Obscure Board Is Behind the Wheel
One of the more peculiar manifestations of California car culture isn’t the grip exerted on our imagination by the automobile; it’s the grip exerted on our economy by the automobile dealer.
What else could explain the extraordinary authority of an entity known as the state New Motor Vehicle Board?
The board, which dates to 1967, holds the power to overrule any disciplinary action taken by the Department of Motor Vehicles against dealers of new cars.
DMV directors have long bridled at this check on their power.
“I was shocked to see it when I got to the DMV,” says Steven Gourley, a veteran regulator who served as director under Gov. Gray Davis. “It was like giving Realtors a board to review decisions by the Department of Real Estate.”
Gourley says the board never reversed any of his decisions, but it cast a menacing shadow.
“Every time the DMV brought or even mentioned an action for fraud against a new-car dealer,” he told the Legislature last year, the dealer threatened to tie up the agency before the board.
It wasn’t an empty threat. In 1997, the board effectively quashed a landmark sanction of Chrysler Corp. (now DaimlerChrysler) by then-DMV Director Sally R. Reed.
The DMV had accused the carmaker of 116 violations of the state’s lemon law by reselling cars that had been returned as defective without disclosing their history. It proposed to forbid Chrysler from shipping new cars to its California dealerships for 45 days, which would have cost the company more than $14 million. The New Motor Vehicle Board, arguing that the sanction would fall too heavily on the dealers, reversed it. The DMV struggled with the case for five more years before assessing Chrysler a nominal $325,000 penalty in 2002.
For the record, a spokesman for current DMV Director Joan Borucki says she has “a good working relationship” with the board.
The details of how this board got created are murky, but the general picture is clear. It was born during the governorship of Ronald Reagan, who counted Holmes Tuttle, the big Ford and Lincoln dealer, among his closest friends and financial backers. Tuttle was one of the first members named to the new body.
The dealers have defeated several efforts to abolish the board.
Last year, Gov. Arnold Schwarzenegger’s California Performance Review listed it among the state boards and commissions proposed for extinction. Yet it was mysteriously absent from the list of boxes to be blown up that the governor submitted to the Legislature this month, an omission that less charitable observers than I might connect with the lavish financial support the state’s car dealers have showered upon Schwarzenegger.
One intriguing aspect of the board is that its appellate authority is concealed behind its more widely used and worthwhile (if still controversial) job -- mediating disputes between dealers and manufacturers.
In fact, I first learned of the board in connection with its mediating function, when a City of Commerce development official I know described the obstacle course his municipality must navigate to develop an auto mall.
Stanley Smalewitz, director of the city’s Department of Community Development, discovered that the moment you propose a new auto dealership anywhere in California, all dealers of the same brand located within 10 miles of your site can try to block it. The body with ultimate responsibility for ruling on such disputes is the New Motor Vehicle Board.
“I’ve been told that that if our dealers are within 10 miles of any others, the others are going to try to extort money from us,” Smalewitz says.
That, of course, is a harsh way of putting it. And not surprisingly, dealers scoff. The whole point of the board, they say, is to level the playing field between themselves and car manufacturers, which are generally the driving force in establishing new locations.
In the days before the board, they add, the big auto companies weren’t above punishing dealers they didn’t like by plunking a new showroom down the street and giving the new guy all the hot models.
The board’s fans say the goal is simply to give any abused dealer the right to petition for redress -- not to extract remuneration from honest competitors.
On the other hand, Tom Novi, the board’s executive director, acknowledges that most such disputes end up settled without board action.
Often these settlements, which are generally confidential, require the manufacturer to mollify the complainant with something of value: a pumped-up advertising allowance, say, or a special allocation of a popular model or -- who knows? -- even cash.
Michael Sieving, who represents dealers in dispute matters, accurately observes that if not for the board, many such conflicts might end up before state judges, who have better things to do. He points out that the dealer members aren’t allowed to participate in manufacturer dispute cases (although they do participate in the DMV appeals), and he adds that the board is entirely financed by assessments on dealers, not taxpayers.
Still, even if one concedes that the board’s mediation role is useful, its DMV override seems to be what the dealers really value. When state Sen. Debra Bowen (D-Marina del Rey) tried to abolish the board’s appellate authority last year while leaving its mediation role intact, her bill died on the Senate floor.
And for all that the dealer community likes to suggest that the board helps out the DMV by giving the agency the benefit of its deep understanding of the car business, they must know that it’s a remarkably potent weapon to wield against any regulator.
“If I were the DMV director,” says Sieving, a former administrative law judge for the board, “I probably wouldn’t like it either.”
Golden State appears every Monday and Thursday. You
can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.
