MINUTES OF THE SENATE COMMITTEE ON TRANSPORTATION Sixty-eighth Session May 2, 1995 The Senate Committee on Transportation was called to order by Chairman William R. O'Donnell, at 1:35 p.m., on Tuesday, May 2, 1995, in Room 226 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator William R. O'Donnell, Chairman Senator Lawrence E. Jacobsen Senator Jon C. Porter Senator Joseph M. Neal, Jr. Senator Raymond C. Shaffer Senator O. C. Lee COMMITTEE MEMBERS ABSENT: Senator Maurice Washington, Vice Chairman (Excused) GUEST LEGISLATORS PRESENT: Assemblywoman Joan A. Lambert, District No. 29 Assemblyman John C. Carpenter, District No. 33 STAFF MEMBERS PRESENT: Don O. Williams, Chief Principal Research Analyst Diane Rea, Committee Secretary OTHERS PRESENT: Artie D. Valentine, Self Donna Wadey-Howell, Acting Chief, Registration Division, Department of Motor Vehicles and Public Safety (DMV&PS) Daryl E. Capurro, Executive Director, Nevada Franchised Auto Dealers Association (NFADA) Larry Carter, President, Nevada Franchised Auto Dealers Association (NFADA) and Desert Buick-GMC Automotive Group Jack Stanko, Vice President Nevada Franchised Auto Dealers Association (NFADA) and President, Champion Chevrolet Geo Tom Porta, Consumer, Self George Harris, Lobbyist, Auto Brokers Zane Sims, Owner Sims Auto Sales Lindsey Freeman, General Manager, The Auto Brokers Charles Lee, Co-owner, Courtesy Oldsmobile Poonum Adams, Owner, Network Auto Brokers, Association of Nevada Auto Brokers Dan Towbin, Chairman, Towbin Automotive Enterprises, Nevada Franchised Auto Dealers Association (NFADA) Will Allen, Auto Broker, Sims Auto Sales Paula Treat, Lobbyist, Nevada Auto Brokers Lorena Coward Korbel, President, Southern Nevada Franchised New Car and Truck Dealers Association and Tom Coward Lincoln Mercury Lars Felix, Owner, The Auto Brokers Jim Shelton, General Manager, Fletcher Jones Toyota Maurice F. Gilbert, Consumer, Self Senator O'Donnell introduced several Bill Draft Requests (BDR) before beginning the hearings. BILL DRAFT REQUEST 58-1792: Regulates operation of tow cars. (Exhibit C) SENATOR LEE MOVED TO INTRODUCE BDR 58-1792. SENATOR SHAFFER SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS NEAL AND WASHINGTON WERE ABSENT FOR THE VOTE). * * * * * BILL DRAFT REQUEST 58-1946: Conforms state regulation of motor carriers to new federal law. (Exhibit D) SENATOR JACOBSON MOVED TO INTRODUCE BDR 58-1946. SENATOR LEE SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS NEAL AND WASHINGTON WERE ABSENT FOR THE VOTE). * * * * * BILL DRAFT REQUEST 43-668: Prohibits department of motor vehicles and public safety from renewing registration of motor vehicle if fines for certain traffic violations have not been paid. (Exhibit E) SENATOR PORTER MOVED TO INTRODUCE BDR 43-668. SENATOR LEE SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR NEAL VOTED NO. SENATOR WASHINGTON WAS ABSENT FOR THE VOTE.) * * * * * BILL DRAFT REQUEST 43-1957: Prohibits imposition of fee for issuance of certificate of dismantling. (Exhibit F) SENATOR SHAFFER MOVED FOR INTRODUCTION OF BDR 43-1957. SENATOR LEE SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR NEAL ABSTAINED. SENATOR WASHINGTON WAS ABSENT FOR THE VOTE.) * * * * * BILL DRAFT REQUEST 43-679: Requires automobile wrecker or operator of salvage pool to forward to department of motor vehicles and public safety part of wrecked or salvaged motor vehicle which designates vehicle identification number. (Exhibit G) SENATOR LEE MOVED FOR INTRODUCTION OF BDR 43-679. SENATOR JACOBSON SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR WASHINGTON WAS ABSENT FOR THE VOTE.) * * * * * Senator O'Donnell asked the committee to concur or not concur with the Assembly Amendment No. 173 to Senate Bill (S.B.) 66 (Exhibit H). Senator O'Donnell explained that the amendment adds that an outside company, if approved by the Department of Motor Vehicles and Public Safety (DMV&PS), can provide the motor cycle education and test. Upon completion, they certify that person and the person takes the certificate to DMV&PS to receive their license. SENATE BILL 66: Revises provisions relating to issuance of license to operate certain motor vehicles. (Exhibit H) SENATOR SHAFFER MOVED TO CONCUR WITH AMENDMENT NO. 173 TO SENATE BILL 66. SENATOR LEE SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR WASHINGTON WAS ABSENT FOR THE VOTE). * * * * * Senator O'Donnell opened the hearing on S.B. 352. SENATE BILL 352: Revises provisions relating to documents required to be filed by vehicle dealers for transaction of business. (BDR 43-1326) Artie D. Valentine, Self, testified this bill applies to a dealer reassignment form. The federal law does not require the state to print a dealer reassignment form. If they do ... Senator O'Donnell asked Mr. Valentine to explain what he meant by "Reassignment Form?" Mr. Valentine stated that once the spaces for the registered owner on a vehicle title have been filled, the government says that a dealer reassignment form may be used to transfer that title, if additional transfers are needed. Mr. Valentine continued saying that if this form is used, it shall be printed by a secured printing process. This means on paper that is not readily counterfeitable. This