The Committee on Transportation was called to order at 1:43 p.m., on Thursday, May 6, 1999. Chairwoman Vonne Chowning presided in Room 3143 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mrs. Vonne Chowning, Chairwoman

Ms. Genie Ohrenschall, Vice Chairwoman

Mr. Douglas Bache

Mr. John Carpenter

Mrs. Barbara Cegavske

Mr. Jerry Claborn

Mr. Tom Collins

Mr. Don Gustavson

Mrs. Kathy McClain

Mr. Dennis Nolan

Mr. David Parks

Ms. Bonnie Parnell

Mr. Kelly Thomas

GUEST LEGISLATORS PRESENT:

Senator William O’Donnell, Clark County District 5

Senator Raymond Shaffer, Clark County District 2

Senator Dean Rhoads, Northern Nevada District

Senator Randolph Townsend, Washoe County District 4

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Mrs. Chowning informed the committee the meeting was being teleconferenced to Las Vegas. She then opened the hearing on S.B. 302.

Senator William O’Donnell, Clark County District 5, read from prepared testimony (Exhibit C). Several years ago his wife, Mary O’Donnell, was involved in an accident at the Carson City Airport. She was attempting to enter the airport through one of the automatic gates. The gate did not open when she drove up so she reached through the fence to push the only visible button to operate the gate. She had expected the gate to sound an audible tone and give a 5 second delay prior to the gate opening like their gate installed at their home did since the operators were the same; however, the gate immediately began opening and broke her arm in six places. Luckily she was able to pull her arm free prior to the gate opening fully. They discovered the operator at the airport did not operate the same as the operator at home even though the two gate operators were from the same manufacturer and the same model. The operator at their home had more advanced warning equipment. The manufacturer never notified the airport the gates posed a potential danger and should be equipped with the latest warning devises. They sued the airport and settled out of court. They also sued the manufacturer of the gate operator, but lost. The manufacturer then sued them for $7,000, which they paid. Since that time, they had discovered a 48-year-old Florida woman had been killed in January 1999 by the same gate operator.

Senator O’Donnell explained the intent of the bill was to require all gate manufacturers to retrofit the gates with an audible alarm and a delay so no one else would be injured or killed by the gate operators. No gate was currently sold without the warning devices; however, there were hundreds of gates in Nevada without the warning devices. The idea was similar to recall notices being sent for cars. For example if a car was manufactured with faulty brakes the manufacturer should pay the costs of repairing the brakes. The problem with the operators was a manufacturer’s defect and caused serious injury to anyone who was caught in the path of the gates unless warning devices were retrofitted. The committee would hear testimony from the manufacturers that they would not be able to locate all the gates to even inform people of the standards. The manufacturers could care less where the gates went once they were sold to the distributors. They should know where the gates were. The bill would not require the state or local entities to locate the gates. The responsibility of locating the gates was with the distributors and manufacturers. It was imperative manufacturers and distributors locate and retrofit the gates with the proper safety devices at their cost to solve a deadly problem.

Mrs. Chowning observed the legislation would apply to all vehicular gates in Nevada, which would affect certain condominiums and homeowners associations. She understood Senator O’Donnell would be willing to amend the language and asked him to explain how he wanted to change the language. Senator O’Donnell stated there were two types of vehicular gates: a swinging type and a slide type. The slide gates were the types of gates about which he was concerned and would prefer the committee amend the bill to only pertain to the slide gates. The amendment would remove concerns from homeowners associations and condominiums since they predominately had swinging gates installed.

Mrs. Chowning inquired where the slide type gates were generally installed and approximately how many there were in the State of Nevada. Senator O’Donnell remarked the gates were used at commercial facilities and private residences. They were not normally used at condominiums or homeowners associations because the gates required more room for operation than the swinging gates. The gates required a space double their actual length to open.

Assemblywoman Cegavske expressed regret for the pain his wife had suffered. She contemplated if the gate manufacturers had sent any notices to their distributors informing them of both his wife’s accident and the death in Florida and the potential hazards with the gates. Senator O’Donnell relayed it was discovered through depositions the manufacture had sent several alert defect notices to their distributors; however the homeowners were not informed of the problems.

Mrs. Cegavske noted the manufacturer and the distributors did not pass the information on to anyone to whom they had sold the gates. Senator O’Donnell claimed that was the exact problem and one of the reasons behind the legislation.

Mrs. Cegavske commented he had identified two safety features, the warning alarm and delay. She wondered why both had malfunctioned. Senator O’Donnell stated the Carson City Airport did not have their gate retrofitted with the tech pack, which contained both features.

Mrs. Cegavske asked what was the cost of the tech pack. Senator O’Donnell indicated the package cost approximately $89 retail and would only need to be plugged into the gate operator box.

Assemblywoman Ohrenschall questioned the definition of mechanical power and if it included electrical power. Senator O’Donnell mentioned any kind of moving gate was operated by electrical power. An electrical motor and not a magnetic device operated the specific gates to which he was referring.

Ms. Ohrenschall wondered if the bill should be amended to mention electrical power. Senator O’Donnell stated he did not have a problem adding electrical power to the bill.

Mrs. Chowning contemplated if someone other than the manufacturer or the installer had modified the gate at the airport. Senator O’Donnell revealed the gate had been modified; however, the modification had nothing to do with the alarm or the delay. The tech pack containing the warnings had never been installed in the gate.

Mrs. Chowning mused if the tech pack had been installed his wife would have been given sufficient notice before an accident would have occurred. Senator O’Donnell suggested if the $89 upgrade had been installed his family would not have gone through the tragedy.

Mrs. Chowning remarked only if the device was kept engaged, unlike the Florida incident, which had been disengaged. Senator O’Donnell claimed the device was disengaged in Florida because someone living in the condominium project had been irritated with the tone.

Mrs. Chowning articulated those who made the laws could not legislate everything. Senator O’Donnell agreed.

Mrs. Chowning indicated she had two specific concerns with the legislation. The first was the bill allowed a 3 month period in which locate and retrofit all gates, but they did not know how many of the gates were in Nevada. If there was no estimate of the number of gates to be retrofitted, there was no way of knowing if the companies would be able to comply with the legislation. The other concern was they did not know who all the manufacturers were or if they were still in business. Senator O’Donnell communicated the language in the bill was drafted as to allow the companies not to retrofit the gates; however, if they did not retrofit the gates they would be liable for any accidents. He felt 3 months was more than enough time for the companies to locate and repair the gates, but he would not have a problem amending the timeline to no more than 12 months.

Mrs. Cegavske wondered if any other states had implemented similar legislation. Senator O’Donnell commented to his knowledge there were none.

Assemblyman Nolan asked if the family of the victim in Florida was able to recover any damages from the manufacturer. Senator O’Donnell mentioned there had not been any decision regarding the case. He pleaded with the committee not to let the accidents with the gates continue.

Matthew Sharp, representing Nevada Trial Lawyers Association, testified in support of S.B. 302. During their research regarding the concept of the legislation they discovered the case regarding the young woman in Florida. She had come from a prominent Chicago family who had launched an investigation of the gates. They were kind enough to share some of the information they had uncovered. Nationwide research had uncovered various persons who had been seriously injured by the particular gates addressed in the bill. Based upon those facts the Nevada Trial Lawyers Association strongly supported the legislation before the committee since it confronted the problem head on and promoted corporate responsibility.

