Direct selling of automobiles in the United States

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The first production Tesla Model 3 cars ready for delivery directly to consumers. First Model 3 production cars ready for delivery.jpg
The first production Tesla Model 3 cars ready for delivery directly to consumers.

In the Unites States, direct selling of automobiles is the practice of automobile manufacturers selling new vehicles directly to consumers without using franchised dealerships as intermediaries. All 50 states have laws that prohibit auto manufacturers from competing with their franchised dealers by selling vehicles directly to customers, with many states also requiring that all new cars be sold by franchised dealers. However, following efforts by Tesla in the 2010s, some states permit direct sales by newer manufacturers that never had franchised dealers, all of which exclusively sell electric vehicles.

Contents

History

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

A Rivian showroom in Miami, Florida. Newly Open Rivian Showroom Brickell, Miami Florida Sept 2025 - blue pickup side.jpg
A Rivian showroom in Miami, Florida.

Tesla, Inc. rejected the franchised dealership model when it began selling mass-produced electric vehicles in the 2010s, claiming they cannot rely on third-party dealerships to handle their sales because dealerships do not properly explain the advantages their cars have over vehicles with an internal combustion engine. [8] [9] Tesla operates city centre galleries where prospective customers can view cars that can only be ordered online. [10] [11] 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. [12] [13] The direct sales model was similarly adopted by Rivian, Lucid Motors, Polestar and other startups that exclusively produce EVs. [14]

Notable dealership disputes

Involving manufacturers without franchised dealers

Laws per state regarding direct auto sales .mw-parser-output .legend{page-break-inside:avoid;break-inside:avoid-column}.mw-parser-output .legend-color{display:inline-block;min-width:1.25em;height:1.25em;line-height:1.25;margin:1px 0;text-align:center;border:1px solid black;background-color:transparent;color:black}.mw-parser-output .legend-text{} Direct auto sales allowed for manufacturers without franchise agreements (Colorado, Maryland and Utah additionally specify EV-only manufacturers) Direct auto sales prohibited with an exemption for Tesla, Inc. only Sovereign tribal nations that allow Tesla direct sales Direct auto sales prohibited for all manufacturers Tesla US direct sales map.svg
Laws per state regarding direct auto sales
  Direct auto sales allowed for manufacturers without franchise agreements (Colorado, Maryland and Utah additionally specify EV-only manufacturers)
  Direct auto sales prohibited with an exemption for Tesla, Inc. only
   Sovereign tribal nations that allow Tesla direct sales
  Direct auto sales prohibited for all manufacturers

Tesla

Tesla has argued that franchise laws prohibiting direct sales do not apply to them because they have never had franchised dealers. [15] [16] Despite this, dealership associations in multiple states have filed lawsuits against Tesla to prevent the company from selling cars. In several states, Tesla is the sole manufacturer permitted to sell vehicles directly. [17]

Rivian

Rivian sued the Ohio Bureau of Motor Vehicles in August 2025, claiming that the state's car franchise law, which allows only Tesla to sell directly, is anti-consumer. In 2022, Rivian and Lucid Motors won a lawsuit in Illinois and were granted dealer licenses. [18] Rivian has also lobbied Washington lawmakers to change the state's franchise law which also exempts only Tesla. [19]

Involving manufacturers with franchised dealers

Sony Honda Mobility

Sony Honda Mobility, a joint venture between Sony and Honda established in 2022, plans to sell vehicles directly to consumers, rather than through franchised dealers. In August 2025, after the company began taking reservations for the Afeela 1 sedan, the California New Car Dealers Association filed a lawsuit against Sony Honda Mobility and Honda on behalf of Honda and Acura dealers in the state, alleging that the company's plan for direct sales violates state law prohibiting automakers from competing with their franchised dealers by selling to customers directly. [20]

