Private Right to Contract At Risk For Equip. Manufacturers

By CMTA Staff

Capitol Update, July 8, 2005 Share this on FacebookTweet thisEmail this to a friend

AB 585 (Gloria Negrete McLeod, D-Chino) would rewrite existing rules governing the business relationship between equipment manufacturers and dealers. The bill takes the current balanced statute, carefully negotiated a dozen years ago, and radically tilts the playing field in favor of equipment dealers.  

While farm equipment manufacturers are the target of this legislation, manufacturers in general should be wary of the precedent this bill creates.

The bill will change the rules for:
  • successor liability for manufacturers,
  • repurchase of dealer inventory upon cancellation of a contract,
  • circumstances under which a contract can be cancelled by a dealer, and
  • warranty claims

AB 585 adds new and burdensome requirements on small equipment manufacturers when seeking to terminate a dealer contract. For instance, this bill would require a two-year notice, as opposed to the current 90 days, for contract termination when the reason for termination is that a dealer has "consistently failed to meet and maintain the supplier’s requirements for reasonable standards and performance objectives."  This drastic lengthening of the contract termination notice period and extreme non performance required is unwarranted in a business setting and completely skews the dealer-supplier business relationship.  

The measure adds new provisions regulating the submission of warranty claims that did not previously exist in the statute.  Of particular concern, is a provision in the bill that would allow dealers a 15 percent mark-up of parts, plus freight, for all warranty repairs.  Additionally, under this bill, the dealers would receive their full retail labor rate for repairs and, as a result, would not suffer any out-of-pocket expenses.  

It appears that farm equipment manufacturers are being treated differently from other manufacturers, who have more freedom to contract with their dealers.  This proposal is not only unfair to small equipment manufacturers, but could easily establish a precedent for manufacturers in other sectors and is an ominous direction for the regulation of manufacturing.  This bill clearly interferes with the private right to contract.
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