Mrs. Chowning inquired what exactly were the ramifications the manufacturers would face if they did not install the device, since the legislation required the manufacturers and not the installation companies to install the tech packs. Mr. Sharp informed the committee the majority of gates currently being installed had the safety features being discussed. Mainly Stanley Corporation had manufactured the gates in question to the bill. The legislation would require the manufacturers to locate specific gates and retrofit them with the safety devices. If the gates were not retrofitted the manufacturer would be held "negligent per se," which meant if the gates were not retrofitted the manufacturer would be deemed negligent and if the failure to install the devices resulted in an injury they would be held accountable. The bill would only penalize those manufacturers who were irresponsible in not retrofitting the gates.

Mrs. Chowning asked if Mr. Sharp had any resolution to the issue of locating the gates and the notification process. Mr. Sharp felt the manufacturers would be notified through the Manufacturers Association and trade organizations.

Ms. Ohrenschall questioned how many people had been injured due to the gates in the past 10 years both nationally and in Nevada. Mr. Sharp clarified the investigation conducted by the Nevada Trial Lawyers Association consisted of contacting the family of the Chicago judge since they had been researching the problem. The family had informed the association they had received several hundred complaints regarding the gates. Senator O’Donnell mentioned there had been enough people in Nevada injured by the gates that the manufacturer sent 25 to 30 alert notices to the distributor. Underwriters Laboratory (UL) had create the UL 325 standard to install the gates because they had so many problems.

Assemblyman Carpenter wondered what would happen if the manufacturer installed the safety devices and someone was still injured by the gate. Mr. Sharp explained the manufacturer would be protected from the legislation if the device was installed but could be held negligent under common law liability. The difference between negligence and negligence per se was negligence required unreasonable conduct whereas negligence per se was a violation of a law.

Mr. Carpenter queried if the primary manufacturer of the gates in question was the one company mentioned, Stanley Corporation. Mr. Sharp stated the information they received from Chicago was mainly with regard to the Stanley gates.

Mr. Carpenter asked how long they had been installing gates with alarms. Mr. Sharp indicated he was unsure. Senator O’Donnell mentioned the alarms had been installed with the gates since 1988.

Deidre Hammon, representing Citizen’s Alliance for Disability Rights, informed the committee the legislation would require the gate manufacturers to alter existing gates which would require the alterations to comply with the Americans with Disabilities Act (ADA). The current language in the bill only required only an audible alarm be placed on the gate which would fall short of requiring provisions for individuals who were deaf. Since the gates in question would access public roads and right-of-ways the committee needed consider amending the bill to include other alarms. She presented the committee with information on the UL 325 standards (Exhibit D). The standards included six different provisions for alarms, which included visual alarms.

Mrs. Chowning expressed ADA regulations would have to be taken into consideration to assure the legislation complied with federal law.

Charleen Key, Las Vegas resident, testified she lived in a condominium complex with swinging gates. With the proposed amendment from Senator O’Donnell they would not be affected by the legislation.

Assemblyman Collins wondered if the gates in the complex swung towards the vehicles or away from the vehicles. Ms. Key explained the gates swung away from the vehicles.

Mr. Collins noted some of the swinging gates swung towards the vehicle causing damage if the vehicle was too close to the gate. Ms. Key indicated the system used at the complex had an elevated arm, which informed the individual when was opening.

Ray Bacon, representing Nevada Manufacturers Association, testified against S.B. 302. He explained the association had certain concerns that they would like the committee to consider before acting on the bill. The first concern dealt with the wording of the bill. It was unclear whether the legislation was to affect the gate manufacturers or the gate operator manufacturers. The second concern was the retroactivity of the legislation. The gates in question went back as far as World War II. Finding every gate installed since then would be extremely difficult. The third concern was people bought gates for security, not safety. The industry agreed the consumer should expect a certain level of safety when purchasing a product, but in almost every accident he discovered either the gate had been modified or the injured party was doing something in violation of the security issue. The gates were not defective at the time they were sold and installed. The industry appreciated the problem; however, they believed it was impossible to legislate every situation. The final concern was who would be held liable if the owner of the gate did not want the device put on their gate. The manufacturers and installation companies could not enter or alter private property if the owner did not authorize it. The language in the bill would still have the liability on the manufacturer is such an instance was to occur.

Mr. Bacon presented the committee with seven recommendations for the bill (Exhibit E). The first recommendation was to allow the bill to affect only future installations after the UL 325 standards were in effect on March 1, 2000. Nevada was faced with an excellent opportunity to control the standards of future installations. The UL 325 standards also addressed a wider variety of gates and features than the bill. The second recommendation would only retrofit gates installed in the past 2 years. Since electrical gates had been used commercially since World War II there was no way the industry would be able to find all the gates or the manufacturers. There had been a large consolidation of the industry within the past 20 years so not all manufacturers were still in operation. The third recommendation was an alternative to the second, which was to require the state through the Department of Motor Vehicles and Public Safety (DMV & PS) to locate all gates in Nevada. The recommendation also included a provision that would allow the manufacturers to offer an upgrade to the owners, but the owner accepted the costs. The fourth recommendation would exempt private property from the conditions in the bill. The fifth recommendation would clarify which gate manufacturers the bill would affect. The sixth recommendation placed exemptions in for the manufacturer, such as they would not be held liable if the gate had been modified. The final recommendation would require local governments to change their building codes to allow for an audible alarm on public gates.

Mrs. Chowning indicated the committee understood not every manufacturer or gate would be found, but if the legislation would prevent another tragedy it did need to be seriously considered. She wondered if the cost to retrofit the gates was truly as little as the $89 suggested by Senator O’Donnell. Mr. Bacon commented the cost to retrofit the gate would depend on the age of the gate. If the gate were from the 1940 era, it would probably need to be completely replaced versus a gate installed in the past few years.

Mrs. Chowning expressed to give the issue the time and justice it deserved she would appoint a subcommittee with Assemblyman Collins as chairman. Other committee members appointed were Assemblymen Cegavske, Claborn, and Gustavson.

Mrs. Cegavske inquired if the manufacturers in Nevada received the alert notices mentioned by Senator O’Donnell and if they attempted to notify the consumer. Mr. Bacon informed the committee there were no manufacturers of the operators in the State of Nevada, only manufacturers of the gate fabrication. He was unsure if any of the manufacturers outside of Nevada had received the notices and attempted to notify their customers.

Ms. Ohrenschall inquired if there was any incentive for the property owner to allow the manufacturer on their property to inspect a gate if the manufacturer could inform the owner the gate needed to be completely redone. Mr. Bacon revealed as the bill was currently written the owner could refuse to allow the manufacturer access to the gate and the manufacturer would still be held liable.

Ms. Ohrenschall wondered if the bill should be amended to include language placing some liability on the owners. Mr. Bacon suggested the third recommendation they had presented to the committee addressed such instances (Exhibit E).

Naomi Angel, representing Door and Access Systems Manufacturers Association (DASMA), read from prepared testimony (Exhibit F). DASMA represented 12 automatic gate operator manufacturers. They supported activities that fostered safe gate installations, but felt S.B. 302 would only create a disservice to the citizens of Nevada. The UL 325 standards had been developed by various organizations since 1993. The new standards would offer the citizens of Nevada greater safety features and more options, effectively extending the benefits of S.B. 302.