form is provided by DMV&PS and the fee is not to exceed $5 for each title. Senator O'Donnell asked if a notary is necessary? Mr. Valentine stated that there are no provisions on the federal conforming title, or the power of attorney for a notary. He has asked that they not require a notary for the document. Donna Wadey-Howell, Acting Chief, Registration Division, Department of Motor Vehicles and Public Safety (DMV&PS), testified that section 1 of the bill limits the departments authority as far as requiring notaries or witnesses. Section 2 allows DMV&PS to charge for the forms. Because the form is only costing about 8 cents each, the fee will be 50 cents or $1 for each form. Senator Neal asked how a vehicle being sold by a resident of California to a resident of Nevada will be handled, if the back of the title is already full of signatures? Mrs. Howell replied that currently the seller simply signs a bill of sale to the purchaser and DMV&PS accepts that along with the title of the vehicle. Senator O'Donnell asked for further testimony. He closed the hearing on S.B. 352. Senator O'Donnell opened the hearing on A.B. 205. ASSEMBLY BILL 205: Revises provisions regarding sale, lease and registration of motor vehicles. (BDR 43- 113) Daryl E. Capurro, Executive Director, Nevada Franchised Auto Dealers Association (NFADA), testified (Exhibit I). He provided a packet including an "Economic Contribution" survey (Exhibit J), a Total Retail Trade by State status sheet (Exhibit K), the policy of General Motors (Exhibit L), Ford Motor Company policy (Exhibit M) and Chrysler Corporation policy (Exhibit N). He provided a partial report copy showing restrictive definitions of new and used vehicles from different states (Exhibit O), the Kansas Statute by the Kansas Supreme Court abolishing practice of brokering (Exhibit P), and news articles illustrating why other states are weary of auto brokers (Exhibit Q, R and S). He provided a plea from the NFADA (Exhibit T). Mr. Capurro stated that the amendments that have been requested by the Assembly are in section 4, 5, and 6. The first two are requested by DMV&PS to clarify that a business has to have a franchised letter to be licensed as a new vehicle dealer. The second one is requested by Assemblyman John C. Carpenter stating that a new vehicle dealer may sell a new vehicle to a new or used vehicle dealer, and can sell a new vehicle on consignment to a person not licensed as a vehicle dealer. Senator Neal asked if the dealers Mr. Capurro represents have ever sold an automobile to a broker? Mr. Capurro said that a licensed dealer can legally sell an automobile to a broker for the purpose of leasing only. Senator Neal asked if the dealers Mr. Capurro represents have sold to brokers outside of the state of Nevada. Mr. Capurro replied that those sales will be make to used car dealers, or long-term lessors, who are buying those vehicles for long-term leasing purposes. He stated that he has no idea whether they sell out-of-state or not. Senator Neal asked why there is a market for the brokers? Mr. Capurro stated that there is a perception that people can get a better deal buying through a broker, as an alternative source of purchasing. People who have gone to a broker after going to a dealership and finding out the sticker price, go to the broker and ask if they can get a better deal there. Senator Neal asked how the public is harmed by buying from a broker rather than a dealer? Mr. Capurro replied that when a vehicle is delivered to a franchised dealer, that dealer is required to do a "dealer prep" [preparation] on the vehicle. He submits that list back to the manufacturer. If the dealer preparation of that vehicle is not done properly, that can void the warranty. When a vehicle is sold through the broker, the purchaser could have a voided warranty situation. Mr. Capurro stated that the "Lemon Car Law" protects the purchaser. You take your car back to the dealer when there is a provable lemon car situation. The statutory law says that it has to be done through the agent of the manufacturer or the dealer franchised for that make of vehicle. Senator Neal asked if the warranty is on the car or the individual who purchases the car? Mr. Capurro replied that the warranty is on the car and is transferrable. Senator Neal asked if he purchased a vehicle from a broker, will any dealer with that franchised be obligated to service that vehicle? Mr. Capurro stated that the dealer is obligated to perform the warranty service work. That is in the franchised agreement. Senator Neal asked if the committee is dealing with a competitive problem where the dealers would like to control the sales of the vehicles. Mr. Capurro replied that the manufacturers of the vehicles believe that the brokers are not serving the consumers purposes. The exhibits from the franchised companies state their standings on this issue. Auto buying services can deal directly with a franchised dealer on behalf of a customer so that the vehicle is being delivered by the franchised dealer to the customer. He said that is not the same as a broker buying a vehicle from an out-of-state dealer and selling it to a purchaser. Senator Jacobsen asked why Mr. Capurro had indicated that there