An American solution

Automotive franchise laws serve local communities and consumers

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Contributors

It is fashionable of late to decry the franchise automotive retail system as inefficient, costly to consumers, and unable to innovate.[1] These complaints are partially inspired by the rise of new brands such as Tesla that do not rely on independent, franchised dealers to sell their vehicles and, therefore, run into conflict with franchise laws in many states. In the authors’ view, what the critics miss is that the franchise system and franchise law are a result of a long history of conflict between manufacturers and dealers that governments mediate for the benefit of consumers and local economies.

The uniquely American automotive franchise system is the product of both market forces and state and federal government regulation.[2] Decades of conflict led to a system that balances power between manufacturers and retailers while promoting the interests of consumers and communities. Franchise laws play a key role in ensuring that consumers and local communities benefit from strong sales and service networks for one of the most important purchases made by most U.S. households. These laws promote price competition and consumer advocacy by dealers in warranty and recall repairs. They also stabilize the retail market, which helps to protect the economic, employment, and charitable impact of franchised dealers in communities big and small across the country.

The success of this American approach is a key reason why the automotive industry in the United States thrives as a bedrock of local economies and an engine of innovation. This article examines how the history of conflict between manufacturers and dealers led the federal government and states to regulate these relationships. It then illustrates how modern franchise law benefits local communities and consumers by enabling price competition, stability of local investment, and advocacy for consumers.

I. Basics of the automotive franchise relationship

The basic relationship between dealers and manufacturers is governed by a contract, typically called the “dealer agreement,” which sets out the rights and responsibilities of each party.[3] The fundamental bargain struck is simple. Dealers agree to sell and service new motor vehicles produced by the manufacturer.[4] In return, the manufacturer agrees to supply dealers with the vehicles in its line-make, provide parts for those vehicles, reimburse the dealer for performing warranty services, and promote the brand.[5] Dealers purchase vehicles and parts directly from the manufacturer (or its domestic distribution arm) that they sell and service in branded facilities at prices and rates set by the dealer. The franchise relationship therefore shifts economic risk from the manufacturer to the dealer without the dealer becoming an agent of the manufacturer.[6]

While this relationship, subject to certain exceptions, can be a franchise relationship governed by the Federal Trade Commission’s Franchise Rule[7] and other federal laws, the manufacturer-dealer relationship is generally not governed by general franchise laws enacted by states.[8] Instead, states have enacted automotive retail-specific franchise laws.

The state and federal laws that make up the United States automotive franchise system developed over multiple decades to balance the competing interests of manufacturers and dealers in a way that is intended to benefit consumers and local communities. Until the 1930s, vehicles were distributed through a number of means, including manufacturer-owned stores, independent salespeople, and consignment arrangements.[9] However, starting in the 1930s, the industry shifted distribution to independent franchises to address, in part, the high cost of maintaining showrooms and providing services to customers.[10] Independent franchised dealers made the investments necessary to meet customer and community needs, but often faced manufacturers that attempted heavy-handed control.[11] This circumstance, in turn, led dealers to push for regulation of the relationship between manufacturers and dealers, starting a process that resulted in the regulatory regime seen today.

II. Establishment of the franchise business model

In the early stages of the automotive franchise relationship evolution, manufacturers established “exclusive agents” who paid substantial deposits for the right to purchase vehicles directly from manufacturers and then sell these vehicles to consumers.[12] These exclusive agents made investments in their businesses by opening showrooms, service, and storage facilities to take advantage of the economic opportunity to sell vehicles in their local communities.[13] This franchise system, even in the early stages, provided manufacturers multiple benefits, which still continue today.

First, the existence of an independent retail network that purchased vehicles from the manufacturers provided steady and reoccurring revenue without taking on the costs of maintaining consumer-facing sales facilities across the country.[14] Second, franchised dealers were able to offer services demanded by customers, including warranty and other types of vehicle repairs, that manufacturers were unprepared to offer.[15] Third, franchise agreements allowed manufacturers to continue to exert control over dealership business operations, backed up with the threat of withholding vehicles or terminating the franchise.[16]

Despite the clear benefits to manufacturers of this system, many manufacturers used their disproportionate bargaining power to require draconian terms in their contracts with dealers.[17] For example, many manufacturers required that the dealers purchase as many vehicles as required by

manufacturers under threat of not receiving vehicles in the future.[18] Manufacturers could also terminate franchises without any cause or consideration for the investment made by the dealer.[19]

The inequity of the situation began to come to a head in the 1930s, when excess vehicle production caused manufacturers to pressure their dealers to increase sales volume despite decreasing consumer demand caused by the Great Depression.[20] Manufacturers used the threat of termination to effectively force dealers to bear the risk of the overproduced vehicles.[21] Dealers responded by seeking remedies under the law.