Joseph Hetzel, technical director, DASMA, continued with the prepared testimony presented by Ms. Angel (Exhibit F). S.B. 302 and the UL 325 standards did share the common purpose of the installation of safer gate systems; however, S.B. 302 did not approach the level of completeness or balance between safety and security encompassed by UL 325. DASMA could not support the legislation for future gate installations since there was a better alternative for gate customers in Nevada, one that covered a wider variety of situations. They also could not support the bill for existing gates for reasons previously stated.

Mrs. Chowning questioned if the installation of the audible alarm would cost the $89 stated by Senator O’Donnell. Mr. Hetzel explained as a trade association DASMA normally did not involve themselves in the discussion of costs. Based on his personal knowledge of the products the cost of the device and installation would depend on the age of the gate. He felt it would be more than $89. Ms. Angel stated many of the older operators could not be reengineered to accept the alarms. They would have to be removed and a new operator installed.

Cheryl Blomstrom, director, State Governmental Affairs, Nevada Chapter, The Associated General Contractors of America, indicated they were against S.B. 302, but she would be willing to work with the subcommittee.

Ken Dietrich, service manager, Artistic Fence Company, testified against S.B. 302. They were a small company that fabricated and installed gates. They purchased their gate operators from a supplier. Their primary concern as a business was safety. They inform each individual customer the various safety options on gates including the location of the access device. They made it a point never to place the access device near any mechanical area of the gate. When they installed automated vehicular gates they informed the customer the gate was for vehicular access only and a pedestrian access gate should also be installed as a secondary access.

Mrs. Chowning asked if Artistic Fence Company installed the gate at the Carson City Airport. Mr. Dietrich responded they had not installed the gate but currently held a service contract with the airport. At the time of the accident involving Mrs. O’Donnell their service contract had expired and the city of Carson City had hired a general maintenance person to service the gate. The individual had installed the access device in the area of the gate operator.

Mrs. Chowning pondered if Mr. Dietrich felt the device had been installed incorrectly since someone was able to activate the gate manually. Mr. Dietrich remarked the device had been installed incorrectly for two reasons. The device was too close to the gate and the motor.

Mrs. Chowning inquired if Mr. Dietrich would be willing to work with the subcommittee. Mr. Dietrich stated he would.

Mr. Carpenter wondered if Mr. Dietrich currently installed the audible alarms on most gates. Mr. Dietrich mentioned Stanley Corporation was the only manufacturer which had an audible alarm built into their operators. The other manufacturers had other safety devices built into them, such as load bearing motors, which would stop the gate if the load became too heavy. There was also a safety device for vehicular gates in case a pedestrian accessed the area. The device, known as a Miller Safety Gate Edge, was a rubber strip with a pneumatic switch that would stop and reverse the gate when depressed.

Mr. Carpenter questioned if the audible alarm would have prevented the accident. Mr. Dietrich claimed there were too many variables for him to speculate if an alarm would have prevented the accident. Common sense would dictate someone should not stick their arm through a gate especially if they knew there was a mechanical device operating the gate. The load monitoring devices on all new gates would have detected the additional weight and caused the gate to stop and reverse.

Nannette Moffeit, Nevada resident, indicated she did not know anything about gates but opposed the legislation as a small business owner. She had been a real estate agent for over 28 years. When she began, selling property the standard contract was one page; currently contracts were at least six pages and contained various disclosure statements. As the laws changed she was not required to contact every customer she had dealt with to inform them of the new laws and require them to comply with the new standards. When new laws were instituted businesses were not required to inform every customer they had ever dealt with about the changes. New laws were based on new information and could not be implemented retroactively.

Mrs. Chowning closed the hearing on S.B. 302 and opened the hearing on S.B. 387.

Warren Hardy, representing Quality Towing, stated S.B. 387 would clarify a state law regarding the Nevada Highway Patrol (NHP) regulations.

Clark Whitney, general manager, Quality Towing, testified NHP policy did not allow one company to own more than one towing business on their tow rotation. The industry understood the reasons behind the policy and agreed with those reasons. The reasons behind the policy dealt with the NHP knowing who was going to remove a vehicle from the scene of an accident. If two of the companies merged the NHP could call the first company on the list. If that company had no trucks available they could simply call the other company with which they had merged. The NHP would not know which company was picking up the vehicle or who to call if the truck was delayed. An unfair advantage would be created and the industry did not want that to happen. The problem was the value of the business decreased if the company was removed from the rotation. Typically the businesses were bought by fellow competitors who wanted to keep the businesses separate; however, if the business would no longer be allowed on the rotation the current owner would not be able to receive a fair price for their business.

Senator O’Donnell informed the committee there were five tow companies on the rotation when the problem arose in December 1998. Company A acquired company B, similar to United Technologies acquiring Boeing Corporation. They were separate companies with separate operations, but Nevada law stated if one company had a pecuniary interest in another company they could not be on the rotation. An economic advantage was created for the remaining companies on the rotation since they no longer had to compete with an additional company for NHP rotation time. The bill would place the company, which was removed from the rotation, back on it and reestablish the economic situation from December 1998.

Mr. Carpenter observed the wording of the bill only dealt with companies on the same insurance policies. He questioned how placing the language in statute would help since the affected company should simply be able to purchase another insurance policy to remain on the rotation. Mr. Hardy mentioned the industry had chosen the language in the bill carefully since they wanted to protect the original integrity of the NHP policy. They did not want one company to be able to call the company with which they had merged if the first company did not have trucks available. The companies must remain separate in every way with only the insurance in common to remain on the rotation, which meant they had to have separate business licenses, employees, and equipment.

Ms. Ohrenschall wondered if the committee could receive copies of the NHP policies being discussed. Mr. Hardy indicated he would provide them for the committee.

Ms. Ohrenschall questioned why the NHP did not simply add another company to their rotation system when one company was taken off the list, which would keep the numbers consistent. Mr. Hardy replied currently any tow company that qualified and desired to be on the rotation was on it. The NHP had an excellent policy of determining which companies would be on the rotation. Their standards were very high to ensure quality and safety was consistently met. The intent the industry had in bringing the legislation before the committee was the value of a company decreased up to 20 percent if it was removed from the rotation. If someone wanted to sell their company they would not be able to receive a fair price for their company.

Ms. Ohrenschall commented the company would have more value to the buyer who was not on the NHP rotation and wanted to be. It would be worth a greater amount to that company than the one currently on the rotation. Mr. Hardy suggested the scenario was correct; however, the likelihood of it occurring was minimal since most of the companies with enough capital to purchase one of the companies on the rotation were already on the rotation.

Ms. Ohrenschall felt the companies should look at the smaller businesses, as potential buyers to promote competition should. Mr. Hardy suggested the industry wanted to preserve the status quo since the situation presented itself after an acquisition had occurred. The situation had created a very exclusive market for the tow companies involved in the rotation since not all companies who desired to be part of the rotation could be.

Mr. Nolan asked if there were other tow companies thriving in the area that chose to hold private contracts instead of being on the NHP rotation. Mr. Whitney mentioned there were several companies that could qualify to be on the rotation but chose not to be. There were a variety of requirements to be placed on the NHP rotation list including being available 24 hours a day, 7 days a week, size of the lot, driver certification, and trucks. Recently a company had removed themselves from the list because they felt it was no longer profitable to meet all the requirements. It depended on the company if they wanted to qualify or not.

