Overview
This has been an active spring for motor vehicle franchise legislation. The theme of many of the bills is “protecting” the dealer franchise system from encroachment by OEMs. But OEMs and dealers are only two of the interested parties in the vehicle purchase process, with the third being consumers. Are the legislatures adequately considering consumer interests when they pass laws like HB 1469?
HB 1469 prohibits OEMs from operating a website through which the OEM can negotiate terms of sale directly with consumers, specifically pricing.[1] Keep in mind that OEMs may not operate dealerships in Virginia, so the final sale would occur at a dealership in any event.[2]
Why would a OEM want to operate a website and negotiate certain terms of sale directly with consumers? The answer is simple: the dealership experience is not for everyone. Indeed, a Harris Poll survey from 2016 revealed that 52 percent of consumers felt anxious or uncomfortable with the dealership buying experience.[3] Moreover, OEM participation in the retail car buying process might lead to greater price transparency and consistency, and it is hard to see how that does not benefit consumers.
Participating in the retail purchase process would also help OEMs minimize harm to their brands from opportunistic dealers selling vehicles to consumers at prices above MSRP. Limiting that kind of opportunistic behavior is certainly a public good, and from the OEM’s perspective, it helps them protect the image of their brands. As Automotive News recently reported, 27% of customers who paid more than MSRP said that they would never buy that brand of vehicle again.[4]
Consumers, of course, would retain the ability to negotiate price and other terms at local dealers if they wished to do so. In other words, all that the new Virginia law accomplishes is that it deprives consumers of choice, forces consumers who are uncomfortable with the dealership buying experience to engage with that experience, and deprives OEMs from deploying technology that could enhance the customer experience and protect their brands.
What is also curious is whether the Virginia General Assembly considered the potential unintended consequences of this new law as it relates to smaller dealer groups, particularly whether the new law (likely unintentionally) tips the scales in favor of large dealer groups and against smaller dealers. Several large dealer groups are already adopting omni‑channel sales processes that include no haggle pricing or online price negotiation.[5] Large groups have the resources to develop and maintain such programs, resources that smaller dealers might not have. Smaller dealer groups may very well find that OEM participation in the retail process results in incremental sales that those smaller dealers would not have otherwise enjoyed precisely because larger dealer groups are giving consumers what they want in a buying experience that smaller dealers simply cannot provide.
[1] HB 1469 (2023). https://lis.virginia.gov/cgi-bin/legp604.exe?231+ful+CHAP0310
[2] Va. Code Ann. § 46.2-1572
[3] Brown, Bruce. How much longer will consumers keep buying cars at dealerships? Digital Trends, July 21, 2016
https://www.digitaltrends.com/cars/harris-poll-survey-consumer-automotive-index-beepi-frustration/
[4] Huetter, John. Selling over sticker price can backfire on car dealer, automaker. Automotive News, April 10, 2023
https://www.autonews.com/retail/selling-cars-over-msrp-can-backfire-dealer-brand
[5] See, e.g., https://www.autonation.com/autonation-express, https://www.lithia.com/lithia-and-driveway.htm
Motor Vehicle Group
BFKN’s Motor Vehicle Group works with automobile, truck, motorcycle, and powersports manufacturers and distributors, as well as captive finance companies, across the country and around the world. Our clients rely on us to help them set up and manage their distribution networks, create and implement business strategies, policies, and procedures, negotiate agreements, protect trademarks, and defend them in high-stakes litigation. Our attorneys are knowledgeable and creative strategic partners. Whether litigating, counseling, or negotiating transactions on behalf of our clients, we combine our broad and deep knowledge of the motor vehicle industry with exceptional legal ability and experience, allowing us to help our clients efficiently and effectively solve difficult problems and achieve their business objectives.