Cognizant of the online success new entrants have enjoyed with web-based, direct sale models, traditional auto manufacturers have expanded the digital presence of their brands through enhanced website functionality that allows consumers to engage in many initial new car shopping activities online. This digital experience allows consumers to browse and configure vehicles, find the Manufacturer's Suggested Retail Price for those vehicles, search for available inventory, and explore financing options.
While dealers continue to negotiate the final terms of the transaction and deliver the vehicles, the increased participation of manufacturers in the customer experience has caught the attention of dealers and dealer associations. The Virginia Automobile Dealers Association recently went so far as to claim that "many Auto Manufacturers want to seize control of the retail sale of vehicles to enhance their profits" and "plan to control most aspects of the sales process, using dealers as mere delivery agents."
To address growing dealer concern, Virginia recently amended its Motor Vehicle Dealer Franchise Act (Va. Code § 46.2-1500 et seq.) to clarify what manufacturers can and cannot do through their customer-facing websites and digital presence. These changes do not appear to render unlawful any current OEM practices, but rather set the boundaries of permissible online and related activity.
The principal changes to the Virginia law make it a violation for manufacturers to require or coerce a dealer (including through incentives) to amend its franchise agreement or enter into a new franchise agreement to allow manufacturers to do any of the following:
- negotiate any binding terms of sale with customers through a website or other digital means;
- retain ownership of new vehicles until they are directly sold or leased to customers;
- "consign" rather than wholesale new vehicles to dealers for dealer inventory or for sale or lease to retail buyers or lessees (with limited exception);
- reserve the right to negotiate binding terms of sales directly with retail buyers or lessees of motor vehicles;
- reserve the right to offer or negotiate directly with customers regarding any service contract, maintenance agreement, guaranteed asset protection agreement, or other vehicle-related products or services offered by the dealer; or
- designate dealers as mere delivery agents for new vehicles after the manufacturer has negotiated binding terms directly with the retail buyer or lessee.
Given their limited scope, the amendments do not represent sweeping changes to current OEM practices. Notably, the prohibition on manufacturer conduct is couched only in terms of modifications to the franchise agreement and does not appear to include other components of the franchise relationship, such as incentive or other voluntary programs. Further, other virtual offerings were left unchanged; manufacturers remain free to display dealer pricing and financing options on their websites; maintain a common supply of vehicles to sell to dealers as long as they do not engage in binding negotiation with customers; offer agreements regarding accessories or functions they update or maintain; engage in fleet-sales programs; and set and advertise suggested retail price.
Manufacturers have had increasing interest in streamlining the virtual customer shopping experience. To the extent they are considering modeling their digital spaces to greater resemble a direct-sales model, however, Virginia's recent updates suggest careful attention should be paid to the way these changes are structured and implemented.
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