Mrs. Chowning observed the language in the bill presented the perception the legislation was in the interest of a single company. She understood the argument to be if a company was purchased by a parent company but remained a separate business they should still be allowed to remain on the rotation; however, the parent company would be receiving twice the economic benefit. Mr. Hardy revealed the policy stated companies were deemed to be under common ownership if five criteria were met, common insurance policies being one of those criteria. While there was a potential for one company to receive more financial benefits the more important issue was the value of the company to the seller.

Mrs. Chowning indicated the legislature also had to protect the economic welfare of the other businesses. They were also Nevada companies with Nevada employees. Mr. Hardy remarked the other companies would not be affected financially by the legislation. They were only attempting to remove an NHP policy that was having an economic impact on the private sector.

Mr. Collins disclosed since the industry had to deal with a state agency there were a variety of requirements which had to be met. There were only five on the rotation because the other companies probably did not want to meet the requirements. The three remaining would not be affected because the rotation schedule would remain the same. It was much like the situation with the State Industrial Insurance System (SIIS) a few years ago where there were five companies in the south and three in the north. If two of the companies merged they were still doing the same amount of work as the other companies. The volume and benefits did not change simply because two companies were under common ownership. He felt the correction was a technical one.

Ms. Ohrenschall stated if the five companies each had 20 percent of the market, they all held equal negotiating ability and equal control over the process. If one of the companies were acquired by another then one company would have 40 percent of the market and hold greater power over the smaller businesses. It was similar to the situation with the Howard Hughes Corporation a number of years ago. They owned the Desert Inn, Sands, and the Frontier and wanted to purchase the El Rancho Vegas. They were stopped by the United States Justice Department who stated they could not buy the casino because it would give them oligopoly control over the strip gaming market and was a violation of the Sherman Antitrust Act.

Mr. Hardy relayed the exact situation that brought about the legislation dealt with South Strip Towing. The owner, Mark Keller, made the decision to be acquired by another company so he would be able to provide his employees with insurance and retirement benefits which he had not been able to provide as a small family owned company. He became aware of the regulation after he had been acquired and had to inform his employees while they now had benefits they had lost 25 percent of their business. It was that inequity the industry wanted to protect. He reiterated the comments made by Assemblyman Collins in that no company would be damaged by the legislation. Someone high up in the parent company might see the difference in profits, but Nevada businesses and employees would not. The two businesses, while owned by the same parent company, were marketplace competitors. If the NHP called one of the businesses on the rotation they would not have the option of calling the other business. The industry wanted to protect the local owners and employees, which was what the legislation attempted to do.

Daryl Capurro, representing Nevada Motor Transport Association, testified in support of S.B. 387. He offered the committee a different perspective in which to view the bill. In the large metropolitan areas of the state the third party towing the companies might represent only 15 to 25 percent of their business; however, in the rural areas of the state that same businesses represented 50 to 60 percent of the tow business. The rotation list was made up of tow companies specific to geographic areas in the state. Some areas did not have five companies in the area, so the rotation list would consist of the three qualified companies in the area. If one of those companies was acquired and not allowed to remain on the rotation list a monopoly would be created. He asked the committee to view the affects of the legislation on other areas of the state and not simply the large cities.

Mrs. Chowning expressed the perception was the bill was special legislation which was crafted for one particular company. Mr. Capurro conceded at the present time there was only one company the legislation would affect; however, there was future potential the current policy could adversely affect other companies. They were before the committee to prevent the situation from reoccurring.

Mr. Nolan observed the situation was unique with respect to the towing arrangements of the NHP, but it was not unique in that there were a variety of similar arrangements for various utility services. For example the Reno/ Carson City area had three ambulance companies on a rotation schedule until a municipal contract was set with one company. The municipalities elected to preserve the market shares for the other companies since the profit margin remained consistent. Most large cities had a mortician rotation that also operated in a similar manner. There was the appearance the legislation was specific but it was not as uncommon as some thought.

Mark Keller, owner, South Strip Towing, testified in support of the legislation. His employees worked on a commission basis and relied on the NHP rotation for part of their income. They were hoping he would return with good news.

Mr. Whitney mentioned to set the record straight there were actually six companies on the NHP rotation in Las Vegas, not five. He felt the legislation might appear to be specific to one company; however, it would benefit all tow companies in the long run since they would able to receive a fair price if they sold the company. He remarked there was no negotiating power involved with the NHP. They were the agency that set the regulations on how the rotation would work and if a company did not follow those, they were taken off the rotation.

Ms. Ohrenschall questioned why the industry did not take the issue to the court system since that appeared to be the proper venue for the issue. Mr. Whitney thought the proper venue for the issue was the legislative branch since it dealt with policy.

Senator Raymond Shaffer, Clark County District 2, explained he was before the committee at the request of constituents who felt they would be adversely affected if the legislation were enacted. After listening to the previous testimony he wondered if a state agency should be responsible for enhancing the value of private industry. He commented the bill contained a mandate to the NHP to reinstate the one company removed from the rotation list, which did not lend itself to free market competitive opportunities. He presented the committee with a memorandum from the Attorney General’s Office, which indicated the legislation could be in violation of federal antitrust laws (Exhibit G). The Office of the Attorney General was unable to intervene in determining the actual legality of the legislation due to the "state action doctrine." The doctrine precluded the office from involvement in matters taken by or at the direction of state governmental bodies (Exhibit G). They did believe if they could intervene they would find the legislation illegal since the only recourse for the remaining tow companies was through the Nevada Legislature.

Mrs. Chowning remarked the Attorney General’s Office was prohibited from intervening due to the "state action doctrine." Senator Shaffer indicated the "state action doctrine" was an exception to the Sherman Antitrust Act created by the United States Supreme Court.

Mr. Nolan questioned why the Attorney General’s Office could not render an opinion on the legislation since all legislators requested opinions from their office on a regular basis regarding the legality of pending legislation. He inquired if Senator Shaffer had been on the original committee that heard the bill in the Senate and if the present information had been known, how it passed. Senator Shaffer related the memorandum was what he had received from the Attorney General’s Office when he made the inquiry. The bill was passed out of the Senate committee with a vote of four to three then amended on the Senate Floor and passed by one vote. He had received several calls from constituents who were concerned about the legislation, which was why he was speaking against the bill.

Mr. Collins communicated the Nevada Revised Statute (NRS) indicated there could be more tow companies on the rotation if they met the requirements. From testimony heard there were only six companies that chose to meet those requirements. A comparison to the situation would be if he owned a smog business and sold the business to someone else in the smog industry the person buying the business would still be able issue certificates at the new location because the license would be included. If the license were not included with the business, it would not be worth the same amount. The principle was the same. Senator Shaffer felt the two situations were entirely different. The NHP chose the companies that were to be on the rotation. Currently there were six slots on the rotation. More could be added if needed, but the determination was with the NHP and not the individual tow companies.

Mr. Collins expressed he did not want to disagree with Senator Shaffer but did not see where the NRS stated the NHP chose the companies on the list.

Colonel Michael Hood, chief, NHP, indicated he was not present to offer any testimony, only to answer any questions the committee might have.

