in the future, and about whether dealer franchise laws have contributed to dealers pricing their new cars at an all-time high.12 Ford Motor Company recently wrote a formal letter to its 4 Chapter 9157, Laws of Fla. (1923); Chapter 20236, Laws of Fla. (1941). 5 Walter E. Forehand and John W. Forehand, Motor Vehicle Dealer and Motor Vehicle Manufacturers: Florida Reacts to Pressures in the Marketplace, 29 FLA. ST. UNIV. LAW REV. 1058, 1064 (2002), available at http://ir.law.fsu.edu/cgi/viewcontent.cgi?article=1632&context=lr (last visited April 5, 2023). 6 Ch. 70-424, Laws of Fla. 7 Section 320.60(11), F.S. 8 Section 320.605, F.S. 9 Greg Rosalsky, Inside the rise of 'stealerships' and the shady economics of car buying, National Public Radio (NPR) (August 30, 2022), available at https://www.npr.org/sections/money/2022/08/30/1119715886/inside-the-rise-of-stealerships- and-the-shady-economics-of-car-buying (last visited April 5, 2023). 10 The United States Department of Justice, Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers (May 2009), available at https://www.justice.gov/sites/default/files/atr/legacy/2009/05/28/246374.pdf (last visited April 5, 2023). 11 Rosalsky, supra note 9. 12 Motor Biscuit, Ford Threatens to Cut Dealer Inventories to Demolish Price Markups (February 9, 2022), available at https://www.motorbiscuit.com/ford-threatens-cut-dealer-inventories-demolish-price- BILL: CS/CS/CS/SB 712 Page 4 dealers asking them to cut down on markups, additional waiting list fees and deposits for EVs, and gave notice to dealers that it would cut back on sending them Ford's most popular vehicles if prices did not come down.13 Dealers have responded by arguing that manufacturer actions will not solve pricing issues and will interfere with market competition. Florida Automobile Dealers Act Manufacturers must be licensed to engage in business in Florida.14 The “Florida Automobile Dealers Act”15 (Act), primarily regulates the contractual business relationship between dealers and manufacturers; and provides for the licensure of the manufacturers. The Department of Highway Safety and Motor Vehicles (DHSMV) is responsible for administering and enforcing the Act.16 The Act specifies, in part:17 The conditions and situations under which the DHSMV may deny, suspend, or revoke a regulated license; The process, timing, and notice requirements for manufacturers who wish to discontinue, cancel, modify, or otherwise replace a franchise agreement with a dealer, and the conditions under which the DHSMV may deny such a request; The procedures manufacturers must follow to add a franchised dealership in an area already served by a franchised dealer, the protest process, and the DHSMV’s role in these circumstances; The damages that can be assessed against a manufacturer who is in violation of Florida Statutes; and The DHSMV’s authority to adopt rules to implement these sections of law. The Act applies to all presently existing or future systems of distribution of motor vehicles in Florida, except to the extent that such application would impair valid contractual agreements in violation of the State Constitution or Federal Constitution. Generally, all agreements that are renewed, amended, or entered into subsequent to October 1, 1988, are governed by the Act, including amendments to the Act, unless the amendment specifically provides otherwise.18 Definitions The Act provides definitions for several terms used throughout it, which are described below. “Agreement” or “Franchise agreement” is defined as “a contract, franchise, new motor vehicle franchise, sales and service agreement, or dealer agreement or any other terminology used to describe the contractual relationship between a manufacturer, factory branch, distributor, or markups/?utm_source=npr_newsletter&utm_medium=email&utm_content=20220826&utm_term=7163011&utm_campaign =money&utm_id=4320608&orgid=&utm_att1= (last visited April 5, 2023). 13 Id. 14 Section 320.61(1), F.S. 15 Forehand, supra note 5, at 1065. 16 Section 320.011, F.S. 17 See ss. 320.60-320.70, F.S. 18 Section 320.6992, F.S. BILL: CS/CS/CS/SB 712 Page 5 importer, and a motor vehicle dealer, pursuant to which the motor vehicle dealer is authorized to transact business pertaining to motor vehicles of a particular line-make.”19 “Common entity” is defined as a person:20 Who “is either controlled or owned, beneficially or of record, by one or more persons who also control or own more than 40 percent of the voting equity interests of a manufacturer;” or Who “shares directors or officers or partners with a manufacturer.” “Distributor” is defined as “a person, resident or nonresident, who, in whole or in part, sells or distributes motor vehicles to motor vehicle dealers or who maintains distributor representatives.”21 “Factory branch” is defined as “a branch office maintained by a manufacturer, distributor, or importer for the sale of motor vehicles to distributors or to motor vehicle dealers, or for directing or supervising, in whole or in part, its representatives in this state.”22 “Importer” is defined as “any person who imports vehicles from a foreign country into the United States or into this state for the purpose of sale or lease.”23 “Licensee” is defined as “any person licensed or required to be licensed under s. 320.61, F.S., which includes motor vehicle manufacturers, distributors, and importers.”24 “Manufacturer” is defined as “any person, whether a resident or nonresident of this state, who manufactures or assembles motor vehicles or who manufactures or installs on previously assembled truck chassis special bodies or equipment which, when installed, form an integral part of the motor vehicle and which constitute a major manufacturing alteration. The term “manufacturer” includes a central or principal sales corporation or other entity through which, by contractual agreement or otherwise, it distributes its products.”25 “Line-make vehicles” are defined as “motor vehicles which are offered for sale, lease, or distribution under a common name, trademark, service mark, or brand name of the manufacturer of same” (such as Ford, General Motors, or Honda). “However, motor vehicles sold or leased under multiple brand names or marks shall constitute a single line-make when they are included in a single franchise agreement and every motor vehicle dealer in this state authorized to sell or lease any such vehicles has been offered the right to sell or lease all of the multiple brand names or marks covered by the single franchise agreement.”26 19 Section 320.60(1), F.S. 20 Section 320.60(2), F.S. 21 Section 320.60(5), F.S. 22 Section 320.60(6), F.S. 23 Section 320.60(7), F.S. 24 Section 320.60(8), F.S. 25 Section 320.60(9), F.S. 26 Section 320.60(14), F.S. BILL: CS/CS/CS/SB 712 Page 6 “Motor vehicle dealer” is defined as “any person, firm, company, corporation, or other entity, who:”27 Is licensed as a “franchised motor vehicle dealer” and, “for commission, money, or other things of value, repairs or services motor vehicles or used motor vehicles pursuant to a franchise agreement;” Who “sells, exchanges, buys, leases or rents, or offers, or attempts to negotiate a sale or exchange of any interest in, motor vehicles;” or Who “is engaged wholly or in part in the business of selling motor vehicles, whether or not such motor vehicles are owned by such person, firm, company, or corporation.” Such persons, or persons who buy, sell, or deal in three or more motor vehicles in any 12-month period or who offer or display for sale three or more motor vehicles in any 12-month period are prima facie presumed to be a motor vehicle dealer.28 The terms “selling” and “sale” “include lease-purchase transactions.”29 The term “motor vehicle dealer” does not include:30 “Public officers while performing their official duties;” “Receivers, trustees, administrators, executors, guardians, or other persons appointed by, or acting under the judgment or order of, any court;” “Banks, finance companies, or other loan agencies that acquire motor vehicles as an incident to their regular business;” or “Motor vehicle rental and leasing companies that sell motor vehicles to licensed motor vehicle dealers.” The terms “sell,” “selling,” “sold,” “exchange,” “retail sales,” and “leases” are defined, as follows:31 “Any transaction where the title of motor vehicle or used motor vehicle is transferred to a retail consumer.”