III. Early efforts to regulate the manufacturer-dealer relationship

The newly established dealers across the country first brought lawsuits, arguing that their legal relationships with the manufacturers amounted to “contracts of adhesion.”[22] Dealers were typically unsuccessful before the courts, even where the courts expressed reservations regarding the imbalance in power.[23] As a result, manufacturers increased their use of termination to assert control over dealers.[24]

During the Great Depression, Congress passed the National Industrial Recovery Act,[25] which allowed members of an industry to create a code of fair competition to decrease competitive behavior, such as aggressive price competition.[26] Dealer groups used the National Industry Recovery Act to enact a code of competition to protect the industry during the Great Depression.[27] The National Industrial Recovery Act was short-lived, with the U.S. Supreme Court striking the law down two years after its passage because it violated the Commerce Clause.[28]

Dealers next lobbied Congress to take action. The first result was a congressional resolution calling on the Federal Trade Commission (FTC) to investigate the vehicle retail sector.[29] Dealers initially saw this resolution as a win, but were ultimately disappointed in the FTC’s report.[30] While the FTC found that manufacturers imposed “unfair and inequitable conditions of trade” upon dealers, it concluded that the manufacturers did not engage in price-fixing.[31] Further, the FTC found that dealers within the franchise system engaged in price competition that benefited the consumer.[32] It also criticized dealers for use of deception and fraud in their dealings with consumers.[33]

Dealers then advocated for Congress to pass the Motor Vehicle Act of 1940. That effort failed, in part because a survey of dealers showed widespread opposition to the law, despite support for it from the National Automobile Dealers Association (NADA).[34] It would have required that franchise agreements contain specific provisions protecting the interests of dealers.[35]

IV. First waves of regulation chart a new course for manufacturers and dealers

The third and most successful push for federal regulation of the manufacturer-dealer relationship arose in the 1950s.[36] After a number of congressional investigations, Congress ultimately enacted the Automobile Dealer’s Day in Court Act (ADDCA) in 1956.[37] This law provides auto dealers with a federal cause of action to seek recovery of damages and attorney’s fees when a manufacturer does not use “good faith in performing its obligations under a dealer franchise or in terminating it.”[38] The law sought to curb “abuses of arbitrary termination and nonrenewal,” but did not control the actual terms of a franchise.[39]

The most important provision of the ADDCA is the requirement of “good faith.”[40] The law defined good faith as “the duty of each party to any franchise . . . to act in a fair and equitable manner toward each other so as to guarantee the one party freedom from coercion, intimidation, or threats of coercion or intimidation from the other party.”[41] Over the years, manufacturers and dealers have disputed whether the law therefore finds fault where a manufacturer fails to act in good faith, or only applies when an act by a manufacturer is coercive in nature. Typically, courts applied the law only where a dealer could show coercion.[42] However, coercion could be found in many areas, such as setting unreasonable or unrealistic sales goals that

gave cover for terminating selective dealers,[43] and restricting allocations in an effort to compel dealers to voluntarily terminate.[44]

Nonetheless, the courts’ interpretation that the ADDCA requires a finding of coercion limited the courts’ ability to provide relief to dealers. For example, courts have held that a “mere showing of arbitrary or other bad faith conduct absent coercion is not a sufficient ground for recovery.”[45] As a result, courts have refused to find ADDCA violations where the manufacturer demanded an enlarged facility[46] or separate facilities for competing brands,[47] refused to approve a transfer of the dealership to a qualified buyer,[48] or failed to comply with a regional exclusivity term in a franchise agreement,[49] absent evidence of coercion. The ADDCA’s limited reach helped drive the enactment of state franchise laws.

V. Rise of state franchise laws

At the same time that dealers sought relief through federal legislation, dealers lobbied state governments to enact state franchise laws. These laws ultimately proved to be more specific and useful for dealers than federal law. The first state franchise law was passed in 1936.[50] Then, when the limitations of ADDCA became clear, dealers in multiple states across the country pressed their state legislatures for additional regulation of their relationships with manufacturers.[51] This pressure succeeded, with all states ultimately passing dealer protection laws.[52]

Many of these state laws include legislative findings and statements of purpose justifying the legislation. As explained below, these legislatively declared purpose statements often mirror the stated concerns of dealers, and highlight the benefits to consumers and communities of a regulated relationship

between manufacturers and dealers.[53] Many statutes also note that motor vehicle sales affect both the general economy and local communities.[54]

A. Public interest and public welfare

Legislatures typically find that automotive retail affects the “public interest” or “public welfare” of the state.[55] The focus is frequently on the local economic benefit of automotive retail. For example, Delaware recognizes that “distribution and sale of vehicles . . . vitally affects the general economy” and that franchise laws are necessary to “preserve the investments and properties of the citizens of the State.”[56] Georgia states that “[t]he maintenance of strong and sound dealerships is essential to provide continuing and necessary reliable services to the consuming public in this state and to provide stable employment to the citizens of this state.”[57] Hawaii law emphasizes the unique needs of its isolated local communities.[58]

B. Balance relationship between dealers and manufacturers

Some states also explicitly find that legislation balancing the relationship between dealers and manufacturers serves the public interest. Mississippi declared franchise regulation necessary to “avoid undue control of [franchised dealers]” by manufacturers.[59] Nebraska found regulation necessary to provide “relief from unfair and inequitable practices affecting the public interest,” for, among other reasons, that:

the termination or failure of the established relationship between the manufacturer, distributor, and dealer without cause or good faith denies to the general buying public its right to availability of continuing post-sale mechanical and operational services and precludes the relationship, expected and implied at the time of sale, between the buyer and the seller necessary to insure [sic] safe operating condition of the vehicle.[60]

New Jersey explained that it chose to regulate the dealer-manufacturer relationship in part because “inequality of bargaining power [between manufacturers and dealers] exists even as to motor vehicle franchisees who have had their franchises for many years and who have expended large sums of money in the promotion of their franchises.”[61] Utah recognized that “termination of franchises [by manufacturers], without good cause or by unfair means . . . diminishes competition . . . adversely affects communities . . . and undercuts expectations of consumers concerning the availability of future services including warranty work. ”[62]