Mrs. Chowning requested clarification on how companies were chosen to be on the NHP tow rotation list. Colonel Hood informed the committee any company could be on the rotation list as long as they met the qualifications. The NHP did not restrict the number of tow companies on the list; therefore there could be 50 companies on the list if they met the proper qualifications. They did have strict requirements to be on the rotation and not all companies chose to meet the requirements.

Mrs. Chowning observed currently there were six companies who met the standards, but there could be any number of companies on the list. Colonel Hood stated there were six who met the qualifications and had applied to be on the list. If other companies met the qualifications and chose to apply the number of companies could increase indefinitely.

Mrs. Chowning asked if the NHP had any concerns with the legislation since it essentially mandated that they could not remove a business because of a merger. Colonel Hood declared he could not change NHP policy to accommodate the specific needs of any business with which the agency dealt. If the legislature changed the policy he would abide by the law, but he would not change the policy. He did not have the authority to make laws to suit the requests of private industry.

Mrs. Chowning inquired about the agency’s perspective on why the company was removed from the rotation list. Colonel Hood revealed current policy did not allow a tow company to remain on the rotation list if it held multiple interests in other tow companies. The policy was set prior to his appointment and had remained after standard reviews of policy. The NHP attempted to provide equal opportunities to all businesses with which it dealt and did not feel it was their place to provide any advantages for anyone. There were certain parts of the state in which there were only a few tow companies on the list and if two of those companies merged there was a potential for only one company being placed on the list. The situation only occurred in the rural areas of the state since the urban areas had many companies on the list.

Ms. Ohrenschall inquired if there was any kind of appeal process in the agency for companies that disagreed with the policy. She wondered if there were administrative steps that could have been taken or if the grievance should have been taken to court. Colonel Hood commented he was not the final authority with the NHP, and the decision could have been appealed.

Ms. Ohrenschall asked if there had been any appeal of the decision. Colonel Hood stated when the issue first arose he had made the position of the NHP very clear which was they could not change current policy. He informed the parties involved the proper venue for them was probably the Nevada Legislature. He had no knowledge if any appeal was filed.

Mr. Collins wondered if the problem was the tow companies were privately held corporations and not publicly traded corporations. If that was the issue and the if companies became publicly traded, the law would have to be changed anyway since the potential was the same owners could hold interests in multiple companies. It was similar to the problem with which the legislature had to deal a few years ago when the gaming industry became publicly traded. Colonel Hood indicated that was his understanding of the situation. The issue for the NHP was they could not change the law to accommodate private industries.

Mr. Collins expressed the proper thing to do was to pass the legislation. If the current policy stood and more tow companies merged soon there would be none to assist the NHP since they would all have multiple interests.

Assemblywoman McClain inquired why the language dealt with common insurance. She felt an easier way to word the legislation was if companies merged but remained separate businesses they could remain on the list. Colonel Hood mentioned the language addressed the common insurance because the businesses were completely separate with only the insurance in common. Current policy stated the company could not be on the rotation list if they were acquired by another company on the list even if the two remained separate businesses. Common insurance was one of the determinations if one business was owned by another.

Mrs. McClain asked if the legislation before the committee was enough for the NHP to change their policy. Colonel Hood stated it would be.

Mrs. Chowning questioned other than the legislature how policy was changed. Colonel Hood revealed it was up to the chief of the NHP.

Mrs. Chowning closed the hearing on S.B. 387 and opened the hearing on S.B. 442.

Senator Dean Rhoads, Northern Nevada District, informed the committee the bill was similar to a bill he had introduced during the 1997 session, which was returned to the legislature by the governor. He had requested the legislation on behalf of constituents who had received speeding tickets for 5 to 10 miles an hour over the posted speed limit as their insurance rates had increased considerably because of the point system on driver’s licenses in Nevada. Current law allowed a 10 mile an hour buffer in rural counties where someone cited for speeding would be required to pay a $25 fine, but receive no demerits on their license. The legislation only allowed the fine system on roads where the speed limit was 60 miles an hour or greater and contained an allowable cap of 75 miles an hour. The bill would allow the current statute to apply to rural areas of Clark and Washoe Counties and allow the Nevada Department of Transportation (NDOT) to designate roads where the fine only policy would not be applicable.

Mrs. Chowning remarked the bill would only allow the fine system to apply in rural areas of the state. Senator Rhoads indicated current law did not allow the fine only system to apply to counties with population more than 100,000. The bill would allow it to be applied in all counties throughout the state but only in rural areas.

Mrs. Chowning observed the rural areas of Clark and Washoe Counties would be applied to current law. Senator Rhoads remarked in addition NDOT would be allowed to designate certain rural highways as not applicable to the statute.

Mrs. Chowning inquired about the fiscal note on the bill. Senator Rhoads mentioned the fiscal note was minimal so the bill had not been re-referred to the Senate Committee on Finance.

Mrs. Chowning wondered if Senator Rhoads thought drivers should be allowed to speed. Senator Rhoads expressed drivers should maintain the speed limit, but should not be penalized with higher insurance rates if their foot got a little heavy, and they received a ticket for 5 miles an hour over the posted speed limit. The intent was to protect the drivers’ pocketbooks when they received a ticket and not to encourage them to speed.

Colonel Hood testified in opposition to the bill. The NHP felt the current traffic laws regarding speed limits were adequate and should not be altered. The $25 fine was not an adequate deterrent to assist law enforcement in slowing down traffic.

Mrs. Chowning asked if similar opposition was presented to the Senate. Colonel Hood stated he had expressed the same opposition.

Mr. Carpenter wondered if the legislation would make any difference in enforcement. Colonel Hood suggested the bill was similar to the "waste of fuel" ticket Nevada had in statute a number of years ago. The state had the "waste of fuel" ticket in effect when the national speed limit was 55 miles an hour. It allowed drivers to go no more than 70 miles an hour and receive a $15 fine and no demerits.

Mrs. Chowning recalled the NHP had opposed the legislation, which increased the speed limits in 1995 stating there would be significant increase in injuries and deaths. She wondered if the prediction had held true in Nevada. Colonel Hood communicated speed was a factor for severity of injuries, but did not cause accidents itself. The faster someone was travelling the more severe their injuries were going to be if there was an accident. The highway patrol was a traffic safety organization and they enforced the speed limits set by NDOT.

Mr. Carpenter pondered at what speed the radar guns were set. Colonel Hood asserted the NHP officers were trained to enforce the law. Generally they did allow 5 miles an hour for operator or mechanical errors, but that was not written down.

Assemblyman Gustavson noted the legislation would limit the fine to $25. He wondered what the fines were if someone was cited for driving more than 10 miles an hour over the posted speed limit. Colonel Hood stated the individual courts set the fines so the fines varied from $1 up to $8 per exceeded mile an hour. The set $25 fine would only act as a deterrent to people who could not afford to pay the fine.

Tom Stephens, director, NDOT, presented the committee with a written summary of the position held by the department (Exhibit H). He mentioned NDOT opposed the legislation even though it was amended in the Senate to make it less onerous on the department. They opposed the bill because they felt it sent the wrong message to the drivers of the state. The amendment would allow NDOT to designate certain roads where the statute would not apply even though the roads might be in rural areas. An example of such a road was Interstate 15 between Las Vegas and Primm. The current speed limit on the road was 70 miles an hour. The department wanted to maintain the ticket and demerit system on that road because of the high accident rate on the road. They had conducted a study on traffic speeds in Nevada and 15 percent of the drivers on that section of road averaged 81 miles an hour.

