Carsdirect.com, the online auto broker backed by billionaire Michael Dell, wants states to let Internet companies sell vehicles without a business location, franchise or vehicle inventory.
If states accepted the Carsdirect.com proposals, the legislation would give Internet companies a huge competitive edge over traditional dealers because they could sell vehicles without investing in physical dealerships, service operations and personnel. For years, states have required dealers to make this investment to sell cars.
Legislative sources confirm Carsdirect.com has been lobbying in Arizona, California, Nebraska and Texas.
However, even with a so-called online license, there is no guarantee that factories would provide new-vehicle inventory to Carsdirect.com.
Carsdirect.com, which touts competitive, no-haggle prices, now operates by acquiring new vehicles from dealers and marking them up for resale to consumers. The online broker has raised $310 million in venture capital through high-power investors such as Michael Dell's MSD Capital, Goldman Sachs, Morgan Stanley Dean Witter and Oracle Corp.
Carsdirect.com has been unable to do business in states such as Texas and Arkansas that have restrictions on auto brokering. The company's proposals would make it easier to do business in states without strict bans on brokering.
Carsdirect.com declined to comment on its legislative strategy. But it clearly wants to expand its ability to sell cars over the Internet.
According to the proposed legislation, the company believes dealer licensing laws discriminate against Internet companies.
Carsdirect.com got a bill introduced in the California senate that would let Internet companies advertise new vehicles without holding a franchise for the makes they promote. California otherwise bars dealers from advertising new vehicles without the appropriate franchise.
However, the California bill protects franchised new-car dealers as the sole source of new vehicles sold by online dealers over the Internet. In Nebraska, where Carsdirect.com circulated another proposal, that's not the case.
Carsdirect.com recently showed a proposal to Nebraska lawmakers for online dealer licenses. The company was trying to attach the proposal to a dealer-supported bill that prohibits factory-owned dealerships. Carsdirect.com missed the deadline to introduce a proposal for online licenses as a separate bill during the current legislative session.
The effort failed because the Carsdirect.com proposal had nothing to do with factory stores, said Loy Todd Jr., executive vice president of the Nebraska New Car and Truck Dealers Association.
The proposal defines an 'online motor vehicle dealer' as an entity without an established place of business that uses the Internet to sell new or used vehicles. The definition specifically excludes bricks-and-mortar dealers who advertise their dealerships over the Internet. The proposal exempts e-dealers from traditional dealer licensing laws that require a place of business, a franchise, business hours, signs, repair facilities and telephones.
Todd opposes the e-dealer license because he believes it discriminates against bricks-and-mortar dealers. Many traditional dealers use the Internet to sell cars, and they still have to meet all of the state licensing requirements.