Scout Motors

Scout Motors is a wholly-owned subsidiary of Volkswagen Group launched in 2022 that plans to sell vehicles directly to consumers and service its vehicles itself, rather than sell through franchised dealers because of a reluctance among its dealers to sell EVs. [21] The National Automobile Dealers Association filed a lawsuit against Volkswagen Group and Scout Motors on February 3, 2025, alleging that Scout's direct sales violate laws that prohibit automakers from competing with their franchised dealers.. [22] [23] [24] Volkswagen and Audi dealers in California and Florida similarly filed lawsuits, alleging Scout's direct sales model violates state franchise laws. [25] [26] Scout has asked the US Department of Justice to eliminate laws that prevent direct sales. [27]

Reception

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" [28] and "crony capitalism". [29] The Federal Trade Commission recommends allowing direct manufacturer sales, [30] [31] which a 2000 report by a Goldman Sachs analyst projected would save consumers an average of $2,225 on a $26,000 car. [32] [33] 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. [34]

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. [35] [36] [37]

Laws per state regarding direct auto sales

StateDirect sales exemption [38] Store limit
Alabama No direct sales exemption
Alaska No specific prohibition of direct sales by manufacturers without franchise agreementsnone
Arizona Manufacturers without franchise agreementsnone
Arkansas No direct sales exemption
California Manufacturers without franchise agreementsnone
Colorado EV-only manufacturers without franchise agreementsnone
Connecticut No direct sales exemption, Mohegan Tribe allows Tesla direct sales [39]
Delaware Manufacturers without franchise agreementsnone
District of Columbia No specific prohibition of direct auto sales, manufacturers must be licensed to sell by the Department of Motor Vehicles [40] none
Florida Manufacturers without franchise agreementsnone
Georgia EV-only manufacturers without franchise agreements that began sales before 2015 (exempts Tesla only)5 stores
Hawaii No specific prohibition of direct sales by manufacturers without franchise agreementsnone
Idaho No specific prohibition of direct sales by manufacturers without franchise agreementsnone
Illinois Manufacturers without franchise agreements13 stores
Indiana Manufacturers without franchise agreements that began sales before July 1, 2015 (exempts Tesla only)none
Iowa No direct sales exemption
Kansas No direct sales exemption
Kentucky No direct sales exemption, the Kentucky Motor Vehicle Commission can grant sales licenses to manufacturers without franchises (Tesla is the only licensed manufacturer) [41] [42] none
Louisiana No direct sales exemption
Maine Manufacturers without franchise agreementsnone
Maryland EV-only manufacturers without franchise agreements4 stores
Massachusetts Manufacturers without franchise agreementsnone
Michigan No direct sales exemption, Tesla allowed direct sales following a 2020 lawsuit but is not a licensed dealer and cannot title vehicles in-state [43] none
Minnesota Manufacturers without franchise agreementsnone
Mississippi No direct sales exemption, grandfathers one Tesla store [44] 1 store
Missouri Manufacturers without franchise agreementsnone
Montana No direct sales exemption
Nebraska No direct sales exemption
Nevada EV-only manufacturers without franchise agreements that began sales before 2016 (exempts Tesla only)none
New Hampshire Manufacturers without franchise agreementsnone
New Jersey EV-only manufacturers without franchise agreements that began sales before 2015 (exempts Tesla only)4 stores
New Mexico No direct sales exemption, Nambé Pueblo and Santa Ana Pueblo tribal lands allow Tesla direct sales [39]
New York EV-only manufacturers without franchise agreements that began sales before March 26, 2014 (exempts Tesla only), Oneida Indian Nation allows Tesla direct sales beyond state store limit [39] 5 stores
North Carolina EV-only manufacturers without franchise agreements that began sales before 2019 (exempts Tesla only)6 stores
North Dakota No direct sales exemption
Ohio Manufacturers without franchise agreements that began sales before 2014 (exempts Tesla only)3 stores
Oklahoma No direct sales exemption
Oregon Manufacturers without franchise agreementsnone
Pennsylvania EV-only manufacturers without franchise agreements that began sales before 2014 (exempts Tesla only)5 stores
Rhode Island Manufacturers without franchise agreementsnone
South Carolina No direct sales exemption
South Dakota No direct sales exemption
Tennessee Manufacturers without franchise agreementsnone
Texas No direct sales exemption
Utah EV-only manufacturers without franchise agreementsnone
Vermont Manufacturers without franchise agreementsnone
Virginia Manufacturers without franchise agreements5 stores
Washington Manufacturers without franchise agreements that began sales before 2014 (exempts Tesla only)none
West Virginia No direct sales exemption
Wisconsin No direct sales exemption
Wyoming Manufacturers without franchise agreementsnone