Mrs. Chowning inquired if the study was on vehicles entering or leaving Las Vegas. Mr. Stephens claimed the study was done on both directions of travel. The average speed before the increase in the speed limit was 75.7 miles an hour. The average and the limit both increased 5 miles an hour in a 3-year period.

Mrs. Chowning questioned if there would be a fiscal impact on NDOT. Mr. Stephens remarked any fiscal impact would be insignificant and amount to a few signs.

Mr. Carpenter asked if the department had a median speed for Interstate 80 through Elko County. Mr. Stephens revealed there were not enough monitor sites in Elko County to conduct an accurate survey. They had data from Interstate 80 between Fernley and Winnemucca, where the average went from 74.2 miles an hour to 78.7 miles an hour. He did know if the accident rate in Elko County had increased in the past 3 years.

Sam McMullen, Reno resident, stated he was a fourth generation Nevadan from Elko and felt the legislation should be passed to return to the "code of the west" which was important to all native Nevadans. The thought of being able to travel a few miles an hour faster without affecting insurance was enticing. People were still penalized for speeding, but it was less onerous since their insurance would not increase for minor violations.

Mrs. Chowning closed the hearing on S.B. 442 and opened the hearing on S.B. 372.

John Sande, representing Nevada Franchised Auto Dealers Association, presented the committee with a detailed explanation of each section of S.B. 372 (Exhibit I). He explained the provisions of the bill were crafted after laws in other states since franchise agreements between manufacturers and automobile dealers were generally regulated. Auto franchises were unique from other franchise businesses for three reasons. The first reason was the agreement customarily required a substantial investment by the individual wanting to open the dealership. The second reason was the product sold was unique and in high demand. The final cause for uniqueness was the franchise agreement was generally drafted and printed by the manufacturer and was offered on a "take it or leave it" basis. Those contracts were referred to as "adhesion contracts" since there were no negotiations involved. Nevada dealers were proposing the legislation because of the changing business climate in auto sales. There had been many mergers among manufacturers and increased competition in the past few years. A result had been a desire among the manufacturers to directly compete with their dealers to reduce dealer profit and increase manufacturer profit. The intent behind S.B. 372 was to inform the manufacturers that in Nevada manufacturers should only manufacture vehicles and dealers should sell them. The manufacturer should not compete with the dealer, as such the bill would prohibit manufacturers from directly or indirectly acquiring an interest in any dealership or repair facility in Nevada.

Mrs. Cegavske noted section 8 of the bill would not allow a manufacturer to require dealers to disclose information concerning customers. She asked if that was currently occurring. Mr. Sande revealed the manufacturers had been receiving customer information then directly contacting the customer to offer products a dealer would normally sell.

Mrs. Cegavske wondered if it was similar to magazines selling their subscription lists or if the manufacturers automatically received the information from the dealers. Mr. Sande indicated the manufacturers asked for certain information on customers. The manufacturers would claim they required the information for recall purposes; however, recall notices generally went through the Department of Motor Vehicles and Public Safety (DMV & PS) since they had current registration and ownership information.

Mrs. Cegavske commented section 17 stated the manufacturers’ practice of denying the principle owner the opportunity to designate certain parties as owners was unfair. She knew the practice had occurred in many franchise businesses, especially with spouses, and agreed with the placement of the language in the bill. She wondered if the bill passed would the language help other franchise businesses with similar problems. Mr. Sande remarked he hoped a spouse would always be considered a qualified designee. The language was intended to require a qualified manager, trust, or corporation be considered a qualified designee. The dealers wanted to avoid having to go to DMV & PS or court every time there was a dispute regarding qualified designees as was currently occurring. It was an attempt to make the law very clear in that regard.

Mr. Carpenter observed "qualified manager" was mentioned throughout the bill. He inquired what "qualified manager" specifically meant. Mr. Sande stated the current law stated qualified designee, so qualified manager was placed in the language to narrow the definition even more to allow for persons with managerial capabilities. If a dealer brought in a manager and a condition of the contract stated the manager would be given a vested interest in the dealership if something happened to the owner or the owner chose to sell, that contract condition would have to be honored by the manufacturer.

Mr. Carpenter wondered if "qualified" also included financial backing. Mr. Sande indicated the person receiving the dealership would have to be financially qualified to operate the business.

Mr. Carpenter inquired if the language in section 7, which required the manufacturers to cover reasonable expenses, was usually included in similar contracts. Mr. Sande commented it was not uncommon for contracts to require attorneys’ fees be paid by certain parties. For example, merger transactions generally required attorneys’ fees be covered if one party backed out of the deal. The section also dealt with the "right of first refusal" on the part of the manufacturer and restricting that right to encourage third parties to bid on the dealership so the owner would be able to receive a fair price for the dealership.

Assemblyman Parks inquired if there was a potential problem between the "explosion" of Internet sales and franchised auto dealers. Mr. Sande felt the manufacturers would not be the party conducting the Internet sales since they would not sell directly to individuals. The manufacturers would sell to a franchised dealer or broker who would conduct the Internet sales. The broker still required a source for their vehicles, which would be the franchised dealer.

Mrs. Chowning suggested the regulations concerning auto brokers in Nevada required the brokers have a working relationship with a specific supplier, which would be the franchised auto dealer.

Michael Hohl, owner, Michael Hohl Motor Company, testified in support of S.B. 372.

Richard West, representing, Jones-West Ford and Fletcher-Jones Management Group, informed the committee he had been in Nevada at Jones-West Ford since 1976 and his partner had been in Las Vegas for 35 years. Together they employed approximately 800 people in the State of Nevada. Many manufacturers had begun aggressively consolidating several other markets in the country. He requested the support of the committee for the legislation, which would maintain private enterprise in the automobile industry in Nevada.

Mrs. Chowning questioned Mr. West on what would happen to the auto industry if the bill did not pass. Mr. West suggested the bill would limit the amount of control the manufacturers had in taking over a dealership. Currently the manufacturers would withhold products until the dealers incurred tremendous expenses to receive the product, such as building new facilities. Manufacturers made a tremendous amount of money and wanted to move into the business of marketing vehicles directly to the public. If the dealers did not do what the manufacturers wanted the manufacturers would simply buy them out at unfair prices. Ford Motor Company had done just that in Rochester and Syracuse, New York, Salt Lake City, Utah, and all Lincoln-Mercury dealerships in San Diego County, California. They were also trying to acquire 10 Ford dealerships in the San Francisco Bay Area.

Mrs. Chowning articulated as Mr. West had mentioned the manufacturers were in effect removing their own dealerships as the competition. Mr. West remarked the manufacturers would withhold merchandise or require the dealership to incur tremendous costs through warranty adjustments or service reductions in order to accomplish their goal of controlling the major auto markets in the Untied States. The legislation would protect the franchised dealers from that occurring in Nevada.

Mr. Carpenter wondered how Ford Motor Company was taking over the markets. Mr. West explained in Salt Lake City, Ford Motor Company had consolidated 9 or 10 dealerships into 1, which they called the Auto Collection. If someone wanted to purchase a Ford, Lincoln-Mercury, or Mazda product they would be purchasing it directly from Ford.

Fred Streeter, owner, Streeter Imports, testified in support of S.B. 372.

