Car Dealers, Brokers Call ‘Turf Battle’ Truce

New car dealers and independent automobile brokers, fierce combatants in the Legislature for nearly three years, abruptly called a truce Tuesday and agreed on a compromise bill that they touted as good for the consumer.

The heavily amended proposal then whipped out of the Senate Transportation Committee on a 10-0 vote, as lobbyists for both sides voiced cautious optimism that the self-described “turf battle” over the California car market was at an end.

At the heart of the fight is the claim of the independent automobile brokers that new car dealers want to eliminate competition and put the brokers out of business by forbidding them to advertise their vehicles as new.

The new car dealers deny such assertions and contend they merely want the state to enforce a 1971 law prohibiting dealers and brokers from advertising or offering to sell a car that is not actually on the premises. The Department of Motor Vehicles has virtually ignored enforcement of the statute.

The approximately 500 brokers statewide, most of whom carry no inventory but operate computer networks to find a certain car asked for by the customer, contend that they can offer the consumer a price ranging from 2% to 20% less than the manufacturer’s suggested retail price.

The brokers purchase the vehicle from a new car dealer, resell it to the buyer and charge a fee or commission. The automobile, although it has been resold, is technically not new but has never been registered.

The new car dealers, some of whom do not sell cars to brokers, maintain that a buyer can obtain the same deal from them as that offered by brokers.

Since the summer of 1985, franchise dealers and brokers have battled in the Legislature over dealer efforts to prevent the brokers from advertising cars not actually on their premises. Fragile compromises repeatedly have been reached, only to collapse.

But the latest effort, hastily fashioned in the past week and presented to the committee as amendments to a bill by Assemblyman Elihu M. Harris (D-Oakland), represented a truce.

Under the compromise, automobile brokers went along with a dealer proposal that would prohibit brokers from advertising their vehicles as new. Broker spokesmen said, however, they still could advertise them, for example, as a “1988 Toyota” or “a current year Chevrolet.”

In exchange for retreating on the advertising issue, the dealers agreed to a provision that for financing purposes, the vehicle would be considered new. New car loan interest rates are lower than the rates charged for used cars.

“This was critical for us and for credit unions and the banks,” said Bill Dohring, lobbyist for the brokers.

Credit unions are among the biggest supporters of automobile brokers.

“What had gone on as a turf battle ultimately has become a good consumer bill,” Dohring told the committee.

His counterpart, Loren Smith, representing the franchise dealers, told the committee in a prepared statement that the compromise provided reasonable standards for broker advertising, “preserves” the automobile franchise system and “protects consumer interests.”

Outside the hearing room, Smith said the battle “is over as far as we’re concerned.”

“It is kind of like resolving differences to avoid the hazards of litigation,” he said.

Last year, the Department of Motor Vehicles decided to enforce the largely ignored 1971 advertising law, an action brokers said would drive them out of business unless the law was rewritten to protect them.

The department’s decision was endorsed by the state Office of Administrative Law, which subsequently agreed to reconsider the issue, a move that gave the brokers and dealers more time to work out a compromise in the Legislature.