2023 could be active year for state dealer franchise legislation

Next year may shape up to be an active year for dealer franchise legislation in state capitals.

Don Hall, CEO of the Virginia Automobile Dealers Association, said last week during a panel discussion at Automotive News Retail Forum: Chicago that the association, and likely others, “are going to be very aggressive in ’23,” introducing legislation to strengthen language in state dealer franchise laws that govern the relationship between automakers and their franchised new-vehicle dealerships.

Hall cited some company examples, such as Ford Motor Co.’s decision to require Ford and Lincoln dealers to invest hundreds of thousands of dollars — if not more than $1 million — on chargers and other equipment to be able to sell the brands’ future electric vehicles, as prompting the need for additional legislative action.

“If I’m a Ford dealer, I get all Fords. If I’m a Lincoln dealer, I get all Lincolns. I get all Buicks. You don’t get to pick, Mr. Manufacturer, winners and losers,” he said. Bills introduced next year will “make it abundantly clear that when we passed these bills years ago, we meant it when we said it. And if that means litigation, so be it.”

The potential for contentious legislative sessions in statehouses across the country is a sign that tensions continue to brew between automakers and their dealers, particularly as more EVs come to market and some brands set new sales standards for dealerships to sell EVs. Some automakers have also expressed interest in vehicle reservations, over-the-air software updates and subscription revenue options, which have raised concerns among dealers about the role they will play in the sales process going forward.

Some states already have passed bills in recent years that seek to codify dealers’ participation in such things as vehicle reservation programs and over-the-air updates.

The National Automobile Dealers Association this month released a set of guidelines advocating for the franchise model, spelling out NADA’s position on the new practices, as well as selling vehicles directly without franchised dealers.

“You’ve heard the buzzword ‘agency.’ You’ve got direct sellers. The consumer experience has evolved,” NADA CEO Mike Stanton told the Retail Forum audience last week.

Dealers will rise to meet the challenges, Stanton said, but he added that NADA needed to take a more active role in setting the framework for discussions between dealers, automakers and others.

“Dealers don’t like to be told what to do,” he said. “We’ve got a vested interest, we’ve got investments, and we want a seat at the table.”

Automakers and dealers agree on more than they disagree, said Amy Brink, vice president of state affairs for the Alliance for Automotive Innovation, the trade association that represents most major automakers in the U.S. The transition to electric vehicles will not succeed without collaboration with dealerships, she said.

Alliance members support the franchise system, Brink said, calling franchised dealers “the best conduit through which these vehicles can be sold.”

But she cautioned state associations against taking drastic measures in statehouses that make it harder for all automakers to compete, including against new-market entrants that sell their vehicles directly to consumers without dealerships.

“We need to be very careful about how we are approaching legislation in the states,” Brink said.

“I’m not saying that there’s not something still to be figured out here. That’s what conversation is about. That’s what negotiation is about,” she added. “We cannot go in with a wrecking ball and take it to the state franchise statute and make it that much more difficult for all automakers … to do business.”

Hilary Haron, a partner in Haron Motor Sales in California, said manufacturers and dealers “need to be more collaborative and less combative,” which is something the NADA guiding principles promote.

Automakers and dealers “need to get in rooms together and be able to have free-flowing conversations that I don’t think that they’re having right now. I think that they’re hindered by maybe fear or one person thinking that they have the exact answer.”

Dealers need to be involved in over-the-air updates, Haron said, such as in a scenario in which an update doesn’t successfully install and the vehicle malfunctions.

“Who picks that car up?” she said. “We have to come to some sort of middle ground on what that looks like.”

It’s in both automakers’ and dealers’ interest to care about the customer experience, said Mahesh Shah, chief product and technology officer for CDK Global Inc. Automakers want feedback on their products to understand the vehicles they build. Dealerships interact with vehicle buyers during the purchase process and maintain relationships with them through future service.

Startup EV automakers own the entire ecosystem, from manufacturing to retail, Shah said. That means they can manage the entire experience. The franchise model, by contrast, involves multiple parties that need to speak the same language.

“What I really liked about the NADA guidelines that came out is that it creates space for that dialogue to occur, and it puts a position out there where it shows that both can coexist at the same time,” Shah said. “It’s going to require collaboration on a level that we haven’t seen.”