C. State License

The actual content and structure of franchise laws differ across states. For example, many states have adopted a licensing approach that requires auto dealers to be independent from manufacturers and licensed by the state to sell vehicles.[63] In these states, manufacturers are effectively or explicitly prohibited from selling vehicles directly to consumers.[64] Other states, such as California, license dealers, but do not prohibit manufacturers from themselves becoming licensed dealers.[65]

Many states have also established independent boards and commissions that regulate licensees and the relationship between dealers and manufacturers.[66] These boards and commissions are typically populated by both dealer and manufacturer representatives[67] and are tasked with resolving disputes between manufacturers and dealers.[68] Such disputes include terminations, relocations, and additions of new dealerships.[69]

D. “Good cause,” “due cause,” or “just cause”

The state franchise laws typically include specific dealer protections. From the dealer’s perspective, perhaps the most vital protection is the limitations placed on the termination of franchises.[70] The most commonly used standard requires that manufacturers only terminate franchises for some kind of “cause,” usually defined as “good cause,” “due cause,” or “just cause.”[71] Some legislatures have provided more specific standards, namely by adopting eumerated factors for consideration, as in California, which is discussed in detail in section VI.C.1.[72]

E. Regulations regarding establishment of new dealerships, price discrimination, and warranty

Franchise laws also typically include other forms of regulations of the manufacturer-dealer relationship. Restrictions on the establishment of new dealerships are common.[73] So are limitations on coercive activity and price discrimination by manufacturers.[74] Many states prohibit manufacturers from prohibiting dealers from also selling other brands.[75] Many also regulate the transfer of interests in a dealership.[76]

A number of states have adopted rules to regulate warranty reimbursement to dealers by manufacturers.[77] These laws typically require fair rates for reimbursement and provide an appeals process for denials of warranty reimbursement.[78] For example, Minnesota requires that manufacturers reimburse dealers for warranty repairs and parts based on a formula that considers the retail rates dealers charge their customers, limits when a manufacturer may deny a request for reimbursement, and mandates that the manufacturer provide a process to challenge a denial of a request for reimbursement.[79] These laws ensure that dealers consistently receive a fair rate of reimbursement for repairs provided to customers.

F. Advertising, vehicle disclosures, and sales tactics

Finally, many states regulate the sales activities of dealers to protect consumers. These laws typically address topics such as advertising, vehicle disclosures, and sales tactics.[80] The most common enforcement mechanism that these statutes use is threatening to revoke the licenses of dealers that fail to follow the rules, therefore posing an existential threat to dealers’ continued operation.

Today, all fifty states have legislation regulating the manufacturer-dealer relationship.[81] Differences between state laws continue, reflecting local conditions. However, as discussed above, these laws tend to follow the same basic pattern: protecting dealers from undue control by manufacturers and protecting consumers through regulation of dealer sales and service activity.

VI. American franchise laws provide benefits to consumers and communities

Franchised dealers are an economic boon to the communities in which they are located. In 2019, there were 16,682 franchised dealerships spread across the country.[82] Each dealership, on average, employs sixty-eight people who earn an average annual salary of $60,738.83 Also in 2019, franchised dealers collected $90.1 billion dollars in state sales tax from the sales of vehicles and services, and another $17.1 billion in state and federal income taxes.[84] In just California, 1,419 franchised car dealerships in the state generate $10.62 billion in sales and income tax revenue for state and local governments.[85] Those dealers employ 144,738 employees who earn on average $67,726 per year.[86] In 2019, together they donated $48.53 million to charitable and civic organizations.[87]

As this data shows, franchised car dealerships are major employers, sources of tax revenue, and contributors to community organizations in state and local communities nationwide. These benefits are what legislatures sought when passing franchise laws[88] and in some cases exceed expectations. This section analyzes how franchise laws achieve these community and consumer benefits: namely, by placing dealers in the role of consumer advocates, promoting price competition, and keeping dealerships in local communities.

A. Franchise laws put dealers in the role of consumer advocate

Automobiles are expensive, complicated durable goods that require ongoing maintenance to perform as intended. Thus, from the consumer’s point of view, purchasing and owning a vehicle involve two separate but related aspects: the purchase price of the vehicle and the cost of ongoing maintenance.[89]

Manufacturers are required to pay for covered warranty and recall repairs.[90] Historically, manufacturers have been accused of attempting to keep down the tail costs of warranty repairs by willfully not recognizing defects, sometimes with disastrous results. For example, in 1971, General Motors announced a recall of 6.68 million vehicles due to a defective engine mount, despite being aware of the deadly problem at least two years earlier.[91] Decades later, the same manufacturer paid a $900 million fine as part of an agreement with the Justice Department after it concealed information from the federal government about defective ignition switches.[92]

One way that state legislatures have addressed this problem is through franchise laws. Franchised dealers serve as a “persistent intermediary” between consumers and manufacturers by bundling vehicle sales and services, including warranty and recall repairs.[93] Dealers stand between manufacturers and consumers to keep the cost of ongoing vehicle maintenance for consumers down, as their incentives align with those of consumers to shift as much of the cost of maintenance to manufacturers as possible.[94]

Franchise laws directly support the advocacy role of dealers on behalf of customers by increasing dealer bargaining power against manufacturers. State franchise laws achieve this through a number of mechanisms. For example, in many instances, the law shifts the burden of proof of turning down a warranty repair to the manufacturer, effectively meaning that dealers are incentivized to provide customers with any justifiable warranty repair.[95]

In addition, a growing number of states have adopted a retail reimbursement rate approach to warranty repairs.[96] This means that dealers are compensated at the same rate by manufacturers for covered repairs as they are when performing repairs not covered by warranty.[97] As a result, warranty repairs are as financially lucrative as other repairs, while also providing the dealer with the benefit of customer good-will. This ensures that dealers are at least as incentivized to perform warranty repairs as retail repairs.

