The direct-sale threat, which has gone quiet in New Jersey for a while, continues to rear its head in full-force elsewhere. In August, two courts issued opinions on whether or not auto manufacturers can directly sell in their respective jurisdictions. While neither opinion directly impacts New Jersey, both cases deserve our attention as direct sales manufacturers continue their attempts to directly sell their cars in franchised states.
The two cases impact different parts of the country. On August 23, the Appellate Court of Illinois, First District, issued its opinion in Illinois Automobile Dealers Association v. Illinois Secretary of State, Rivian, and Lucid, which affirmed the lower court in holding that neither the Illinois Vehicle Code, the state Motor Vehicle Franchise Act nor the state and federal constitutions prohibit Rivian and Lucid from obtaining dealer licenses and conducting direct-to-consumer sales. As an Illinois state court opinion, its influence is limited to that state.
On August 26, however, in a federal case from the US Court of Appeals for the 5th Circuit, Tesla v. Louisiana Dealers Association, the federal court agreed with the Louisiana Auto Dealer Association (LADA) that a state ban on direct sellers did not violate Tesla’s constitutional rights. Unfortunately, the court revived Tesla’s claim that the composition of the Louisiana Motor Vehicle Commission violates Tesla’s due process rights.
Why are these cases important? Both cases show real and continuing threats to the franchise model. Fortunately, Tesla’s equal protection claim, which they raised in both cases and lost, could have threatened all franchise-protection laws nationwide; but it was rejected so the equal protection tally favors the dealers at this point.
The franchise trade associations in both cases are considering their options. NJCAR will continue to work closely with NADA to keep you apprised of any developments.