Illinois dealers lose lawsuit to halt Rivian, Lucid direct sales

Rivian Automotive, which assembles its high-end electric vehicles in central Illinois, can continue to sell directly to consumers in the state after a judge dismissed a lawsuit by the Illinois Automobile Dealers Association that also challenged sales by EV startup Lucid Group.

In a Dec. 19 ruling, Associate Judge David Atkins ruled the Illinois secretary of state was correct in issuing dealer licenses to Rivian and Lucid in 2021, as it previously had done for Tesla Inc. The state's dealer association argued that only third-party franchisees may be licensed to sell new vehicles under state laws and regulations.

The ruling, which can be appealed, is the latest challenge by dealer groups to the direct-sales model. Tesla is already the biggest luxury automaker by sales in the U.S., depriving franchised dealers of significant revenue. Rivian and Lucid are now following in Tesla's footsteps with direct-sales models, and other EV makers are preparing to do so, such as Fisker and VinFast.

Unlike some states that have passed legislation to explicitly ban direct sales of new vehicles, Illinois declined to do so in 2017, leaving the door open for nonfranchise sellers under current state laws and regulations, the judge ruled.

"The Illinois legislature has had ample opportunity, and has at least once expressly considered explicitly prohibiting manufacturers of automobiles from being licensed as dealers thereof," Atkins wrote in the ruling. "It has declined to do so, and it is thus reasonable to conclude that it had no such intent."

In a Dec. 22 blog post on the IADA website after the ruling, the association said it would decide on an appeal after the holidays.

"Disappointingly, after sitting on all of the parties' various motions for over a year and after admitting less than a week ago [mid-December] that the matter had slipped through the cracks, the judge issued an order dismissing the lawsuit without providing opportunity for oral argument," IADA said.

IADA Executive Director Joe McMahon said in an email to Automotive News on Wednesday that the group would have more information on the lawsuit later in the week.

Rivian said in an email that it did not have any comment on the ruling. Lucid did not respond to a request for comment.

Atkins said in his ruling that relevant state laws contemplate vehicle sales outside of the franchise model.

"It is evident that franchisees are not the sole contemplated form of dealer," the judge said in regard to the Illinois Motor Vehicle Franchise Act. "This is further supported by various provisions referencing dealers with a 'franchise or selling agreement,' apparently contemplating other types of arrangements."

While the use of franchised dealers has become the dominant sales model for new vehicles, Atkins said, it is not mandatory under state law.

"The automobile industry may have largely adopted the 'Established Franchise System' over many decades, and Illinois law may have even been updated to reflect and better regulate that reality, but that does not mean it ever required such as system," the judge said.

In another recent direct-sales case, Tesla filed a lawsuit in August 2022 challenging Louisiana's refusal to allow the company to sell vehicles directly to consumers, calling the state's move protectionist and anti-competitive, Reuters reported. Tesla claimed Louisiana officials have violated state and federal antitrust laws by barring direct sales since 2017.

In Illinois, Tesla reached an agreement with the state and the dealers association in 2019 that allowed the continued operation of dealerships the automaker had established in previous years but limited them to 13, according to the ruling by Atkins.

That agreement with Tesla was a tacit acknowledgment that direct sales are legal, the judge added.

"Plaintiff IADA's argument that a manufacturer per se cannot be a dealer consistent with Illinois law, and that allowing such business would be unfair and harmful to consumers, is somewhat less persuasive in light of its own agreement to an order allowing exactly such an entity 13 dealers licenses," Atkins said in a footnote to his December ruling.