B. Franchise laws lower vehicle prices by promoting competition

The franchise system benefits consumers by ensuring intra-brand price competition. In other words, consumers benefit from lower vehicle prices because vehicle dealers are independent businesses that compete with each other on price when selling vehicles.[98] This benefit, noted in the FTC’s 1938 Hearing, is frequently recognized in state statutes and continues to this day.[99] There has been some recent push back to the idea that an independent dealer network drives down the prices of vehicles. Specifically, some recent analysis of the franchise system concept has focused on the rise of new brands that seek to enter the market through direct sales to consumers.[100] Because many state franchise laws require that franchised, independent dealers sell new vehicles in the state, effectively barring new entrants that do not want to use franchisees, the franchise system as a whole has come under scrutiny. One area of particular focus has been an old claim that franchisees actually increase the cost of vehicles. In the authors’ view, this conclusion is not supported by current and compelling data.

The most cited evidence that the franchise system increases vehicle prices is a 1986 study by the FTC (1986 FTC Study).[101] It posited that in theory franchised dealers would increase the cost of vehicles due to their market power, which would allow them to set higher prices, or because of their ability to keep new competing dealers out of the market.[102] Despite the fact that this study is still frequently cited, the empirical data does not support either of the theories proposed.[103]

What the data shows is that the franchise system ensures intra-brand price competition, which, in turn, drives down the prices of new vehicles.[104] In the specific context of automotive retail, these mechanisms become complicated, but, in short, franchise laws support the continued existence of multiple dealers of the same line-make and thereby ensure competition.[105] The existence of this competition is clearest in looking at the economics of dealerships themselves; profit margins for the sales of new vehicles are generally razor thin across the industry.[106] For example, the NADA found that the total net profit share of sales through June in 2020 was 2.1%, down from 2.8% in 2014.[107]

C. Franchise laws regulating the manufacturer-dealer relationship are necessary to protect consumers and communities

Finally, as recognized in many state laws, the consumer benefits of the franchise system rely on the continuing existence of a retail dealer network in a broad range of communities.[108] Consumers are not able to access the benefits of dealers’ advocacy on their behalf in warranty repair or price competition if they are not readily able to access dealers. Therefore, by protecting dealers’ investment in their dealerships, franchise laws also protect consumers and communities.

As discussed above, perhaps the most important aspect of franchise law is the protection from arbitrary or unwarranted termination. Effectively every state has chosen to adopt laws that require manufacturers to demonstrate some good cause in order to terminate a dealership.[109] Looking into the details of these laws quickly demonstrates why they are important.

1. Good cause factors

States, either through express legislation or case law, have developed standards for what constitutes good cause for termination. For example, California requires its New Motor Vehicle Board to consider all relevant conditions, including the following enumerated factors, when determining if good cause exists to terminate a franchise:

  1. Amount of business transacted by the franchisee, as compared to the business available to the franchisee.
  2. Investment necessarily made and obligations incurred by the franchisee to perform its part of the franchise.
  3. Permanency of the investment.
  4. Whether it is injurious or beneficial to the public welfare for the franchise to be modified or replaced or the business of the franchisee disrupted.
  5. Whether the franchisee has adequate motor vehicle sales and service facilities, equipment, vehicle parts, and qualified service personnel to reasonably provide for the needs of the consumers for the motor vehicles handled by the franchisee and has been and is rendering adequate services to the public.
  6. Whether the franchisee fails to fulfill the warranty obligations of the franchisor to be performed by the franchisee.
  7. Extent of franchisee’s failure to comply with the terms of the franchise.[110]

Taken together, the law protects dealers that have made appropriate and permanent investments that result in acceptable volume and quality of business. In other words, manufacturers may not terminate good dealers. With these laws in place, manufacturers only may terminate dealerships that fail to invest in serving the public.[111]

2. Protection from manufacturers exercising undue control

Franchise laws further protect consumers and communities not only by ensuring that good dealerships may continue to serve their communities but also by protecting the dealer’s investment even when termination is not threatened. Under California law, for example, the franchise laws ensure that manufacturers may not unreasonably do any of the following:

  1. Interfere in capital structure and financing.[112]
  2. Interfere in executive management personnel.[113]
  3. Prevent transfer of the dealership to heirs upon dealer death.[114]
  4. Prevent transfer of the dealership to qualified buyers.[115]
  5. Impose limitations on representing other manufacturers.[116]
  6. Mandate facility image upgrades.[117]
  7. Impose unreasonable performance standards.[118]

These laws reflect dealers’ historic concerns with manufacturers exercising undue control over their independent businesses. These protections also benefit consumers and local communities. These laws, and their counterparts across the country, ensure that dealers can confidently invest in their showrooms, staff, inventory, service facilities, and other services without fear of losing that investment at the time of transfer or due to an unreasonable manufacturer demand for cosmetic upgrades or facility exclusivity. Because the benefits of the franchise system, such as price competition and advocacy for consumers in warranty and recall repairs, are only available to consumers if they can access dealerships, these laws also benefit the consumer by protecting the investment of dealers in their local communities.