are no auto brokers in Nevada, yet he refers to them as auto broker? He asked if there is a license that indicates they are a broker, or are they licensed as a used car dealer? Mr. Capurro replied that brokers are licensed as used car dealers. There is no term in the Nevada law or municipal codes regarding brokers. They are used car dealers. Assemblywoman Joan Lambert, District 29, stated: I am going to speak to just the public policy of the bill, not the details of it. I am opposed to it, because at a time when we see expanding consumer choices, expanding consumer power in the market place, expanding competition; A.B. 205 would restrict consumer choices by taking away one way of buying a car. A choice that many of my constituents phoned and wrote to me; constituents and neighbors, people that live just down the street found that they really liked having this other way of buying a car available to them. They did not use it every time they bought a car, but they appreciated having that opportunity available. People are saying that they want government to get out of their lives, they want to make decisions for themselves. A.B. 205 is government stepping into their lives, restricting their choices, restricting their power in the market place, and restricting competition. I would ask you, if you do not want to outright defeat A.B. 205, which would make me happy; if you could hold it because Assemblyman [John C.] Carpenter and I have another bill in assembly transportation, A.B. 447, which would regulate auto brokers and provide the consumer protection that we would want them to have. We would hope that you could wait for that bill to come over and put that into your choices. Mr. Carpenter can tell you about A.B. 447. ASSEMBLY BILL 447: Makes various changes to provisions governing sale of motor vehicles. (BDR 43- 16) Assemblyman John C. Carpenter, District No. 33, stated: As Assemblyman Lambert has testified to, we do have A.B. 447, which would regulate auto brokers. We believe that regulation is a better scenario than putting these people out of business. Of all the hundreds of letters I have received on the issue, I do not remember receiving anyone that was dissatisfied with the service that these people provide. In A.B. 447, it will require a bond, it will take care of what we believe is a warranty situation. As was testified before, the warranty follows the automobile. I know that ... there are many people moving into this state that buy an automobile out-of-state and when they move into Nevada, the auto franchised dealers back-up that warranty. Last time, we had a bill in this Legislature that required the manufacturers to pay the franchised auto dealers for the cost of repairing those vehicles. I do not think there is any question that the warranty situation will be taken care of. It will also require that any of these safety recall notices be passed on to the consumers and that the lemon-law will also apply. The brokers will also have to back-up the situation of the lemon law. Any amendments that anyone wants to have in regard to A.B. 447, we think we have done a fairly good job in concert with the DMV [Department of Motor Vehicles and Public Safety], but there may be other issues out there, such as ... Another thing we are taking care of is the amount of money that they can take as a deposit. We have heard horror stories about, maybe they take the deposit and run. I think that happens in all business and there is always a bad apple out there. I do not think it happens very often to these people and I think that they will be able to testify and you will be able to ask them those kind of questions. I think the one thing is ... the number of cars that the brokers actually handle, in regard to the overall number is very small. On the other hand, as Mrs. Lambert said, it gives the consumers a choice. What I have heard is that very often that a person wants a special car. The franchised dealers, for some reason or other, they either do not have the time or they do not want to take the time to go out and find a car that their customer wants. I think that is a valuable service that they are providing to our constituents. I think that, really what they are asking for here, and Senator Neal in questioning kind of hit the nail on the head; but, if the franchised auto dealers throughout the country would honor their agreements and not sell to auto brokers we would not have this problem. But, auto dealers are like anybody else. If they see a chance to sell a car and make a few bucks, they are going to do it. They really do not care whether it is an auto broker or whether it is Joan [Lambert] or I walking into their showrooms. If they would honor those franchised agreements, we would not have this problem. I think they believe it is a competitive situation and when they see a chance to unload a car, they do it. I feel we should still be a nation that believes in competition in the market place. It is that simple. I do not think that we should put these people out of business. I think that the testimony that we heard ... one person said that `I started this business on kind of a shoestring, which most small business do and now it is kind of successful and I thought I would be put out of business because I made a mistake or the market went sour, or something like that. To have the legislature do it to me is kind of hard to swallow in the U.S.A.