Direct Sales Compromise Reached Between Colorado Auto Dealers and EV Makers

Colorado has been considering allowing automakers to sell electric vehicles directly to consumers, but pushback from dealerships complicated things. Senate Bill 167 was intended to level the playing field against Tesla, which already engaged in direct sales, by opening up the door for rival electric vehicle manufacturers to similarly bypass the dealership model.

However, dealer groups noticed the language in the bill effectively permitted any automaker producing EVs to engage in direct sales, Naturally, they cried foul. The bill had its final legislative hearing on Monday, and its new language identifies a difference between a legacy automaker with existing storefronts and EV firms without them.

With the dealer lobby appeased, Senate Bill 167 would create an exception to existing laws that allows for “the ownership, operation, or control of a motor vehicle dealer if the manufacturer makes only electric motor vehicles and has no franchised dealers of the dealer’s line-make.” According to The Colorado Sun (h/t to Rudy), the bill’s previous language made no distinction between automakers so long as they built at least one electric vehicle.

“A good compromise was reached, which brought the Colorado Auto Dealers to a neutral position,” Mike Feeley, CADA lobbyist and an attorney for Brownstein Hyatt Farber Schreck, said during Monday’s hearing. “They are ready for the competition, they are ready to move this issue out into the marketplace as opposed to the legislature, and they look forward to competing vigorously in the marketplace as this market and industry evolves.”

From The Colorado Sun:

House Speaker KC Becker, a Boulder Democrat and a prime sponsor of the measure, said the bill’s intention is to close a loophole that allows only Tesla to sell its electric cars directly to Coloradans. A representative from Tesla also spoke in support of the bill.

Other automakers must use dealer franchises as part of a consumer-protection law passed last decade. The dealers had initially opposed the change laid out in Senate Bill 167 because it would force automakers and the dealers they supply to compete against each other for sales.

The loophole, which a Colorado Department of Revenue official testified could still let any automaker get a license to sell vehicles in the state, makes the process confusing, said Becker, who worked with the various groups to reach a compromise.

From our vantage point, it still doesn’t look like an ideal solution for dealerships in the long-term. This sets a legal precedent for a direct-sales model that could eventually disrupt automotive retailers if alternative-energy vehicles become the norm. In fact, one of the primary reasons the bill exists is to help Rivian sell product within the state — an EV startup which eventually intends to manufacture electric pickups and SUVS.

Meanwhile, companies around the globe are attempting to swap toward “business as a service.” Automakers have floated this concept with subscription services, car connectedness, and attempts to engage in direct sales. With few enamored with the typical dealer experience, it usually sounds appealing. Complications arise, however, when one takes into account that most direct-to-consumer transactions involve a non-negotiable price and give manufacturers more direct control over a product you’re supposed to own.

Proponents of direct sales claim it’s simply eliminating the middle man and would thereby lower costs and spur competition, yet dealers frequently see things differently. They’re quick to remind everyone that retailers mean local jobs and a place to bring your car with someone you can actually speak with. It’s also not apparent to them that automakers would lower their prices when moving to the new sales model; many worry the money wouldn’t stay in the local community, what with no dealerships to keep it there.

But that’s looking far into the future. In the short term, all Senate Bill 167 means is that Tesla will have more competition and EV startups won’t need traditional dealerships to do business — just regional employees and a physical address customers can visit. Tim Jackson, CEO of the Colorado Auto Dealers Association, said the group he represents went neutral on the bill simply because the its original language would have been so much worse for retailers.

“Sometimes you just have to say, ‘Is the opposition worth the effort?'” he explained.

With compromise reached in the Senate, The Sun reports that the legislation nearly died after Sen. Rhonda Fields, an Aurora Democrat, complained that the original draft would negatively impact local communities and consumers. Senate President Leroy Garcia, a Pueblo Democrat, later joined her in opposing the bill. It managed to pass with just one vote, regaining the support of both Fields and Garcia following the revisions. With the House Energy and Environment Committee having also expressed its approval, Senate Bill 167 is expected to pass in the House before being presented to Colorado Governor Jared Polis.

[Image: Rivian]