Overview
Florida has enacted a set of far-reaching amendments to the state’s Automobile Dealers Act (the “Act”), effective July 1 of this year. The new law will hinder manufacturers and distributors seeking to innovate and experiment with new business models and retail strategies in the post-pandemic economy, and reverse the nascent growth of varied pro-consumer options in one of the country’s largest and most important markets for new motor vehicle sales and service. Several of the most significant amendments to the Act include:
- Legacy manufacturers and distributors with existing line-make dealers in the state are prohibited from engaging in direct-to-consumer sales.[1] Moreover, if a new manufacturer or brand without existing dealers in the state is nonetheless a “common entity” of, or otherwise affiliated with, a legacy manufacturer or distributor that does have such dealers, the new entrant is likewise prohibited from operating a dealership in Florida, and by extension, from making direct-to-consumer sales.[2] But other new manufacturers—those that do not have dealers or ties to legacy OEMs, such as Tesla, Lucid, and Rivian—are not so restrained. The legislation thus favors the latter class of carmakers over the former.
- Manufacturers and distributors may not sell “over-the-air” (“OTA”) updates to consumers—i.e., any post-purchase electronic vehicle upgrades or activations—within two years of a new vehicle sale, unless they pay at least 8 percent of each gross receipt to the Florida dealer who sold the vehicle that received the update.[3] Manufacturers and distributors must make these payments whether or not the dealer implemented the OTA update itself, or helped the consumer do so. The statute thus requires manufacturers and distributors to compensate dealers even when the dealer had no role in the OTA product or process.
- Manufacturers and distributors are prohibited from using the number of consumer pre-orders or reservations for vehicles as a factor in determining the allocation of such vehicles to dealers.[4] Dealers may argue that this provision constrains manufacturers and distributors from certain common industry practices, such as prioritizing allocation of limited release or low-supply vehicles, or of discretionary vehicles, to dealers with pending sold orders.
- Manufacturers and distributors are prohibited from requiring or even incentivizing dealers to sell or lease vehicles at a specified price or margin, or from restricting the price at which dealers may do so.[5] Dealers may argue, for example, that this provision prevents manufacturers and distributors from taking steps to combat above-MSRP retail pricing in high demand/low supply markets, such as what occurred in 2021-2022, or prohibits manufacturers and distributors of luxury brands from trying to disincentivize below-invoice pricing that they perceive as harmful to their brand equity.
- The Department of Highway Safety and Motor Vehicles (the “Department”) is now required to “conduct an inquiry” of a manufacturer or distributor when any authorized dealer or dealer association (with at least one of the manufacturer’s or distributor’s authorized dealers as a member) files “any written complaint” with the Department asserting a violation of the Act.[6] The Department must complete its inquiry within 90 days of receiving a complaint, and “must take appropriate action” based on its findings. Presumably, as with most other executive agency actions, the manufacturer or distributor would be able to challenge an adverse outcome by filing an appeal to the appropriate state court.
These recent amendments to the Act, among others, present a host of fresh challenges to manufacturers and distributors seeking to grow sales in Florida and meet evolving customer needs and expectations. Indeed, despite the Act’s express legislative intent (i.e., to promote the public interest),[7] these anti-consumer and anti-competitive amendments smack of pure economic protectionism, and may lead to increased prices in Florida to the disadvantage of its citizens. You should consult with counsel to review existing policies, evaluate potential changes to your network strategy, policies, or procedures in Florida, and understand the legal risks and available defenses to any dealer claim or Department inquiry regarding factory conduct that allegedly runs afoul of the new law.
[4] Fla. Stat. § 320.64(18)(e).
[5] Fla. Stat. § 320.64(18)(d).
[7] Fla. Stat. § 320.605.