Bob Ostrovsky, representing General Motors Corporation (GM), explained there were three components in the car market: the manufacturers, dealers, and consumers. The dealers were extremely important to the manufacturers because they sold the products. S.B. 372 dealt with franchise legislation in which the state had played a role for many years. The bill would alter the current franchise laws and the manufacturers disagreed with that change. He presented the committee with an analysis of the impact of the legislation (Exhibit J) and proposed amendments written into the current bill (Exhibit K). The amendments had been presented to the proponents of the bill; however, they had chosen not to negotiate. The manufacturers did not disagree with all sections of the bill as shown in the analysis of the bill (Exhibit J) and were willing to work with the proponents.

Mrs. Chowning expressed the members of the legislature found it extremely offensive when opposing parties would not work with the proponents of potential legislation. There was a difference if the proponents chose not to accept the amendments. She asked if the amendments were presented during the Senate hearing. Mr. Ostrovsky stated the proposed amendments had been presented to the proponents earlier in the week. He had not been involved with the bill while it was in the Senate so he could not address what had occurred in the hearing.

William Holden, manager, Dealer Relations, GM, mentioned he would like to address some questions he had heard. Since he represented General Motors he would be addressing the issues from their perspective. Assemblyman Parks had asked a question regarding Internet sales, which would not have been considered only a couple of years ago. It showed how the retail market was changing, not just with regard to automobiles. The legislation before the committee would not allow the flexibility required for the future. GM offered web sites for all dealers on the Internet. The sites were connected to main product sites and would be accessed when an individual typed in their zip code as the dealer that could provide the products. The manufacturer did not sell the customer the vehicle, but sent them to the local dealer. The dealer web sites had the same intent as the rest of the GM programs which was to get customers to go to their local dealer, such as when lease contracts were up, the manufacturer would call the customer and inform them their local dealer had a great deal on another GM lease.

Mr. Holden indicated on the issue of the "right of first refusal," many manufacturers did not place the clause in their franchise contracts. Along the same lines was the issue of the "qualified manager." The manufacturer would only want to place the dealership in the hands of someone who was "qualified" since someone who was unqualified would do more damage to the franchises in Nevada. On the issue of customer surveys, the manufacturer needed the surveys not to determine if a franchise should be revoked but to find out how to help the dealer. The surveys dealt with customer satisfaction and if the dealer had not been taking care of the customers, both the dealer and the manufacturer lost money because those customers would not return or recommend the dealership to others. If a dealer received poor customer satisfaction ratings the manufacturer would go in and counsel them to see what could be changed. The manufacturers gained nothing by removing dealers and were not trying to take their place.

Mrs. Chowning questioned what the manufacturers were trying to do. Mr. Holden disclosed about 2 years ago GM began a brand management program with all divisions in the company to make their products more efficient and cost effective. For example marketing and planning came up with a plan that within the next 6 months there would be five new car models released on every Oldsmobile showroom floor. At the beginning of 1999, GM began to implement brand management in the field operations to create better communications with their dealers. The company wanted to make sure all the dealers had the tools available to promote GM products to the fullest extent. They felt the dealers did an excellent job and did not need to worry about factory stores. The company only wanted to acquire a few dealerships and go into a few markets for experimental purposes so they could try new programs to cut costs and be more customer responsive. The bill opened the door for companies such as Republic and AutoNation to come into an area and buy various franchises since the manufacturer would not be able to buy into any of the dealerships.

Mrs. Chowning inquired how did the manufacturer determine which dealerships they wanted to "get a hold of." Mr. Holden mentioned the intention was not to remove a "bad" or "weak" dealer. If the dealer decided to sell the franchise GM wanted the option of purchasing the dealership. GM did not own very many and did not have specific criteria, but removing a dealer because their customer surveys were not very good was not one of them.

Mr. Nolan felt GM was not trying to remove dealers under false pretenses, but there was a trend developing in the industry to put factory stores in larger markets. He wondered if that was because the factory stores were more profitable arrangements for the manufacturers than traditional dealerships. Mr. Holden stated GM did not have any experience of the factory stores being more profitable. The dealerships the company owned were a separate subsidiary and treated like any other dealership.

Mr. Collins observed the DMV & PS acted as an intermediary between the manufacturers and dealers if there were any problems. He wondered if the representatives from the manufacturers were aware of any major complaints that brought about the legislation. Mr. Holden indicated he was unaware of any complaints.

Steve Blankenship, representing Ford Motor Company, remarked the number of active complaints in Nevada was traditionally very low.

Mr. Collins commented section 2, subsection 2, dealt with further penetration of a market by the manufacturer. If a franchise were added to an area, it would remove business from the other franchise, much like the fast food industry placing restaurants every few blocks. The franchise that wound up with the most business would be able to stay in business. Mr. Holden suggested auto manufacturers did not operate that way. Generally a dealer study of an area was done and if the results showed another dealership was necessary the results were given to all dealers in the affected area and they were informed of the plans. He did not know of any market, which required any more dealerships and felt most markets were saturated. The manufacturer was not going to add a dealership to an area to try to remove another dealership. He reiterated the bill would open the door for companies such as Republic or AutoNation to buy the larger dealerships since the manufacturer was essentially being shut out of the process.

Mr. Collins wondered if all manufacturers had too many dealers or if it was only GM. Mr. Blankenship mused it was probably all domestic manufacturers since they had been in business for so long. The foreign dealers were still relatively new and did not have that problem.

Mr. Collins noted section 5 of the bill stated it was unfair for the manufacturers to offer different prices to different dealers. He asked why the manufacturers would be opposed to offering the same vehicles to all dealers for the same base price. Mr. Holden remarked the language in section 5 would restrict the manufacturers’ promotional ability and would remove subsidized leasing programs. GM would not be able to offer Nevada customers the same deals that they offered customers in other states, such as a 24-month lease with no money down. Nevada customers would begin shopping around for better deals and the local dealers would lose business because the law would not allow the manufacturers to help subsidize vehicles. All manufacturers offered the special promotion because there was a large inventory of vehicles available.

Mr. Collins commented section 19, subsection 3, indicated the manufacturers could not force the dealers to advertise or participate in unreasonable campaigns. He wondered what was the ratio of manufacturer advertisements versus dealer advertisements. Mr. Blankenship revealed most local advertising was done entirely by dealers. The manufacturers participated in national campaigns, such as special advertisement section in Time Magazine.

Mr. Collins questioned if the manufacturers had any problems with the various time limits spelled out in the bill. Mr. Blankenship indicated Ford had no issue with those sections of the bill. Mr. Holden mentioned GM did not have a problem with the time limits. He wanted to inform the committee when franchise agreements were made with the manufacturer, there were certain requirements which had to be met, such as the square footage of the service and storage areas. If the market increased, the manufacturer would go to the dealership and inform them since there was an increase they would require more square footage. That was not intended to hurt the dealers in any way, only help them become a more effective operation and represent the manufacturer to their fullest potential.

Mr. Collins inquired why there was not a nationwide labor rate on warranty repairs. Mr. Holden disclosed the manufacturers did not set the labor rates in the individual service departments. The dealership was responsible for setting the rates to a local average. If the rates in the area went up the dealership would be able to increase their rates as well. GM did advise dealers on increasing their rates, but for the most part could not stop them.