` I appreciate you giving us the opportunity to come up here and speak to you. If there is no questions, we will try to get back to our other committee. Senator O'Donnell asked if A.B. 447 is in the Assembly committee? Mr. Carpenter replied that it is in the Assembly Committee on Transportation. They had a very short presentation on it recently, but it is going to have a full hearing on May 11. Senator Jacobsen asked if A.B. 447 indicates what the auto broker is as far as an explanation of their title and any specifications as to what their responsibilities are? Mrs. Lambert replied: A broker is defined as a person who acquires new vehicles and is not licensed as a new car dealer with the department, being DMV; registers those vehicles in Nevada pursuant to provisions of this chapter, which is chapter 42, and resells those vehicles to members of the general public as used vehicles. Section 8 is the heart of the consumers protection in the bill, which requires the broker, shall before the completion of the sale of a vehicle, provide certain information to the consumer. That deals with the warranty. The tag line at the end is, `any other information that the department feels is necessary.' So, through regulation they can deal with just about any problem that would come along, and we would welcome the wisdom and your experience on what should be in a bill that regulates brokers and protects the public. Senator Jacobsen stated that earlier testimony indicated that the brokers are violating federal law now, by not posting in the windows. He asked, "If they are entitled as an auto broker, will that be one of the requirements, that they have to post on the window?" Mrs. Lambert replied that is federal law and our state laws should follow the federal laws. Senator Porter asked Mr. Capurro if a broker is breaking any laws other than the lack of the tag on the window of the vehicle? Mr. Capurro replied that the broker is complying with the current laws of Nevada. Senator Porter asked what an auto buying service is? Mr. Capurro replied that is a service in which the broker acts as a negotiator with a franchised dealer, for a purchaser. Once the deal has been made with the franchised dealer, the customer actually takes delivery from the franchised dealer. The dealer does the preparation and actually issues the paperwork on the vehicle. Senator Porter stated his concern over the franchised dealers who are actually selling to the brokers when the franchised contracts state the penalties for them doing this. He said there is a weak link in the franchised that is allowing this to happen. The counterparts in other states are selling these cars into the market. It looks like the manufacturers are just slapping dealers hands for doing this. Larry Carter, President, Nevada Franchised Auto Dealers Association (NFADA) and Desert Buick GMC Automotive Group, stated the out-of-state dealers are not providing a better dealer deal for purchasing a vehicle than the broker can provide. That dealer is audited annually. Any place he is found to have sold to a broker, his rebates are charged back to him. He cannot pass the rebates to a broker. He said the dealer is actually charging the used car dealer more than that car dealer can charge a customer. The average net profit on a car was approximately $146 per vehicle. Senator Porter stated that he is opposed to additional regulations if the industry could police itself. A.B. 447 could regulate the brokers. He asked why not provide them proper regulation rather than try to close the broker down? Mr. Carter stated that if the committee decides to legitimize the broker, all the manufacturers will be in to testify. That will create an end to the franchised system. The used car dealers are circumventing the law by registering the vehicle. They use the simple act of registering the vehicle to get around the franchised system. Mr. Carter gave his testimony (Exhibit U). Senator Shaffer asked if the broker has to title the vehicle and that will change the classification to a used vehicle? Mr. Carter replied that the vehicle has to be registered, titled and then is sold as a used vehicle. Senator O'Donnell asked about an article that had been submitted by Mr. Capurro (Exhibit O). The article stated that broker sales are up 76 percent while new vehicle business is down 40 percent. Mr. Carter stated that is an old article. The DMV&PS reports that brokers sell about 6,000 vehicles in Nevada a year. Senator O'Donnell asked what will happen if people were allowed to buy vehicles from all over the country and continue to sell them in the state of Nevada without going through the dealerships, making the brokers more successful than the dealers? Mr. Carter replied the dealerships will have to close their doors. The warranty work will still have to be done through a franchised dealer somewhere. The vehicle had to come from a dealer, so he has made his profit. The broker puts his profit on top of the price he paid to get the car. Senator Jacobsen asked if the franchise allows for denial