References

  1. ↑ Lafontaine, Francine; Morton, Fiona Scott (2010). "Markets: State Franchise Laws, Dealer Terminations, and the Auto Crisis". Journal of Economic Perspectives. 24 (3): 233–250. doi: 10.1257/jep.24.3.233 . ISSN   0895-3309.
  2. ↑ Ryan, Tom (31 March 2022). "Dealership Business Model: The Future of Automotive Retail". Archived from the original on 2022-05-21.
  3. 1 2 "Why you can't buy a Tesla in these states". 15 October 2018.
  4. ↑ Bradsher, Keith (October 13, 1999). "Fight Is Promised Over G.M. Plan to Buy Dealerships". The New York Times.
  5. ↑ Lane, Charles (2014-03-12). "Tesla takes on car dealerships in a fight to the death". The Washington Post . Retrieved 2015-05-20.
  6. ↑ "State Franchise Law Carjacks Auto Buyers | Mercatus Center". www.mercatus.org. 2015-01-20. Retrieved 2025-09-30.
  7. ↑ "Road Rules: How Tesla Plans to Change The Way We Buy Cars". Fast Company. 8 August 2016. Retrieved 17 August 2016.
  8. ↑ "Dealer or no dealer: Tesla's sales model under fire". america.aljazeera.com. Retrieved 2023-07-12.
  9. ↑ Fehrenbacher, Katie (2016-01-19). "7 reasons why Tesla sells its own cars". Fortune. Retrieved 2016-12-02.
  10. ↑ "Tesla sets up shop in Dallas -- minus test-drives and sales".
  11. ↑ "Tesla: we're not car dealerships". 6 June 2014. Archived from the original on 30 May 2016.
  12. ↑ O'Toole, James (July 2, 2013). "Tesla direct-sales petition hits 100,000 signatures". CNN. Archived from the original on November 12, 2020. Retrieved August 3, 2020.
  13. ↑ Shipley, Lou (February 28, 2020). "How Tesla Sets Itself Apart". Harvard Business Review . ISSN   0017-8012. Archived from the original on December 24, 2020. Retrieved September 5, 2020.
  14. ↑ "How Tesla's direct sales model is roiling the car dealership industry". The Week. 2023-06-21. Retrieved 2025-09-30.
  15. ↑ Bodisch, Gerald R. (May 2009). "Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers". United States Department of Justice . Retrieved 21 August 2016.
  16. ↑ Fehrenbacher, Katie (2016-01-19). "7 reasons why Tesla sells its own cars". Fortune. Retrieved 2016-12-02.
  17. ↑ DeMorro, Christopher (2013-07-01). "Tesla Wins Big in North Carolina And New Hampshire". Gas 2. Retrieved 2013-07-31.
  18. ↑ "Rivian sues Ohio DMV over partial ban on direct car sales". Engadget. 2025-08-04. Retrieved 2025-09-29.
  19. ↑ Cornfield, Jerry (2025-02-04). "Tesla is the only EV maker that can sell directly to consumers in WA. Lawmakers might change that • Washington State Standard". Washington State Standard. Retrieved 2025-09-29.
  20. ↑ Ismail, Adam (2025-08-29). "Sony Honda's Direct Sales Model for Afeela EV Is Already Facing a Lawsuit". The Drive. Retrieved 2025-09-09.
  21. ↑ "Scout Motors Wants Direct Sales Because Dealers Hate EVs". Edmunds.
  22. ↑ "Auto dealer groups to challenge Scout Motors' decision to sell directly to consumers". CNBC News. Reuters. 25 October 2024. Retrieved 28 October 2024.
