Online Auto Firms in Drive to Amend Restrictive Laws
The Internet may have turned retailing on its ear, but companies using it to sell cars are struggling with a web of another kind.
An extensive and varied patchwork of state and federal laws essentially prevents consumers from being able to buy and take delivery of cars online, like they can with books, CDs and virtually every other type of merchandise.
Now, online auto companies, most of which act either as referral services or brokers, are campaigning to amend the laws in some states, including California.
“There is a bucket of laws among the states that are entirely self-serving on the part of the car dealer community,” said Frank Leffingwell, legal counsel for Trilogy Software Inc., the parent of Texas-based CarOrder.com Inc. “The present situation allows for a monopoly to exist in the car retailing business.”
Texas law prevents CarOrder from selling cars in its home state.
In California, it is not legal for people to buy new cars online and have them delivered to their homes, as they can with virtually any other commodity. California law effectively requires that a consumer go to a dealership to buy a car, according to state officials and car dealers.
“You may shop online, you may get prices online, but you may not buy online,” said Jay Gorman, executive vice president of the California Motor Car Dealers Assn. “Automobiles are protected items and they are things that the state has interest in.”
Some car dealers and Internet firms skirt the law, but for different reasons. Car dealers want to cater to good customers who know what they want and have it delivered to their homes, whereas some Internet companies want to create an experience similar to purchasing a book or shirt online.
“We know that it’s been happening under the table, and the question has been raised formally, so we’re looking into it,” said Tom Novi, chief of the occupational licensing branch of the state’s Department of Motor Vehicles.
California law also protects a car dealer from a new franchise opening up within 10 miles; regulates advertising of car prices and terms; and prevents manufacturers from owning dealerships near other dealers.
Each state has its own set of laws. In some cases, they have created unusual provisions.
In Indiana, for example, a dealer in a city with a population of more than 110,000 but less than 120,000 must get state approval to move to a new location. Connecticut requires dealerships to have full-time mechanics on staff. In North Carolina, dealers that do not have franchises from manufacturers are subject to excise taxes, whereas franchised dealers are not.
Industry experts said that car dealers have lobbied state legislators to keep the provisions in place, arguing that they need to be protected from manufacturers who could wield tremendous power over the prices and inventory of a dealer. Franchised car dealers argue that the Internet does not change the basic need to protect consumers from the unscrupulous, and therefore the laws do not need to be changed.
Internet firms have been gently prodding motor vehicle officials across the country for favorable interpretations of existing laws, and industry watchers expect to see bills introduced this year to address online car selling.
“There is quiet lobbying going on everywhere,” said Jeremy Anwyl, founder of Marketec Systems Inc., an auto dealer consultant in Santa Ana. “It’s kind of a stealth movement.”
Car manufacturers also would like to see state dealership laws change.
“Franchise laws today were based on a different economic model and landscape and different assumptions about the consumer,” said John Mecke, Ford Motor Co.’s director of franchise legislative affairs. “We would like to be able to, with our dealers, offer a variety of Internet purchasing opportunities to the consumer, whether they be new or used cars or other services.”
There are significant impediments to car manufacturers going to a direct sales model that have nothing to do with government regulations, but about two dozen states prohibit car manufacturers from selling directly to consumers.
Even programs that approach direct sales have been shut down.
When Ford last month set up an online program to sell used cars held by its dealers in Houston, it ran afoul of Texas regulators, who concluded that the system violated laws against manufacturers selling cars, even though dealers held the cars and set the prices. Ford has filed suit in federal court to lift Texas’ ban.
Most of the online firms have cast their business models around the existing statutes. That has resulted in cooperative arrangements with dealers, instead of creating new distribution channels such as the ones that have sprung up in so many other industries.
Autobytel.com Inc. in Irvine, for example, gets paid by car dealers for leads to car buyers, as opposed to a fee for each car sold, allowing it to be one of the few online firms to operate in Texas. Santa Clara, Calif.-based Autoweb.com Inc., whose network of car dealers is less extensive than Autobytel.com’s, refers customers to car brokers, which are outlawed in Texas.
“You cannot sell a new car without going through a dealer, so the question is how are you going to come to terms with that dealer and deliver the kind of consumer experience that you are trying to deliver,” said Aimee Jorgensen, general counsel for Autoweb.com.
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AUTO SALES: C3