D. Direct sales models inadequate to serve customers and communities

While much of the recent scrutiny of franchise laws is a result of Tesla’s emergence and reliance on a direct sales model, a look at how that model works for customers shows that it may be inadequate to serve customers and local communities.

Because Tesla only sells vehicles through a vertically integrated direct sales model, there is no intra-brand price competition, only inter-brand competition.[119] Tesla is the only entity setting prices, and it has no downward pressure from retailers selling its product. Further, because Tesla owns its stores and service centers, it has no franchise law restrictions on closing them at any time.[120] The ability of manufacturers to stymie consumer expectations to have accessible sales and service facilities is one of the frequently cited public welfare benefits that franchise law is intended to provide but is completely absent from the Tesla model.[121]

These issues are not just theoretical. For example, Tesla currently maintains 125 service centers across the country.[122] Several states have only a single service center, while others have none at all.[123] This has resulted in one of the more persistent complaints regarding Tesla ownership—long waits for vehicle service.[124] These problems are likely exacerbated by the fact that service centers are not independent businesses incentivized to minimize the cost of repairs for customers, as franchised dealers are.[125] Taken together, while Tesla’s model may have its merits for a niche market, its approach does not provide the community and consumer benefits that every state has recognized that franchised dealers provide.

VII. The twenty-first century dealership adapts to change

The most ephemeral argument raised against franchised dealerships and in favor of the direct sales model is that new approaches will lead to innovation that benefits consumers.[126] While this may be the case, it presupposes that the franchise system stymies innovation. In the authors’ opinion, nothing could be further from the truth.

Franchised dealerships are an American institution because they have survived and thrived through changing market and economic conditions. For example, the franchise system accommodated the growth in the 1970s and 1980s of foreign name-plate brands like Toyota and Honda.[127] It also provided for an orderly process for reorganization in the wake of the 2008 financial crisis.[128]

The current national crisis demonstrates the value of the franchise system. Today, dealers are adapting to sales restrictions due to COVID-19 with new safety measures.[129] At the same time, they are adopting new sales and service approaches to meet current needs, such as online sales and home delivery.[130] Many are also demonstrating their commitment to their communities through charitable giving and direct service to their communities.[131]

Far from being a deterrent to innovation, franchise laws foster it. Franchise laws protect dealer choice in working with vendors and picking investments, while also protecting them from arbitrary termination.[132] These protections allow dealerships to have the security to try new approaches without fear of undue manufacturer interference or sudden loss of the business. Further, because franchise laws ensure a widespread retail network, the American system is characterized by independent businesses serving a diverse array of local communities. This leads to incentives for each business to tailor sales and service to local needs. These realities were widely recognized by state franchise laws and continue to benefit consumers and communities in the twenty-first century.

VIII. Conclusion

The system of franchise laws in all fifty states are an American solution: locally tailored, consumer focused, and ready to adapt. These laws grew out of a history of conflict between manufacturers and dealers; conflict that state and federal government mediated in order to create a system that benefits local communities and consumers. These efforts were a success. Today, franchised car dealers are an important employer, economic driver, and source of tax revenue in communities big and small across the country. This American system will continue to adapt, but time has shown that this American solution serves the public interest.

©2021. Published in Franchise Law Journal, Vol. 40, No. 4, Spring 2021, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

Footnotes:

