Direct-to-consumer automobile selling in the United States

Early direct sales and transition to franchised dealers

Early cars were sold by automakers to customers directly from the factory or through a variety of channels, including mail order, department stores, and traveling representatives.^[1][2]

Laws prohibiting direct auto sales arose in the United States in the 1930s, when manufacturers started using independently franchised dealerships to offload the tasks of selling and servicing vehicles.^[3] Such regulations protect dealerships from manufacturers opening their own dealerships and competing against resellers, which could be seen as an abuse of the manufacturer-franchise relationship.^[3] The laws have been actively defended into the 21st century and extend to online in-state sales.^[4][5] By 2010, all 50 states had laws prohibiting direct sales by manufacturers with franchised dealer networks.^[6] Jurisdictions outside the United States do not have such laws protecting car dealerships.^[7]

Direct sales by Tesla and other EV manufacturers

Tesla, Inc. rejected the franchised dealership model when it began selling mass-produced electric vehicles in the 2010s, claiming it cannot rely on third-party dealerships to handle its sales because dealerships do not properly explain the advantages its cars have over vehicles with an internal combustion engine. Tesla CEO Elon Musk said selling its vehicles through dealer networks would create a conflict of interest because they counter-sell the gasoline vehicles that make up the bulk of dealerships' sales and service income.^[8][9][10] Tesla operates city centre galleries where prospective customers can view cars that can only be ordered online.^[11][12] Tesla sells cars in states where direct sales are prohibited by handling the sale as an out-of-state transaction and shipping the vehicle into the state. The company was the first automaker in the United States to sell cars directly to consumers since the widespread adoption of the franchised dealer model.^[13][14] The direct sales model was similarly adopted by Rivian, Lucid Motors, Polestar and other startups that exclusively produce EVs.^[15]

Involving manufacturers without franchised dealers

Involving manufacturers with franchised dealers

Support

Critics of franchise laws view prohibitions of direct auto sales as thwarting legitimate competitive pressure that benefits consumers, and some have described them as "protectionism"^[30] and "crony capitalism".^[31] The Federal Trade Commission recommends allowing direct manufacturer sales,^[32][33] which a 2000 report by a Goldman Sachs analyst projected would save consumers an average of $2,225 on a $26,000 car.^[34][35] Economists have characterized laws that require independent dealers to sell cars as a form of rent-seeking that extracts rents from manufacturers of cars and increases costs for consumers of cars while raising profits for car dealers.^[36]

Opposition

In May 2014, a report prepared by Maryann Keller and Kenneth Elias for the National Automobile Dealers Association claimed that franchised dealers (such as offered by its members) offer better prices for customers through competition than direct sales, advocate for customers in warranty and recall disputes with manufacturers, and create jobs generate tax income that helps local economies.^[37][38][39]