Direct-sales ‘slippery slope' feared

The debate playing out in statehouses across the U.S. about whether automakers should be able to bypass dealerships and sell their vehicles directly to buyers is centered on electric vehicle startups.

New market entrants including Rivian and Lucid Motors have lobbied lawmakers in numerous states for exemptions from laws requiring auto manufacturers to sell vehicles through franchised dealerships.

For some dealers, though, concerns about direct-to-consumer sales go beyond a handful of fledgling EV manufacturers that want to follow Tesla's lead. Some retailers and trade associations that advocate for dealerships on policy issues say expanding direct sales creates a "slippery slope" that could challenge the existing franchise system, potentially also giving legacy automakers an opening to sell their future EVs straight to buyers.

Some brands' recent actions around vehicle launches, such as online reservations that determine dealers' allocations, also have sparked fears about whether automakers are trying to wrest more control of the sales process.

"My biggest concern would be the manufacturers' attempt to pursue a path on trying to sell EVs without their dealers," said Robert O'Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association.

To be sure, traditional automakers are pledging their allegiance to their dealership networks as they phase out gasoline-powered engines. In testimony before state legislators, representatives of the car companies generally have stood with dealerships in opposition to carving out direct-sales allowances for upstart vehicle manufacturers, saying it would create an uneven playing field.

The National Automobile Dealers Association "is not aware of a single legacy OEM that intends to abandon the franchise model to sell EVs or any other vehicles," spokesman Jared Allen said in an email to Automotive News. "We are confident that OEMs will remain committed to the franchised model as they see the dealer network as essential to the widespread adoption of EVs among mass- market buyers."

Yet automakers' public commitments haven't entirely shaken a sense of unease about what role dealerships will have in an era of electrification and e-commerce.

This year, Volvo Cars USA said it planned to sell its battery-electric vehicles via a one-price, online-only model, delivering customers' preordered vehicles to dealerships rather than having retailers order and carry inventory. Ford Motor Co., meanwhile, is allocating its new Mustang Mach-E electric crossover and F-150 Lightning electric pickup to dealerships based on online reservations customers place through the factory.

Kumar Galhotra, Ford's president of the Americas and International Markets Group, told Automotive News in May that dealers "are a very integral part of the sales process and servicing of the vehicle on an ongoing basis."

That model is changing, Galhotra said, "so digital sales, digital reservation systems, are going to be a great part of our ecosystem. But we need to do this together — and we're committed to doing this together — with our dealers."

What's uncertain about the models outlined by Ford and other brands, O'Koniewski said, is whether they are a temporary strategy to help automakers determine consumer interest in new vehicles or a permanent shift toward more factory management of inventory allocation and the purchase process.

"Depending on how you want to read the law and what they're doing, they're getting close to skirting the edge of the law without breaking the law," he said.

"We'll eventually get to a fork in the road here, and we'll see where it goes. I think it's sooner than people think."

Beau Boeckmann, COO of Galpin Motors in California, said "the slippery slope comes into play" if automakers start limiting dealers' ability to set prices based on market conditions or otherwise compete against their own retailers.

Manufacturers "are going to push it, and they're going to try to see how much they can get away with, and it's up to dealers to push back and say no," Boeckmann said.

"We're not a driveway for the manufacturer. That's not our role," he added. "We're here to add value, and we add tremendous value in the system."

State dealer association leaders point to franchise laws as a way to balance the economic power of the relationship. Franchised dealers invest in real estate and facilities, employees and training, inventory and parts, yet they also rely on automakers for products and bonus dollars tied to meeting volume targets and other standards that have contributed to profitability.

Automakers highlight their dealerships as partners that offer a position of strength in the market.

Mahmoud Samara, vice president of Cadillac North America, told Automotive News in May that "we honestly believe that our dealer network is going to be a competitive advantage in our journey to delivering a world-class customer experience" as the brand aims to go all-electric by the end of this decade.

Automakers express commitment to their dealers today, but it's uncertain whether that may change as business needs evolve, said longtime auto industry analyst Maryann Keller, principal of Maryann Keller & Associates. Retail is not manufacturers' specialty, she added, and she doesn't think selling directly would be economically viable for them.

Ford and General Motors both experimented with operating dealerships in the 1990s but later abandoned those efforts. State dealer associations pushed to strengthen franchise laws to prevent factories from competing with their franchisees.

"Would the auto companies go direct if they absolutely saw an enormous either market share benefit to it or cost benefit to it? Sure they would," Keller said. "But in my book, I haven't seen them succeed at all ... in any of their tech ventures or diversification ventures or attempts at retail sales."

Tension over direct sales emerged this spring in Vermont during debate over a bill that allows "non-franchised zero-emission vehicle manufacturers" to sell their models directly to consumers. The governor signed the bill last week.

The Vermont Vehicle and Automotive Distributors Association said it supported the bill as a compromise, though reluctantly, on the understanding that lawmakers had enough votes to pass it.

Marilyn Miller, the association's executive director, said legislators had asked whether dealers wanted certain language added to the bill to support it. The group requested a provision clarifying that automakers that do not qualify to sell directly as ZEV manufacturers under the bill can't compete with a Vermont new-car dealer.

Wayne Weikel, senior director of state affairs for the Alliance for Automotive Innovation, which represents several major automakers, testified in April that the group wants all new EV manufacturers to compete under the same franchise system. Yet the dealer association's choice not to oppose the bill prompted the alliance to also ask that all automakers be allowed to sell directly to consumers.

"This is not a position that we have taken in any other state, any other place," Weikel told lawmakers.

"Our members just got to a point of, 'Well, if the dealers aren't going to stand up to defend the franchise system, why are we?' " he testified. "Tesla's not a competitor of the dealer association. Tesla's a competitor of Mercedes-Benz and Infiniti and Ford and GM and all of our members. And this is a considerable advantage that they get."

To Miller, the compromise mitigated a policy that otherwise would have been worse for dealers.

"I really think, once this all calms down and shakes out, we're going to be fine because there are so many fabulous electric vehicles that are coming out on the market by the OEMs, and that's a good thing," she said. "Our message just needs to be together, and it needs to be supportive of each other and have confidence in the franchise system. Which we do."