A win in Colorado, but a continued threat to dealers nationwide

Last month, Rivian Automotive supported Colorado legislation that would have gutted the state's motor vehicle franchise laws — and set a dangerous precedent nationwide.

The bill, as originally written, would have permitted manufacturers with electric vehicles in their lineups to not only skirt long-established dealer franchise laws, but directly sell any vehicle — electric and otherwise — in the state. For example, if passed, the bill would have allowed Ford Motor Co. to own, operate or control a Colorado store, offering the all-electric Mustang Mach-E and the F-150, seemingly in direct competition with its dealer partners.

Understandably, that caused significant concern for franchised dealers in Colorado and beyond.

Last week, the bill underwent an important amendment to ensure that manufacturers could own, operate or control a dealership if the automaker makes only electric vehicles and has no franchised dealers of the same line-make in the state.

Thanks to the efforts of my counterpart Tim Jackson and his team at the Colorado Automobile Dealers Association, S.B. 167 is no longer an immediate threat to the state's franchised dealers.

Colorado may be safe. But it is paramount that dealers nationwide understand the issues surrounding the S.B. 167 debate are not limited to Colorado. We will see this pop up again in other states.

Disrupters are here to stay. Rivian's efforts and Colorado's acceptance of modified language are proof of that.

As companies such as Rivian or Tesla enter and impact the auto industry, and momentum builds for direct sales to consumers, traditional automobile dealers must evolve and continue to demonstrate the value of the franchise system.

We cannot stop startup companies such as Rivian and other disrupters in the industry. Rather, their presence should help dealers understand that we need to improve the way we interact with our customers and our dealership staff. We need to provide better customer service and make the car-buying experience more enjoyable.

How can a company that sells only 200,000 cars and trucks a year, operates exclusively through the Internet and delivers vehicles to customers' homes take away from dealer business? It's simple. Disrupters find voids in the marketplace and conduct business in new ways to fill the space.

So the question becomes: How can we adjust our way of doing business so that customers — who drive past franchised dealerships every day — do not feel the need to look elsewhere when shopping for a car?

I've been in this business for 40 years, and I know that if we do not evolve as dealers and adapt to an evolving marketplace, bills such as Colorado S.B. 167 will become the norm across the country, as legislators and consumers will demand more from their car-buying experience.

It is time we take a hard look in the mirror.

At the same time, I appreciate the Colorado dealers recognizing the original S.B. was 167 was broader than necessary and ignored what we all understand about the value of the franchise system.

Colorado law already gave Rivian the ability to sidestep dealers and sell directly to the public. Tesla, for instance, already owns and operates stores in Colorado, and Rivian can do the same — no legislation required. So we must ask: Why did they feel the need to take it a step further?

Interestingly, traditional automobile manufacturers seemed absent from the Colorado discussion on S.B. 167 as introduced.

While advocacy is not limited to legislative hearings, I did not see any public testimony from the large automakers whom Colorado dealers represent.
Perhaps this should be unsurprising. Ford, in addition to Amazon, is a major investor in Rivian.

Even so, I am certain it would have reassured dealers nationwide of the value manufacturers see in them had the Alliance for Automotive Innovation or any of its members testified against the once-threatening legislation.

When local dealers compete, consumers are not forced to pay monopoly prices set by distant, multinational giants unaware of and largely indifferent to local market conditions. Right now, for example, almost 500 franchised dealerships in Virginia compete for every customer.

If prices and services were mandated by a handful of automakers, competition would suffer, and so would consumers.

Dealers ensure safety recalls and warranty work are provided at no cost in their communities. They handle essential customer needs in the sales process, such as trade-ins, financing, titling and registration. Furthermore, they deliver local economic impact, providing billions in state and local taxes.

Of course, the franchise system also benefits manufacturers.

The automakers set it up more than a century ago to affordably build a distribution network. Manufacturers built cars and sold them to dealers. Dealers sold and serviced cars at dealerships they built and kept running.

Detractors suggest dealers are no longer necessary. But the desire by some companies to own and operate their own stores suggests dealerships are OK if under manufacturer control.

The problem is manufacturers and distributors have never succeeded in retailing mass-market vehicles.
Reasons include:

• A nationwide retail distribution network requires billions of dollars — money that must be diverted from design and manufacturing.
• Dealers enable manufacturers to do what they do best — create cars for sale and distribution to dealers. Selling to dealers and selling to consumers are two entirely different businesses.
• The compliance, regulatory and legal issues of manufacturers differ from those affecting dealers.
• Local businesses that know their markets and customer base are more effective than multinational giants.

Some claim dealers cost consumers money. That is a myth.

To own a dealership, a manufacturer must pay for facilities and operating expenses, investing millions per facility on which shareholders expect a return. No one knows how to operate a dealership — using cost-effective methods to provide service to customers — the way an independent businessperson does.

Some claim dealers stifle innovation.

Again untrue.

Dealers have led the way in retailing innovation, adapting to Internet business and making changes to serve and satisfy customers.

While dealers and dealer associations should continue to innovate and embrace emerging technologies, we must similarly fight for and protect a system of vehicle sales that has benefited the masses for generations — a system Colorado S.B. 167 would have cut against.