Mr. Collins remarked the manufacturers did want to set different prices on warranty service versus nonwarranty service and control the price of warranty service. Mr. Holden stated Assemblyman Collins was correct on the first point. Regarding the second point, the manufacturers did not want to set one nationwide labor rate on warranty service. The manufacturer would conduct a market survey in the area and set the rate from there.

Mr. Carpenter wondered on what percentage of dealerships the manufacturers had "right of first refusal." Mr. Blankenship explained Ford did not have the "right of first refusal" in their franchise agreements. Mr. Holden indicated he did not know if the clause was contained in GM franchise agreements.

Mr. Claborn asked if the manufacturers required the dealerships to retain enough parts from the manufacturer to last a number of months. Mr. Holden thought there was such a requirement in the agreements and it was fairly standard throughout the industry.

Mr. Claborn mentioned currently most manufacturers set replacement units for warranty repairs, such as a complete transmission. Instead of repairing the vehicles with the parts they had in stock the whole unit was replaced. It seemed unfair to require the dealers to retain the parts if the factory was going to be sending entire replacement units. Mr. Holden indicated certain warranty repairs were done by replacing entire units, such as for low mileage transmission failure. The companies had been offering complete replacement units because it allowed for a faster turnaround time and greater customer satisfaction.

Mr. Carpenter asked what happened in Salt Lake City with the Ford dealerships. Mr. Blankenship explained approximately 3 years ago Ford had five of the top 10 selling vehicles on the market but one of the lowest customer satisfaction rates. They discovered the customers did not like the process of purchasing and servicing a vehicle through a Ford dealership. The company began working with the dealers to improve the level of customer satisfaction. One of the solutions was to develop learning laboratories so the factory could study the problems on a first-hand basis. The laboratories, like the one in Salt Lake City, Utah, were new corporations forged between the dealers in the area and the manufacturer. Dealers ran the new dealerships. The objective was to focus more on the competition rather than other Ford dealers. The goal of the consolidated dealerships was to attract those customers who would have bought a Chevrolet. S.B. 372 would not allow the manufacturers to create such an experiment in Nevada since it would prohibit them from even becoming a minority partner in a dealership. The bill would allow a company, such as Republic, to come in and purchase the dealerships and consolidate them, but not the manufacturer. It was ultimately unfair to the dealers because it did not allow adequate competition for purchasing a dealership.

Mr. Collins questioned if a manufacturer had a surplus of a certain vehicle would they be able to discount those cars to the dealers. Mr. Blankenship stated they would not.

Robert Barengo, representing Alliance of Automobile Manufacturers, suggested there were provisions in the bill which the dealers were requesting which were not offered by the manufacturers, such as repair abilities. He was concerned about two sections of the bill, section 17 and section 19, which contained provisions that had been addressed in 1995 and 1997 by the legislature. He mentioned he had been at the hearing conducted in the Senate. No amendments had been proposed because of time constraints; however, there had been a telephone conference between the opposing parties. The proponents came back a few days after the conference and informed the opposition they did not want to negotiate any amendments.

Bob Schendel, owner of a dealership in Yerington, testified in support of S.B. 372. His family had been involved in car dealerships since 1922 and suffered the problems of dealing with the manufacturers. The legislation would limit the effects of big business on the small businesses in the state. The manufacturers required the dealers do more with less, and it was not fair.

Senator Randolph Townsend, Washoe County District 4, stated the intent of the bill was not to indicate the manufacturers were not doing their job. They were required to do what was best for their shareholders and increase revenue. The reason the bill was introduced was because of a nationwide trend of manufacturers getting involved in the retail portion of the industry, which was the job of the dealers. The manufacturers were entering into the retail portion of the market because they felt it was advantageous for them to do so, even at the expense of their local dealers and customers.

Senator Townsend informed the committee he was a partner in a dealership that was not greatly affected by the problems of some of the other dealers. He considered himself fortunate, but did face other problems such as allocation. As a small dealer, they were disadvantaged when "hot" products were introduced. If the dealerships could not get enough products from the manufacturer to keep up with demand they did not make money. If the manufacturers were to open factory stores the small dealers would be at an even greater disadvantage since the factory stores would be the ones to receive the products. The dealers were the entity that fought for the interests of the consumers since they dealt directly with the customers. Most of the people who worked for the manufacturers had not sold one car in their entire careers. He expressed local dealerships offered a competitive market for consumers. Each dealership helped to improve others in the area through competition. In the smaller markets, such as Reno, consumers did shop all dealerships when looking for vehicles. If the manufacturers were allowed to enter the markets, the local dealers would be cannibalized by the companies with which they were associated.

Senator Townsend concluded by saying the bill was drafted to address the problems he had mentioned. The local dealers put their credibility on the line everyday. They had invested in the communities since they also lived in those communities. The language in the legislation was specific to problems that had been occurring in other jurisdictions in the country and in some cases, Nevada.

Mrs. Chowning expressed there were a number of dealers in Las Vegas who had been there for years. Everyone knew them because they had grown up seeing their names and commercials. Those dealers had chosen to continue to do business throughout the years, providing jobs and good customer service, and were there to handle problems personally. There was no member of the committee who wanted to harm any of those businesses that had given their hearts and souls to the communities.

Mr. Collins mentioned the manufacturers needed to conduct surveys to monitor customer satisfaction levels. He inquired how they would be able to still monitor customer satisfaction if they were unable to conduct surveys. Senator Townsend stated the manufacturers should be able to conduct surveys. The manufacturers received the names of customers from computer networks that had been in place a number of years. They would then send an independent questionnaire to the customer which was used to judge the dealership. He also sent out a questionnaire to all his customers. Once the questionnaires were returned to the manufacturer the results were sent to the dealers. Since his dealership was small he personally called the customers if any of the results were less than 100 percent. If the results were less than 90 percent he would receive a call from the manufacturer.

Mr. Collins remarked the language might have to be clarified to allow for the surveys. He asked if the mentioned problem was covered in the bill and how fair allocation would be monitored. Senator Townsend stated the smaller dealers would be able to have a voice in the allocation process if the legislation passed. It was the larger dealers who received the larger inventories of "hot" products, but they were not always the dealers who were able to sell the product. For example, Toyota’s LX 470 was one of the fastest selling vehicles on the market. He was not able to get enough in even though he would be able to sell them when they arrived. There were dealerships in other markets who had the vehicles on their lots waiting for customers so the model was discounted. If the dealer was unable to receive the number of vehicles required by demand and told the customer they would have to wait 3 to 4 months for the vehicle to arrive, the customer would go to another market which had the vehicles.

Mrs. Cegavske asked if an issue went to arbitration would it be conducted in the home state of the dealer or manufacturer. Senator Townsend indicated any arbitration would be conducted in Nevada.

Mrs. Chowning inquired if Senator Townsend had seen any of the proposed amendments. Senator Townsend remarked he had not.

Mrs. Chowning expressed the committee had been told the proponents of the bill had not been willing to discuss the amendments. Senator Townsend mentioned the other proponents of the bill might have seen the amendments but he had not.

Mr. Chowning closed the hearing on S.B. 372 and adjourned the meeting at 5:35 p.m.

RESPECTFULLY SUBMITTED:

Jennifer Batchelder,

Committee Secretary

APPROVED BY:

Assemblywoman Vonne Chowning, Chairwoman

DATE: