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State dealer associations in some states have proposed new language in franchise laws to address new concepts in the industry such as over-the-air service updates and vehicle reservations.

 West Virginia has adopted legislation following a compromise between dealership and automaker representatives on these issues. This legislation followed the adoption of similar legislation in North Carolina.

Some dealer advocates want the franchise model to stay the same and maintain the system is under threat by startup electric vehicle manufacturers that embrace a direct-to-consumer sales model. Updating vehicles remotely also may keep vehicles out of the service drive, they say.

"The main reason for addressing all the issues is the fact that they have simply begun to exist," said Johnnie Brown, outside general counsel for the West Virginia Automobile Dealers Association.

"They seem to be occurring in a market which has drastically changed by its very nature in the last couple of years," Brown said.

Dealers are concerned about the evolution in their roles, especially with EVs.

"Tesla led the direct-sales initiative, but it seems like every manufacturer now wants to break off and have EVs be completely separate, and we don't quite know what they mean," said Bill Cole, president of Cole Automotive Group in Bluefield, W.Va., which has dealerships in West Virginia and Kentucky.

Dealers and automakers seek to determine what the future will look like for their respective business models, said Amy Brink, vice president of state affairs for the Alliance for Automotive Innovation, the trade association that represents most major automakers in the U.S.

Automakers want to provide a better experience to customers via over-the-air updates and vehicle reservations, Brink said.

She told Automotive News the " intention certainly is not to exclude dealers or their role in that relationship with the customer, but ultimately, the goal here is to make the customers happy so that they continue to buy vehicles."

But dealer advocates believe recent moves by automakers signal the opposite.

Len Bellavia of Bellavia Blatt PC in Mineola, N.Y., a law firm that represents dealers on franchise law issues, believes dealers are being targeted. He believes the "entire future" of dealership earnings and longevity is at risk and stresses dealers need to act now.

Dealers purport that preserving the franchise system is critical in protecting their investments in real estate, technology and infrastructure to comply with automakers' requirements. Dealers also express concern about lowered service revenue due to the reduced service requirements of EVs. Over-the-air updates also could lower service business.

West Virginia’s legislation requires dealerships be compensated when a customer seeks a dealership's help with a remote update. A bill adopted in Virginia also has this mandate.

Subscription options offered at the point of sale may be included in subsequent bills in 2023, allowing dealers to add a new revenue source for these options. General Motors and Stellantis report the expect these subscriptions to generate up to $25 billion in revenue by 2030.

West Virginia's and North Carolina's revised laws allow automakers to take customer reservations for vehicles but require automakers to send those reservations to a dealership. The bills also prohibit automakers from interfering with price negotiations, trade-in values and vehicle protection product sales.

The changing landscape will require legacy automakers to have flexibility similar to Tesla’s, reports Daniel Crane, a University of Michigan Law School professor.

"It's my view that the dealership model as it's existed for 70 years is not going to survive," Crane told Automotive News.

He couches this by saying dealers will still provide value, but it won’t be under the same model where they buy inventory, display it on a lot, sell it and then provide service. They will need new ways to provide value.

In a statement, National Automobile Dealers Association spokesman Jared Allen said the organization "has always, and will always, support efforts to enhance state franchise laws. As our business model evolves, dealers will continue to innovate and adapt, just like they have always done, and embrace new and emerging technologies and tools to help further improve the customer experience."

Cole concludes, "Manufacturers are taking the steps that they believe necessary for their future profitability and viability, and I think dealers need to take those same exact steps to defend who they are and what they represent."

 

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