  23. ↑ George, Patrick (25 October 2024). "Why Scout Motors Said No To Dealers, And Why They're Already Mad". Inside EVs. Retrieved 28 October 2024.
  24. ↑ Fitzgerald, Jack (February 6, 2025). "Volkswagen, Audi Dealers Sue Scout Motors over Sales Model". Car and Driver .
  25. ↑ Hawkins, Andrew J. (2025-02-05). "VW and Audi dealers are suing Scout over its no-dealers plan". The Verge. Retrieved 2025-09-08.
  26. ↑ "California New Car Dealers Association files lawsuit against Scout, VW Group over direct sales". www.autonews.com. Retrieved 2025-09-08.
  27. ↑ "Scout Motors, in DOJ letter, urges U.S. to scrap direct-to-consumer vehicle sales bans". autos.yahoo.com. 2025-07-16. Retrieved 2025-09-30.
  28. ↑ "Why you can't buy a Tesla in these states". 15 October 2018.
  29. ↑ Crane, Daniel A. "Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism" page 577-579. Iowa L. Rev. 101, no. 2 (2016): 573-607 . Size: 35 pages in 1 MegaByte
  30. ↑ "Direct-to-consumer auto sales: It's not just about Tesla". 11 May 2015. Retrieved 2015-07-16.
  31. ↑ Richard Read. "Can The FTC Persuade Michigan & Other States To Open Their Doors To Tesla?". The Car Connection. Retrieved 2015-07-16.
  32. ↑ Lane, Charles (2014-03-12). "Tesla takes on car dealerships in a fight to the death". The Washington Post . Retrieved 2015-05-20.
  33. ↑ "Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers" Economic Analysis Group Competition Advocacy, May 2009.
  34. ↑ Lafontaine, Francine; Morton, Fiona Scott (2010). "Markets: State Franchise Laws, Dealer Terminations, and the Auto Crisis". Journal of Economic Perspectives. 24 (3): 233–250. doi: 10.1257/jep.24.3.233 . ISSN   0895-3309.
  35. ↑ Richard Read. "Terrified of Tesla, NADA Launches Campaign To Tout Benefits of Franchise Dealerships". The Car Connection. Retrieved 2015-07-16.
  36. ↑ Keller, Maryann; Elias, Kenneth (2014-05-27). "Consumer Benefits of the Dealer Franchise System". National Automobile Dealers Association . Retrieved 2016-01-31.
  37. ↑ "The Price Effects of Intra-Brand Competition in the Automobile Industry: An Econometric Analysis" (PDF). www.phoenix-center.org. March 2015.
  38. ↑ "State Laws on Direct-Sales" (PDF). National Conference of State Legislatures.
  39. 1 2 3 "Tesla is opening more showrooms on tribal lands to avoid state laws barring direct sales - CBS Sacramento". www.cbsnews.com. 2023-07-29. Retrieved 2025-10-01.
  40. ↑ "§ 50–1501.01. Definitions. | D.C. Law Library". code.dccouncil.us. Retrieved 2025-09-21.
  41. ↑ Green, Marcus (6 August 2021). "Tesla plans a Louisville 'dealership.' Kentucky law could complicate that". WDRB.
  42. ↑ Giffin, Olivia Evans and Connor. "Tesla opens first Kentucky store, selling EVs directly. What's next?". USA TODAY. Retrieved 2025-09-29.
  43. ↑ Isidore, Chris (2020-01-22). "Tesla finally wins the right to sell cars in Michigan | CNN Business". CNN. Retrieved 2025-10-04.
  44. ↑ "New law restricts electric car stores in Mississippi". 2023-03-15.
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