  • [1] See, e.g., Jason R. Parnell, A Model T(esla) for the Future, Los Angeles Law. Mag., June 2020, at 12.
  • [2] Thomas G. Marx, The Development of the Franchise Distribution System in the U.S. Automobile Industry, 59 Bus. Hist. Rev. 465, 472 (1985).
  • [3] See, e.g., Daimler Chrysler Motors Co. v. Clemente, 668 S.E.2d 737, 742 (Ga. Ct. App. 2008) (“The Dealer Agreement set forth a number of standards that had to be met by Metro to retain the franchise and delineated several situations in which Chrysler Motors could terminate the franchise, whether with or without notice or an opportunity to cure. In addition to sales and service standards, the Dealer Agreement described a number of financial standards that Metro was required to meet.”).
  • [4] See id.
  • [5] See id; see also Magnuson-Moss Warranty—Federal Trade Commission Improvement Act, 15 U.S.C. § 2307 (requiring manufacturers to financially back warranties on their products).
  • [6] Friedrich Kessler, Automobile Dealer Franchise: Vertical Integration by Contract, 66 Yale L.J. 1135, 1136 (1957).
  • [7] See 16 C.F.R. §§ 436, 437.
  • [8] Thomas J. Collin, State Franchise Laws and the Small Business Franchise Act of 1999: Barriers to Efficient Distribution, 55 Bus. Law. 1699, 1706 (2000); see, e.g., Cal. Bus. & Prof. Code§ 20001(a)–(c).
  • [9] Marx, supra note 2, at 465−66.
  • [10] Gary M. Brown, State Motor Vehicle Franchise Legislation: A Survey and Due Process Challenge to Board Composition, 33 Vand. L. Rev. 385, 387−89 (1980).
  • [11] Marx, supra note 2, at 466 (for manufacturer heavy-handedness).
  • [12] Brown, supra note 10, at 387.
  • [13] Marx, supra note 2, at 466.
  • [14] Brown, supra note 10, at 387.
  • [15] Id. at 386–87.
  • [16] Kessler, supra note 6, at 1141–43.
  • [17] Daniel A. Crane, Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism, 101 Iowa L. Rev. 573, 577 (2016).
  • [18] Id.
  • [19] Id. at 578.
  • [20] Brown, supra note 10, at 388; Marx, supra note 2, at 469–71.
  • [21] Brown, supra note 10, at 388–89.
  • [22] Id. at 389.
  • [23] Id.
  • [24] Id. at 390; see also Ford Motor Co. v. Kirkmyer Motor Co., 65 F.2d 1001 (4th Cir. 1933) (expressing sympathy for the plight of the dealer in the face of a one-sided contract); Bushwich-Decatur Motors, Inc. v. Ford Motor Co., 7 N.Y.S.2d 268 (App. Div. 1938) (refusing to apply a good-faith condition on a termination).
  • [25] Brown, supra note 10, at 391.
  • [26] Id.
  • [27] Id.
  • [28] A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935).
  • [29] Public Resolution No. 87, 52 Stat. 218 (1938).
  • [30] Brown, supra note 10, at 392−393.
  • [31] FTC Report on the Motor Vehicle Industry, H.R. Doc. No. 76-468, at 1058, 1074– 75 (1939).
  • [32] Id.
  • [33] Brown, supra note 10, at 394.
  • [34] Kessler, supra note 6, at 1172.
  • [35] Id.
  • [36] Id.
  • [37] 70 Stat. 1125 (1956) (current version at 15 U.S.C. §§ 1221–1225 (1976)).
  • [38] S. Rep. No. 84-2073, at 1 (1956).
  • [39] Id. at 6; S. Rep. No. 84-2850, at 6 (1956).
  • [40] Kessler, supra note 6, at 1173.
  • [41] 15 U.S.C. § 1221(e).
  • [42] See, e.g., Ed House Enters. v. Gen. Motors Corp., 595 F.2d 366 (7th Cir. 1979); Autohaus Brugger, Inc. v. Saab Motors, Inc., 567 F.2d 901 (9th Cir. 1978), cert. denied, 436 U.S. 946 (1978); Globe Motors, Inc. v. Studebaker-Packard Corp., 328 F.2d 645 (3d Cir. 1964), cert. denied, 375 U.S. 896 (1963).
  • [43] Autohaus Brugger, 567 F.2d at 912.
  • [44] Fox Motors, Inc. v. Mazda Distribs. (Gulf), Inc., 806 F.2d 953, 960 (10th Cir. 1986); see also Randy’s Studebaker Sales, Inc. v. Nissan Motor Corp. in U.S.A., 533 F.2d 510 (10th Cir. 1976) (holding that limiting access to cars was coercive act); Rea v. Ford Motor Co., 497 F.2d 577 (3d Cir. 1974) (sustaining jury’s finding that manufacturer pressured dealer to sell separate, different line-make dealership by threatening to withhold vehicles); Autowest, Inc. v. Peugeot, 434 F.2d 556 (2d Cir. 1970) (holding that manufacturer used coercion to demand resale prices).
  • [45] Overseas Motors, Inc. v. Imp. Motors Ltd., Inc., 519 F.2d 119, 125 (6th Cir. 1975); see also Berry Bros. Buick, Inc. v. Gen. Motors Corp., 257 F. Supp. 542 (E.D. Pa. 1966), aff’d, 377 F.2d 552 (3d Cir. 1967); R.A.C. Motors, Inc. v. World-Wide Volkswagen Corp., 314 F. Supp. 681 (D.N.J. 1970); Unionvale Sales Ltd. v. World-Wide Volkswagen Corp., 299 F. Supp. 1365 (S.D.N.Y. 1969).
  • [46] Milos v. Ford Motor Co., 317 F.2d 712 (3d Cir. 1963).
  • [47] Empire Volkswagen, Inc. v. World-Wide Volkswagen Corp., 627 F. Supp. 1202 (S.D.N.Y. 1986).
  • [48] Fray Chevrolet Sales, Inc. v. Gen. Motors Corp., 536 F.2d 683 (6th Cir. 1976).
  • [49] Imperial Motors, Inc. v. Chrysler Corp., 559 F. Supp. 1312 (D. Mass. 1983).
  • [50] Carla Wong McMillian, What Will It Take to Get You in a New Car Today?: A Proposal for a New Federal Automobile Dealer Act, 45 Gonz. L. Rev. 67, 71 (2010).
  • [51] Brown, supra note 10, at 399.
  • [52] T. Randolph Beard & George S. Ford, Perspective, State Automobile Franchise Laws: Public or Private Interests?, Phoenix Ctr. Persps 16-06 (July 12, 2016).
  • [53] See Ala. Code § 8-20-2; Del. Code Ann. tit. 6, § 4901; Ga. Code Ann. § 10-1-621; Haw. Rev. Stat. § 437-1; 815 Ill. Comp. Stat. 710/1.1; Minn. Stat. § 80E.01; Miss. Code Ann. § 63-17-53; Neb. Rev. Stat. § 60-1401.01; N.J. Stat Ann. § 56:10-7.2; N.Y. Veh. & Traf. Law § 460; N.C. Gen. Stat. § 20-285; Okla. Stat. tit. 47, § 561; 49 Pa. Code § 19.1; Tex. Occ. Code Ann. § 2301.001; Utah Code Ann. § 13-14-101.
  • [54] See Ala. Code § 8-20-2; Del. Code Ann. tit. 6, § 4901.
  • [55] See, e.g., Colo. Rev. Stat. § 12-6-101; Ky. Rev. Stat. Ann. § 190.015; La. Stat. Ann.§ 32:1251; Okla. Stat. tit. 47, § 561; 49 Pa. Code § 19.1; Tex. Occ. Code Ann. § 2301.001.
  • [56] Del. Code Ann. tit. 6, § 4901.
  • [57] Ga. Code Ann. § 10-1-621.
  • [58] Haw. Rev. Stat. § 437-1.
  • [59] Miss. Code Ann. § 63-17-53.
  • [60] Neb. Rev. Stat. § 60-1401.01.
  • [61] N.J. Stat. Ann. § 56:10-7.2.
  • [62] Utah Code Ann. § 13-14-101.
  • [63] Ariz. Rev. Stat. Ann. § 28-4333; Ark. Code Ann. § 23-112-301; Cal. Veh. Code § 3060; Colo. Rev. Stat. §§ 12-6-108, 12-6-115; Conn. Gen. Stat. § 14-67a; Fla. Stat. § 320.27; Ga. Code Ann. § 40-2-39; Kan. Stat. Ann. § 8-2403; Miss. Code Ann. § 63-17-75; Mont. Code Ann. § 61-4-202; Neb. Rev. Stat. § 60-1403.01; N.Y. Veh. & Traf. Law § 415; N.C. Gen. Stat.§ 20-287; Ohio Rev. Code Ann. § 4517.02; Okla. Stat. tit. 47, § 564; R.I. Gen. Laws § 31-5-5; Tenn. Code Ann. § 55-17-109; Tex. Occ. Code Ann. § 2301.252; Utah Code Ann. § 41-3-201; Va. Code Ann. § 46.2-1508; Wash. Rev. Code § 46.70.021.
  • [64] Crane, supra note 17, at 583–86.
  • [65] Cal. Veh. Code § 11713.3.
  • [66] Ark. Code Ann. § 23-112-201; Cal. Veh. Code §§ 3000, 3001; Ky. Rev. Stat. Ann. § 190.058; 815 Ill. Comp. Stat. 710/16; Me. Rev. Stat. tit. 10, § 1187; Ohio Rev. Code Ann. § 4517.30; R.I. Gen. Laws § 31-5-2.1; Tex. Occ. Code Ann. §§ 2301.151−2301.155; Va. Code Ann. § 46.2-1503.
  • [67] McMillian, supra note 50, at 83.
  • [68] Id. at 83−85.
  • [69] See, e.g., Cal. Veh. Code §§ 3060, 3062.
  • [70] Ala. Code § 8-20-5; Ariz. Rev. Stat. § 28-4452; Ark. Code Ann. § 23-112-403; Cal. Veh. Code § 3060; Iowa Code § 322A.2; Mass. Gen. Laws ch. 93B, § 5; Mont. Code Ann. § 61-4-205; N.Y. Veh. & Traf. Law § 463; Nev. Rev. Stat. § 482.36354; S.C. Code Ann. § 56-15-40; Tex. Occ. Code Ann. § 2301.453; Va. Code Ann. § 46.1569.
  • [71] See, e.g., Ariz. Rev. Stat. § 28-4452; Me. Rev. Stat. tit. 10, §§ 1174(3)(c), 1179; N.Y. Veh. & Traf. Law § 463.
  • [72] Ariz. Rev. Stat. § 28-4457; Ark. Code Ann. § 23-112-311; Cal. Veh. Code § 3060; Iowa Code § 322A.11; Mass. Gen. Laws ch. 93B, § 5; Mont. Code Ann § 61-4-207; N.Y. Veh. & Traf. Law § 463; Nev. Rev. Stat. §§ 482.36355–482.36356.
  • [73] Ark. Code Ann. § 23-112-311; Ariz. Rev. Stat. § 28-4452; Del. Code Ann. tit. 6, § 4915; Cal. Veh. Code § 3062; Ga. Code Ann. § 10-1-664; Iowa Code § 322A.3; Minn. § 80E.014; Neb. Rev. Stat. § 60-1422; Nev. Rev. Stat. § 482.36356.
  • [74] Ariz. Rev. Stat. § 28-4460; Ark. Code Ann. § 23-112-403; Colo. Rev. Stat. § 12-6-120(c); Haw. Rev. Stat. § 437-28(b)(22)(F); Idaho Code § 49-2404; Ky. Rev. Stat. Ann. § 190.040; La. Stat. Ann. §§ 32:1254(A)(3)(a) to :1254(A)(3)(c); Me. Rev. Stat. tit. 10, § 1174; Md. Code Ann. Transp. § 15-207; Mich. Comp. Laws § 445.1574; Nev. Rev. Stat. § 482.36391; N.H. Rev. Stat. Ann. § 357-C:3; N.M. Stat. Ann. § 57-16-5; N.C. Gen. Stat. § 20-305(1); Okla. Stat. tit. 47, §§ 565(i), 571(a); S.C. Code § 56-15-40; Va. Code Ann. §§ 46.2-1568−46.1569; Wash. Rev. Code § 46.70.180; Wis. Stat. § 218.0116.
