- Startups that market EVs navigate the pros and cons of bucking the century-old dealer franchise model.
- 28 states ban or restrict the direct sales of cars, limiting the reach of upstart competitors.
- Legal challenges from EV brands like Rivian and Scout could change the legislative landscape of how new cars are sold.
Given the automotive industry’s integral role in the U.S. economy, most states have bans or restrictions on how new cars can be sold. The goal is to tip the scales in favor of legacy automakers to preserve American jobs and market share in one of the global economy’s most competitive industries. Longstanding bans and limits on companies directly selling new cars to consumers, circumventing the dealer franchise model, are being challenged in both the court of law and the court of public opinion.
A Charged Debate
California-based electric truck and SUV maker Rivian recently won a dealer license in the state of Washington following a threat to fund a ballot initiative on direct sales of new cars. “Every poll shows that voters — from liberal Democrats to conservative Republicans — overwhelmingly say, ‘Why shouldn’t I have a choice as to how I buy my car?’ ” University of Michigan law professor Daniel Crane told industry publication Automotive News. Since “We the People” want choice in how we buy cars, Washington’s state government made a compromise with Rivian.
The up-and-coming Scout Motors, which will rival Rivian when its electrified trucks and SUVs start coming out later this decade, has its own set of challenges. It’s a subsidiary of Volkswagen, which obviously already has a U.S. dealer network. Scout pitches itself as an independent brand with direct sales being a core part of its business strategy. This has caused a kerfuffle with Volkswagen’s North American dealers, which would warmly welcome a high-tech pickup truck in its showrooms.
What Do Dealers Think?
“Most VW dealers would love to sell a pickup truck, but VW has decided that it will sell those vehicles through the Scout brand at the expense of supporting its business partner dealers,” California New Car Dealers Association (CNCDA) Brian Maas told Automotive News. The CNCDA is suing Volkswagen over this matter, and a recent federal court filing allowed the lawsuit to move forward.
Maas went on to “encourage every state to review its laws to ensure this principle is protected.”
Regardless of Scout’s fortunes in court, the U.S. will likely remain a patchwork of varied franchise laws, with some states being more favorable to direct sales than others.
Cox Automotive, the parent company of Kelley Blue Book and Autotrader, is a minority investor in Rivian.