of warranty work? Mr. Carter answered that there are some cases where the franchised dealer can refuse to service a vehicle sold by a broker, but he does not believe any of them will do that. Senator Lee asked if Mr. Carter has knowledge of a franchised auto dealer selling to used car dealers or auto brokers in Nevada? Mr. Carter stated that his company sells to long-term lessors. When making one of these sales, it is the franchised dealers responsibility to make sure that vehicle is not sold within 6 months. If that lessor sells the vehicle in that time period, the franchised dealer is responsible for the rebates and any special financing. Senator Lee asked if the used car dealers are licensed? Mr. Carter replied that they have a used car dealers license, even as a lessor. Once a lease is up, that dealer still has a vehicle to sell. Senator Porter asked if a person purchased a new vehicle with more than 2500 miles on it, is it classified as a used vehicle? Mr. Capurro stated that number is the lowest of any state being used to depict a used car. Senator O'Donnell stated that technically with 2500 miles a vehicle is used. You can purchase a vehicle through a dealer in Nevada and go to Detroit, Michigan and pick up that vehicle, drive it back and get it registered in Nevada. It is approximately 2500 miles from Detroit to Nevada. Senator Porter asked if he tried to trade a vehicle in with less than 2500 miles on it will it still be a new car? Senator O'Donnell replied only if the vehicle has not been titled. Once it has been titled, it becomes a used vehicle. Mrs. Howell testified under current law, when you have a new vehicle, the first time it is registered it becomes a used vehicle. Under the new bill, the vehicle will have to be registered and have 2500 miles to become a used vehicle. Senator Porter stated that a letter from Kimberly A. Morgan, Assembly Bill Drafting Adviser (Exhibit V) explains that issue. Mr. Capurro stated the amendments in the first reprint of A.B. 205 addresses all those issues. Senator Porter stated that under section 6, subsection 2 of the bill addresses this issue. Jack Stanko, Vice President, Nevada Franchised Auto Dealers Association (NFADA) and President, Champion Chevrolet Geo, testified that the question had been asked if any other laws are being broken by the auto brokers. As a franchised dealership, some of the things that have to be gone through include the National Highway Traffic Safety Administration (NHTSA) a guide publication (Exhibit W) that has to be placed in racks at the dealers. An article from the NHTSA entitled Comparison of Differences in Insurance Costs (Exhibit X) also has to be available. He said there is a fine if these are not available to the public. The Environmental Protection Agency (EPA) asks that every franchised dealer in the country have gas mileage guides (Exhibit Y) available in their racks. A bulletin from General Motors (Exhibit Z) is based on emission requirements. He stated that vehicles coming from other states do not comply with the high altitude requirements that Nevada has. General Motors and most manufacturers require that dealers have available to customers trailering information and camping information on the vehicles they sell (Exhibit AA). The EPA has the Ozone Depleting Information available (Exhibit BB). The manufacturer asks for a copy of warranty information (Exhibit CC) on the information racks. Mr. Stanko also provided the used car buyers guide (Exhibit DD) which is an Federal Trade Commission (FTC) law. When the broker converts a new vehicle with the $6 dealers special plate, to a used vehicle, he should have one of those posted on the window of the vehicle. He said there are probably half a dozen laws that are being broken daily by the used car dealers. Mr. Stanko gave each senators a copy of a notice entitled "Vehicles Sold For Resale" (Exhibit EE) which defines the auto broker. He stated that federal law on the Lemon Law will have to be rewritten. The bill is 597.600 (Exhibit FF) as used in NRS [Nevada Revised Statute] 597.600 to 597.680 which defines a buyer. Mr. Stanko stated that he had filed a law suit against one of the brokers that had agreed to pay back over $7,000 to get that money back (Exhibit GG). Brokers are not licensed as a new car dealer, they are used car dealers. He provided a copy of the Las Vegas yellow pages listing auto brokers under new car dealers (Exhibit HH) and stated that the Monronie Law was passed in 1958 or 1959 requiring the window of a new vehicle to have a Monronie manufacturer sticker (Exhibit II) which shows the Environmental Protection Agency (U.S.) (EPA) along with other information. Senator Porter asked if what he is hearing is the brokers are representing themselves as new car dealers? Mr. Stanko replied, "That is correct." Senator Neal asked if it will be difficult for any particular person to come in and operate a dealership within Mr. Stanko's area? Mr. Stanko replied that to become a franchised new car dealer, the place to look is at the dealers who want to retire and sell out, or through the manufacturers. It is the same with any kind of franchised. Senator Porter asked if A.B. 447 defined that the brokers had to specify "this is a used car" will that satisfy the problem? Mr. Stanko replied that they are misrepresented to the public, that they can get the same new car that the new car dealer can get. That would not satisfy the problem. Tom Porta, Consumer, Self, testified against A.B. 205. He stated that he is in support of the auto brokers and has purchased numerous vehicles through them. The dealerships have honored the warranties for these vehicles. He said he researches the vehicles using the Consumers Digest (Exhibit JJ) to determine which one he wants to purchase and goes to the auto broker to make his purchase. He said he feels the auto brokers provide an alternative service to the consumer and he does not want to see that stopped. He stated that it is hard to stand-by and watch the attempt to put these brokers out of business. Senator Neal asked if Mr. Porta had seen the Consumers Digest for 1994? Last year 1.4 million people had used the brokers services to buy their vehicles with an estimated average savings of $1800 off the sticker price. Senator O'Donnell stated that the "sticker price" is the key. Senator Porter asked if the vehicles purchased through the broker are represented as new cars? Mr. Porta said that he was told the vehicle will have miles on it and will have to be smogged because it is a used vehicle. George Harris, Lobbyist, Auto Brokers, stated that it is a free enterprise issue. He read the definitions of free enterprise, competition, and restraint of trade. Senator Porter asked Mr. Harris about the allegations against the brokers representing themselves as new car dealers when they are not? Mr. Harris replied A.B. 447 will define the auto broker. He said he does not believe it is the intent of a broker to represent themselves as a new car dealer. If what they have been doing is illegal, why have they not been arrested? A.B. 205 seems to be a new car dealers protection act. Zane Sims, Owner Sims Auto Sales, testified they have made available to each of the committee members "Stop AB205" binders (Exhibit KK). Mr. Sims related the service his sales people provide for the public. He spoke of the stories from the consumers about the new car dealers. He said that he does not understand how a competition party can introduce a consumer bill. He stated that there have been 799 complaints against the dealers in the State of Nevada during 1994 (Exhibit LL) and only one was a broker. Mr. Sims said that the American dream is to create a service that the public wants, desires and appreciates. He is providing such a service. Dealers sell to him and make a profit. Senator O'Donnell asked where Mr. Sims buys his cars? Mr. Sims replied that he buys his cars from any new car dealer around the country that will sell him a car. He said he does buy from the dealers in the State of Nevada as well as from outside of the State of Nevada. He buys these cars for resale, not for leasing purposes. He provided a letter from the law office of Lemons, Grundy & Eisenberg concerning a lawsuit against him a few years ago (Exhibit MM). Senator Porter asked when Mr. Sims sells a vehicle, does he sell it as a new car? Mr. Sims replied that he sells it as a used car. He said that the Dealers Report of Sale lists the vehicle as a used car. He said he advises the consumer that he has to pay for a smog check on the vehicle. The buyers guide is in the window with the "As Is No Warranty," which means it is a used car. He said he puts "Manufacturers Warranty Does Apply" in handwriting, which is automatically transferrable. Senator Porter asked if the National Highways Safety Insurance Comparison is on display? Mr. Sims replied that he does not have that on display. He said he is not required to have them because he is a used car dealer. Senator Porter asked if he displays the EPA, franchised or any of the other information? Mr. Sims responded that everything for the consumer is shown in the book (Exhibit KK) under consumer knowledge. Senator Porter asked about the Lemon Law? Mr. Sims replied that in the book, there is information that shows a lady who went through a lemon law vehicle with his company. Senator Porter asked about the Monronie Sticker and customer surveys? Mr Sims replied that the Monronie Sticker is on the vehicle and shows that the broker is charging them a fee. The customer survey is done by the manufacturers and all the information on the purchaser is sent to them. Senator O'Donnell asked how Mr. Sims does his financing? Mr. Sims said he shops around the community for the lowest financing for the consumer with no kick-back. Senator Jacobsen asked if there is any kind of insurance policy on the engine, drive train or anything? Mr. Sims replied that the manufacturer provides that. The warranty is good no matter how many times the vehicle is sold. Senator Lee asked what kind of business license Mr. Sims holds? Mr. Sims replied that he has a used car dealers license with $50,000 bond, and has full insurance on all his vehicles that are driven. He does not have a leasing license. Senator Lee asked if a franchised dealer who sold a new automobile to a used car/auto broker is breaking the law? Mr. Sims replied that is not true. Senator Lee asked if a new car franchised dealer sold a new automobile to an individual for a leasing purpose, does the dealer have to maintain or own it for at least 6-months? Mr. Sims replied that is correct. If a used car/auto broker is a leasing company, they get a fleet incentive on certain models and have to keep that vehicle in his inventory for at least 6- months. Senator Shaffer asked if Mr. Sims sells any cars on recourse, as far as the financing view? Mr. Sims stated that he does not have that kind of money. Senator O'Donnell asked if he takes in used cars? Mr. Sims said he does take used cars. Senator O'Donnell asked if he took the rebate? Mr. Sims replied that he does not take the rebate. Senator O'Donnell replied that he is sort of admitting that he is paying more for the car without the rebate, than the dealers allowed to ... Mr. Sims interrupted stating that the rebate is only for long- term lessors. It is not for the consumer. He is not going to get that rebate. It only goes to the buyer of the car. Senator Jacobsen asked if he solicited any bid business? Mr. Sims replied that it is all word of mouth. He does not do aggressive advertisement. He said he is happy with the amount of business that he gets and does not effect 1 percent of the car sales in Reno. He is the only broker in Reno. Lindsey Freeman, General Manager, The Auto Brokers, testified that he has been in the business for 25 years. He said he did not feel he will ever be able to own a dealership. He has paid a lot of attention to the customer which has built his business. In time he began brokering vehicles for his customers. He said he is against A.B. 205 because it is not in favor of the consumers. Mr. Freeman said when a broker purchases a vehicle from a new car dealer, the warranty is reported to the factory under the customers name. All correspondence is sent directly to the customer. Advertising is not necessary because all his business is repeat and referrals. Senator Lee asked if he had any knowledge of a franchised dealer in Nevada who has a franchised dealership in another state and has sold from that state to a used car/broker in Nevada? Mr. Freeman said he does. Charles Lee, Co-owner, Courtesy Oldsmobile, gave his testimony (Exhibit NN). Senator Shaffer asked if the person returning a vehicle under the "Edge Plan" gets money back, or are they just allowed to chose another vehicle? Mr. Lee replied this is a national program sponsored by Oldsmobile allowing a purchaser 30 days or 1500 miles to exchange for a different new car. Poonum Adams, Co-owner, Network Auto Brokers, Association of Nevada Auto Brokers, testified A.B. 205 is a bill that the new car dealers have discussed as a consumer protection bill. The warranty is put into the customers name and is supplied to the dealership the vehicle is purchased from. There have been 2 vehicles during her time as a licensed used car dealer that have fallen under the Lemon Law and those have been purchased back by the manufacturer. The recall notices are put into the purchasers name so if this becomes an issue they are notified directly. Mrs. Adams stated that the dealers claims against the used car dealers are without validation. The same arguments that apply to the new car dealers apply to the used car dealers. There are new car dealers in the Las Vegas area who sell to brokers outside of Nevada, as well as within the state. She said she is not in the leasing business and does buy from new car dealers in Nevada. Dan Towbin, Chairman, Towbin Automotive Enterprises, Nevada Franchised Auto Dealers Association (NFADA), testified in favor of A.B. 205 (Exhibit OO). In Nevada we have allowed bootleg new car dealers to exist by not having consumer protection laws. He said the franchised auto dealers believe this is a consumer related bill. Senator O'Donnell asked how much a new dealership costs? Mr. Towbin replied that typically with equipment, land and inventory; $8 million. Will Allen, Auto Broker, Sims Auto Sales, testified against A.B. 205. He testified that the new car dealers offer kick-backs if the brokers will buy cars from them. The Pre Delivery Inspection (PDI) is done by the franchised dealer. The dealers Sims Auto Sales buys from are under the same franchised agreement and will go over the same list, to make sure things are correct with the vehicle. Mr. Harris stated that franchises came into effect because somebody wanted the quality of a product to be sold, to stay the same. Manufacturers want to control so they could expand their name across the United States. Senator O'Donnell stated that the reason for a franchises is because a person does not have the capital. Mr. Harris said 51 percent of the ownership stays with the franchises owner. The free enterprise issue is that the broker could not survive unless someone sells them the vehicle to begin with. Mr. Allen said that if you cannot afford a franchised, such as McDonalds, you start a Mom and Pop business and that is where the used car dealership and brokers come from. If a person can do something cheaper and better, the people are going to come to me. Senator O'Donnell said the idea of buying the McDonalds hamburger at a discount and putting it in your establishment would apply in this instance. Senator Porter stated that in the