An e-dealer's license soon could be a reality - at least in one state.
Wisconsin state regulators are drafting rules for out-of-state businesses that use the Internet to sell vehicles to Wisconsin residents. The proposed rules would exempt these businesses from having to operate a physical car lot in the state. E-retailers that sell new cars would need a new-vehicle franchise, though the dealership would not have to be in Wisconsin.
The proposal represents a first in terms of regulating e-commerce across state lines. A physical car lot is a common requirement to obtain a dealer's license in most states.
'We have some of the strongest dealer licensing and franchise laws in the country, but we like the Internet,' said Chuck Supple, chief of the dealer section in the Wisconsin Department of Transportation. 'People want to do this. They want to shop online and possibly buy there.'
But Wisconsin needs to license e-dealers to protect consumers, Supple said. Although they would not have a physical lot, out-of-state entities still would need to meet record-keeping and bond requirements.
The rules would affect out-of-state dealers, such as AutoNation Inc., the nation's largest dealership group, that want to expand their sales territories without making a huge investment in bricks and mortar. They also would affect online auto brokers such as CarsDirect.com that negotiate car sales and deliver vehicles to customers.
However, online referral services such as Autobytel.com and informational Web sites such as Edmunds.com, which send customers to dealers for a fee, would not need a license. These sites are not involved in retail transactions.
Entities that are owned partly by automakers, such as FordDirect.com, would not be able to get a license to sell vehicles in Wisconsin because the state bans factory-owned dealerships, Supple said.
Other states are watching Wisconsin. Supple also is president of the National Association of Motor Vehicle Boards and Commissions. The association is drafting a model Internet law that would spell out how to regulate out-of-state businesses selling cars online. Wisconsin's rule could have a strong influence over what the group adopts as a model.
The proposed rules are at odds with two legal provisions that appear in many state franchise laws, including Wisconsin's.
The first one is the relevant market area, which is the legal definition of a dealership's sales territory and usually is expressed in miles. In Wisconsin, the relevant market area is a radius of 10 miles from a dealership.
Relevant market area laws give dealers the right to protest new dealerships proposed in their market.
But Wisconsin dealers would not have the ability to protest e-dealers because the relevant market area law fails to address virtual dealerships.
Like many other states, Wisconsin requires vehicles to be displayed at a permanent facility. Off-site sales restrictions were designed to protect both dealers and consumers from fly-by-night operators.
Supple said the off-site ban and relevant market area provisions apply only to physical inventory, not a virtual inventory.
The proposal is certain to draw strong reactions from the industry once it goes through a formal hearing process. When Supple, who says he has the support of Wisconsin's dealers association, announced the proposed rules at an October legal seminar in Chicago, auto manufacturers cried foul.
'This would create chaos in the marketplace,' said Howard Harris, a lawyer for BMW of North America Inc. Manufacturers distribute new vehicles to dealers based on the sales history within an assigned sales territory. The proposed rules would upset vehicle allocation systems, Harris said.
At the same meeting, lawyers from General Motors and DaimlerChrysler said dealerships should serve the surrounding community. The factories were concerned about 'free-riders' - businesses that sell a lot of cars without providing service after the sale.
Wisconsin dealers are giving the proposal mixed reviews. The Wisconsin Automobile and Truck Dealers Association welcomes regulation for dot-coms and out-of-state dealers who put their business online. Some dealers say the rules will have little effect on their sales.
'If someone like AutoNation (the nation's largest dealership group) or a dot-com could get a dealer's license here (to sell cars online), they are going to get blown out by the stuff that Wisconsin business owners are already doing on the Internet,' said Mike Flannery, president and owner of Best Ford in Milwaukee. 'They will fall flat on their faces.'
But others say the rules will expose Wisconsin dealers to unfair competition from outsiders.
'I am not anti-Internet,' said David Hobbs, owner of David Hobbs Honda in Milwaukee. 'But the markup on new cars is so pathetic anyway. All we need is someone who comes in with very little expense. They could take away our margin and our market.'