  • [75] Md. Code Ann. Transp. § 15-207; Tex. Occ. Code Ann. § 2301.472.
  • [76] Ariz. Rev. Stat. § 28-4462; Kan. Stat. Ann. § 8-2416; Nev. Rev. Stat. § 482.3638.
  • [77] Ala. Code § 8-20-7; Ark. Code Ann. § 23-112-313; Cal. Veh. Code § 3065; Fla. Stat. § 320.3207; Kan. Stat. Ann. § 8-2415; Minn. Stat. § 80E.041; Nev. Rev. Stat. § 482.36385; N.C. Gen. Stat. § 20-305.1; Va. Code Ann. § 46.2-1571; Wis. Stat. § 218.0171.
  • [78] Minn. Stat. § 80E.041.
  • [79] Id.
  • [80] Cal. Veh. Code § 11713.3; Mass. Gen. Laws ch. 93B, § 7; Nev. Rev. Stat. § 482.36385.
  • [81] Beard et al., supra note 52.
  • [82] Driving the United States’ Economy, Nat’l Auto Dealers Ass’n, (last visited Nov. 13, 2020).
  • [83] Id.
  • [84] 2019 Economic Impact Report, Calif. New Car Dealers Ass’n (last visited Nov. 13, 2020).
  • [85] Id.
  • [86] Id.
  • [87] Id.
  • [88] See supra note 53 (collecting statutes).
  • [89] Beard et al., supra note 52, at 5.
  • [90] Id.
  • [91] Nat’l Highway Safety & Transp. Admin Recall Notice 71-0235 (Dec. 1, 1970) (now referred to as Recall Notice 71V-235).
  • [92] United States v. $900,000,000 in U.S. Currency, Case 1:15-cv-07342 (S.D.N.Y. 2015).
  • [93] Beard et al., supra note 52, at 5.
  • [94] Id.
  • [95] See, e.g., Cal. Veh. Code § 3065; NY Veh. & Traf. Law § 465.
  • [96] See, e.g., Assemb. 179, 2019 Cal. Assemb. (Cal. 2019).
  • [97] Id.
  • [98] Beard et al., supra note 52, at 5.
  • [99] FTC Report on the Motor Vehicle Industry, H.R. Doc. No. 76-468, at 1058, 1074−75 (1939); see supra note 53 (collecting statutes).
  • [100] Crane, supra note 17.
  • [101] Fed. Trade Comm’n, The Effect of State Entry Regulation on Retail Automobile Markets (1986).
  • [102] Id.
  • [103] Id.; see also Beard et al., supra note 52, at 3.
  • [104] Scott Morton, Florian Zettelmeyer & Jorge Silva-Risso, What Matters in a Price Negoti- ation: Evidence from the U.S. Auto Retailing Industry, 9 Quantitative Mktg. & Econ. 365 (2011); Michael L Walden, Do Geographic Entry Restrictions Increase Car Prices? 35 Rev. Reg’l Stud. 231 (2005).
  • [105] Beard et al., supra note 52, at 3.
  • [106] Id. at 1–2.
  • [107] NADA Data 2020: Annual Financial Profile of America’s Franchised New-Car Dealerships Midyear Report, Nat’l Auto Dealers Ass’n (last visited Nov. 30, 2020).
  • [108] See supra note 53 (collecting statutes).
  • [109] See supra notes 70, 71,
  • [111] See, e.g., Am. Isuzu Motors, Inc. v. New Motor Vehicle Bd., 186 Cal. App. 3d 464, 468–69 (1986); Folsom Chevrolet, Inc. v. Gen. Motors, LLC, Protest No. PR-2483-16 (New Motor Veh. Bd. Aug. 13, 2018).
  • [112] Cal. Veh. Code § 11713.3(b).
  • [113] Id. § 11713.3(c).
  • [114] Id. § 11713.3(j).
  • [115] Id. § 11713.3(e).
  • [116] Id. § 11713.13(a).
  • [117] Id. § 11713.13(c).
  • [118] Id. §§ 3065.3, 3066(d), 11713.13(g).
  • [119] Kristina Zucchi, What Makes Tesla’s Business Model Different?, Investopedia (last updated Jan. 15, 2021).
  • [120] Id.
  • [121] See, e.g., Utah Code Ann. § 13-14-101.
  • [122] U.S. Tesla Service Centers, Tesla, States (last visited Apr. 15, 2021).
  • [123] Id.
  • [124] See Mike Moffitt, The Thing About Owning a Tesla No One Talks About–Nightmarish Repair Delays, SFGate, May 28, 2019.
  • [125] Beard et al., supra note 52, at 5.
  • [126] Parnell, supra note 1, at 15–16.
  • [127] Emiko Jozuka, How Honda Survived a Trade War with the U.S. and Won over Americans, CNN (June 26, 2019).
  • [128] Hannah Lutz, Jackie Charniga & Melissa Burden, How America’s Auto Retail Giants Transformed and Navigated the Recession, Auto. News (Sept. 24, 2018).
  • [129] See, e.g., Calif. Dep’t Pub. Health, COVID-19 Industry Guidance: Automotive Dealerships and Rentals (July 29, 2020).
  • [130] Jack R. Nerad, Forced by COVID-19 to Adopt Online Selling, Dealers Gain Efficiency, New Survey Reveals, Forbes (June 18, 2020); Chanell Turner, The Current State of Online Sales: Is This Process Here to Stay?, CBT Auto. Network (July 10, 2020).
  • [131] See, e.g., Glenn Oyoung, Rusnak Auto Group Puts the Pedal to the Metal to Help Community, LA Car, June 8, 2020, (last visited June 10, 2020).
  • [132] See supra note 70 (collecting statutes).