minutes for an early meeting, Paula Treat testified that she does not feel the auto brokers will go out of business if A.B. 205 should pass. He asked if that statement is accurate? Paula Treat, Lobbyist, Nevada Auto Brokers, testified that it is not accurate. One of the misconceptions from that hearing, because Mr. Sims and I were testifying. At one point, a question from Assemblywoman Ohrenschall was to Mr. Sims, `If this bill passed, will you go out of business?' Mr. Sims has 4 different business, as I recall. He meant totally out of business, will I be destitute? No. Not meaning he would still be out of business as far as being an auto broker if [A.B.] 205 went through. That was the misconception there. I believe if you ask Mr. Sparks, he would agree that [A.B.] 205 would put auto brokers out of business. Senator Porter stated that there seems to be no question to the auto dealers having an investment with their franchise, which gives them the right to sell new cars; in comparison to the brokerage end of the business, with zero investment, but competing with the new car dealers. He said the committee nor the Legislature wants to put anyone out of business, but the committee needs to find a way to try to protect some interests. The brokers who are in business are following the laws that protect the consumers. The committee needs to find a balance. Lorena Coward Korbel, President, Southern Nevada Franchised New Car and Truck Dealers Association and Tom Coward Lincoln Mercury, testified that the feeling is that this bill is a compromise. Many people buying from a broker are of the feeling that they are the first owner and will have a warranty honored. The franchised dealers have to go to bat for those people and get the warranty taken care of for the purchaser even though they went to a broker to purchase their vehicle. She stated that that the broker who purchases a vehicle from the new car dealer is actually working as a "bird-dog" for the franchised dealer. The rebate cannot go to anybody except the person buying the car. Senator O'Donnell asked if what she is saying is that the brokers are counting the vehicles bought from the new auto dealers as vehicles purchased to them from the new car dealers. Ms. Korbel said that the only way to register a warranty with the factory, as a new vehicle, as a first owner, is to sell the vehicle to that owner. The factory is being told that the brokerage is the one purchasing the vehicle. She said that the average discount on a vehicle is between 10 and 12 percent. Senator Jacobsen asked how courtesy cars or demonstrates are handled? Ms. Korbel replied that the loan cars they use are registered and have to be sold as a used vehicle at the end of the loan car usage. She stated that she does not have any convertibles and that is what they want for parades. Lars Felix, Owner, The Auto Brokers, testified (Exhibit PP). Senator Shaffer asked if he used "heat merchants" or advertised? Mr. Felix replied that he does not. He only advertises the used vehicles taken in on trade. Senator O'Donnell asked what is a "heat merchant"? Senator Shaffer stated that is a person who uses pressure techniques to sell a product. Jim Shelton, General Manager, Fletcher Jones Toyota, testified that everybody has to play by ethical standards and legal standards. There is still a competing need for people to have the right standard. A.B. 205 sets forth a few clearly stated standards that the market should accept. He said that he thinks this is a sound bill. Maurice F. Gilbert, Consumer, Self, gave his testimony (Exhibit QQ). Also provided to the committee are Exhibit RR, Exhibit SS, and Exhibit TT. Mr. Capurro testified that there is not a franchised situation that he knows of in which the manufacturer maintains 51 percent of the franchise and the dealer owns 49 percent. They are franchised dealerships and they own their business. The dealers are required under the franchise to follow the requirements that they sign for and will provide. It is an independently owned business. He said there is nothing in the bill that will allow a franchised dealers to sell anything other than what he is franchised to sell. Mr. Harris testified he feels the bill is a free trade issue. The brokers are selling used cars. He stated: S.B. 178 from Illinois, will prohibit Credit Unions, Buying Clubs or like; from acting as brokers in sales of new or used automobiles and thus would ban practices described above. It is difficult to see how this would change or benefit consumers or competition. We have no reports of significant or extensive fraud or deception that have injured consumers who participated in these discount sales programs. Law already provides for meaningful protection to the public. Automobile sales are covered by the Illinois Consumers Fraud Act. Consumers would be deprived of potentially substantial savings that they could not obtain if they did not have these alternate automobile purchase programs. Senator O'Donnell stated that since there is no other testimony he adjourned the meeting at 5:35 p.m. RESPECTFULLY SUBMITTED: Diane C. Rea, Committee Secretary APPROVED BY: Senator William R. O'Donnell, Chairman DATE: Senate Committee on Transportation May 2, 1995 Page