Shift by Dealers May Ditch Truce on Auto Sales
A fragile truce reached two months ago between long-feuding new car dealers and independent automobile brokers over the lucrative California motor vehicle market has collapsed and threatens to sink compromise legislation both sides once praised as good for the consumer.
The delicately balanced agreement vanished 10 days ago when some major dealers shifted their position on the bill from neutral to opposed and hired two high-powered lobbyists to try to kill it.
Contributing, at least indirectly, to the collapse was the recent financial failure of a major dealership and brokerage in Glendora, whose owner, an appointee of Gov. George Deukmejian to the state New Motor Vehicle Board, is believed to have left the country, according to spokesmen for both the dealers and the brokers.
Additionally, leading automobile dealers in Southern California, in an unusual plea for public support, are launching an advertising blitz in newspapers against the bill.
As the Legislature heads toward adjournment Aug. 31, broker spokesmen acknowledge that they face a stiff challenge from the dealers, who have traditionally been generous contributors to legislative candidates.
But Sen. Quentin Kopp (I-San Francisco), chairman of the Senate Transportation Committee who will manage the bill on the Senate floor, said he believes the measure will be approved as early as today despite the 11th-hour opposition from dealers.
“As far as I am concerned, the bill has been scrupulously shaped and I’m skeptical about the so-called problems (of dealers),” Kopp said. “I suspect they want to put the brokers out of business.”
For years, auto brokers--independent agents who claim they can provide new cars at prices cheaper than those of dealers--have insisted that dealers want to drive them out of the fiercely competitive business by prohibiting them from advertising, a vital lifeline for survival.
Dealers dispute that broker prices are more attractive and stress that they merely want brokers regulated by the state in much the same way they themselves are policed by the Department of Motor Vehicles, including restrictions on what can and cannot be advertised.
Typically, brokers purchase automobiles from new car dealers according to the customer’s instruction and resell them to the consumer, who has paid the broker a fee based on the price of the car. Often, the cars are less popular models that dealers have difficulty selling.
Brokers, who usually carry no inventory of their own, maintain they can obtain through computer linkups cars to match the customer’s specifications and avoid the traditional consumer vs. dealer negotiations. They say they can act as a shopper for the buyer.
But dealers contend that the same transaction can be negotiated at the dealership without a middleman. Further, they argue that cars obtained by brokers may not carry a full warranty and that brokers have no service and repair facilities required of a franchised dealer.
However, Assemblyman Richard Katz (D-Sepulveda), chairman of the Assembly Transportation Committee and a supporter of brokers, argues that dealers “want to sell to brokers when things are slow and want to put them out of business when things are OK.”
Biggest U.S. Market
California is the biggest automobile market in the nation. In 1987 alone, 1.1 million new cars were registered in the state. In addition, nearly 546,000 new trucks were registered. Brokers estimate their business accounts for 10% of annual sales.
After nearly three years of combat in the Legislature, a truce was reached in June. The compromise would allow brokers to continue to advertise a vehicle not actually on their premises but not use the word “new.” They could, however, use such terms as “current year” or “never been registered” in offering new cars for sale.
Under a 1971 law, it is illegal for a dealer to advertise a vehicle that is not on the premises or easily attainable but this provision has not been enforced by the Department of Motor Vehicles against brokers.
The Assembly-passed bill, by Assemblyman Elihu Harris (D-Oakland), sailed out of the Senate Transportation Committee unanimously in June and was assigned to a fast track for expected quick approval by the full Senate. Battle-weary representatives of both sides called the compromise good for themselves and the consumer.
Legislators and representatives of dealers and brokers say the compromise began to unravel last month when members of the Motor Car Dealers Assn. of Southern California and some northern dealers had second thoughts and expressed fear that the measure gave too much to the brokers.
Bankruptcy Move
The action coincided with disclosure that the Chevrolet dealership of Eminiano (Jun) Reodica and his related car broker and other businesses had filed for protection from creditors under the federal bankruptcy code and that Reodica apparently had fled to his native Philippines as government investigators began examining his financial affairs.
Reodica was reappointed by Deukmejian to the state New Motor Vehicle Board in February, two months after the Department of Motor Vehicles fined Reodica-operated companies $100,000 for selling used cars as new and for failing to submit required registration information on time.
Deukmejian has said he believed when he reappointed Reodica that he had corrected his problems, but subsequently warned him in a telegram Thursday that unless he provides a satisfactory explanation he will be removed from the board. The governor’s office said Saturday that no explanation has been received and that the governor will begin the removal process today. The board hears appeals from decisions of the department.
Meantime, the Motor Car Dealers Assn. of Southern California and a splinter group of Northern California dealers abruptly abandoned their neutrality on the bill and hired two capital lobbyists--George Steffes and Clay Jackson--to oppose its passage.
However, the Northern California Motor Car Dealers Assn. refused to back out of the agreement. One source with ties close to the northern dealers association, who asked not to be identified, said both the southern dealers and the splinter group of northerners used the Reodica controversy as an excuse to oppose the bill, which they never favored in the first place.
Seen as an ‘Excuse’
“It had nothing to do with (the bill),” said another source, who also asked for anonymity. “They are using it as an excuse to go back on their agreement.”
Jay Gorman, executive vice president of the southern dealers group, said that many dealers were unhappy with the compromise bill and that the Reodica affair provided “the catalyst” for rallying opposition to the legislation.
“We didn’t want to be part of legislation which was going to allow further frauds to take place,” Gorman said. “Hey, in the perception of a lot of people it’s a fraud when you advertise something you don’t have.”
Gorman said he understood that 80% of Reodica’s business was conducted through his brokerage, Grand Motors, a point disputed by broker spokesmen.
Shortly after the June compromise, the state Office of Administrative Law reaffirmed an earlier decision that called for enforcing against brokers the law prohibiting dealers from advertising for sale cars not on the dealership’s premises.
One legislative source suggested that the dealers, now equipped with an administrative ruling in their favor, no longer have any need to pursue passage of the compromise.
