Illinois Auto Dealers Sue State Over Rivian's Direct-Sales Model [UPDATED]

Tim Healey
by Tim Healey

Rivian’s plan to sell vehicles directly to consumers has raised the ire of two auto-dealer groups in Illinois.

The Illinois Automobile Dealers Association and the Chicago Automobile Trade Association have sued the Illinois Secretary of State, claiming that Illinois law requires new-car sales to flow through licensed franchise dealers and prevents new-car manufacturers from selling directly to consumers.

(Full disclosure: I’ve done paid and unpaid work for CATA before being hired at TTAC, and while employed here I have contributed a guest column for the Chicago Auto Show brochure and have appeared on the DriveChicago radio program, which is hosted in part by CATA employees, to discuss cars and the industry).

Rivian will build its EV trucks in Normal, Illinois, and has plans to open a showroom in Chicago’s Fulton Market district. That will be one of nine planned U.S. locations.

Meanwhile, EV maker Lucid has plans to open a studio at Oakbrook Center mall in west suburban Oak Brook this year — coincidentally, not too far from CATA’s offices.

“The lawsuit will seek a ruling that Illinois laws requiring vehicle sales through franchised dealers apply to all motor vehicle manufacturers entering the market in the same way that they apply to existing manufacturers. The suit also seeks to prevent (Illinois Secretary of State Jesse) White’s office from issuing dealer licenses to motor vehicle manufacturers which would allow them to not have franchised dealers,” CATA said in a statement announcing its intent to join IADA in the suit earlier this month.

The two dealer groups clarified that they aren’t opposed to Rivian (and Lucid) from selling cars in Illinois, but rather that they do so via franchised dealers.

“We welcome new manufacturers to Illinois, especially those who are building innovative vehicles. We ask that manufacturers sell them in Illinois according to state law. We’re not demanding they cease operations in the state, just that they franchise a dealer,” said David Sloan, president of the CATA, in a statement emailed to Chicago Business Journal.

The lawsuit was filed in Cook County court and reads in part: “The Secretary of State’s failure to enforce existing law will result in real and irreparable harm to plaintiffs and those employed in the new vehicle franchise industry, as well as the public at large.”

Obviously, there’s a lot of self-interest at play on both sides. Dealer groups worry about the future of their slice of the automotive industry should states allow OEMs to sell to consumers directly. A direct-sales model could end the franchised-dealer model, and even if it didn’t, it likely wouldn’t be a positive for new-car dealers.

Meanwhile, OEMs would be able to exert more control over the process if they sold cars directly to customers, and small startups like Rivian would likely save money and hassle, although Sloan told us he thinks dealers actually take some of the cost burden off of OEMs. If Rivian can’t sell EVs directly to consumers in Illinois, it will have to find existing franchised dealers to work with.

We’ve reached out to CATA, the Illinois Secretary of State, and Rivian for comment and have not yet heard back. We will update if and when we do.

UPDATES: Rivian responded with a no comment. I also had a brief phone chat with a spokesperson from the Illinois Secretary of State’s office that amounted to a no comment — the spokesperson said the office hadn’t been served with suit yet, so they had not officially reviewed it, though they’re aware of details that have been reported publicly.

Sloan did take time for a chat. He pointed out that the Illinois Secretary of State’s office already allowed Tesla to perform direct sales, with Elon Musk’s company slipping past the law in 2008. Since then, an administrative consent order has allowed Tesla to continue to perform direct sales, with the stipulation that no other automakers come into the state and do so.

According to Sloan, the Secretary of State’s office apparently had to check with the attorney general’s office to see if the consent order was kosher and was told, unofficially, that it’s worthless. In Sloan’s view, the state has some soul-searching to do in terms of either enforcing the current law or adjusting legislation in order to deal a possible influx of startup automakers who would prefer a direct-sales model.

“When is Illinois going to figure out how to regulate all these new manufacturers coming in who want to sell directly to consumers? Because a lot of people think that franchise laws are protectionist legislation for dealers, but really it’s a way for states to regulate dealers and protect consumers.”

He later added “I think the state of Illinois is struggling with what to do about how to regulate manufacturers who want to sell direct. I think most states are struggling with that.”

I asked Sloan to predict how the state will react to the lawsuit. He declined to address that, but he did say he thinks the state is still trying to figure out how to regulate direct sales. He claims the state admitted to CATA that it made a mistake with Tesla.

He did say “that’s exactly what’s happening” when I asked if Rivian’s attempt to bring direct sales to Illinois was meant to establish a beachhead for other automakers that might want to pursue direct sales in the state. Sloan also told me that a Freedom of Information Act request shows that Rivian didn’t come into the state blind to the law: “They were ready to fight it,” he said, adding that Rivian was aware of Tesla’s success in setting up a direct-sales model in the Prairie State.

This is the first time these groups have sued the state over lack of enforcement of the current law.

[Image: Rivian]

Tim Healey
Tim Healey

Tim Healey grew up around the auto-parts business and has always had a love for cars — his parents joke his first word was “‘Vette”. Despite this, he wanted to pursue a career in sports writing but he ended up falling semi-accidentally into the automotive-journalism industry, first at Consumer Guide Automotive and later at Web2Carz.com. He also worked as an industry analyst at Mintel Group and freelanced for About.com, CarFax, Vehix.com, High Gear Media, Torque News, FutureCar.com, Cars.com, among others, and of course Vertical Scope sites such as AutoGuide.com, Off-Road.com, and HybridCars.com. He’s an urbanite and as such, doesn’t need a daily driver, but if he had one, it would be compact, sporty, and have a manual transmission.

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  • Stuki Stuki on Mar 30, 2021

    Yet another bout of Idiots vs Idiots. Fighting over a grand price 100% stolen from the precious few westerners still bothering to do anything whatsoever productive, instead of taking part in, and cheering on, this nonsense.

  • FreedMike FreedMike on Mar 30, 2021

    This is the kind of nonsense that happens when we let our elected officials take legal bribes. I mean, seriously...these guys really want to sue because customers have the temerity to like doing business with the manufacturer directly? It's almost as if car buyers have had a bellyfull of dealership nonsense, and are ready for something different. Imagine that, right? Somehow I don't think this would lead to the end of civilization as we know it, but these dealers know that this system takes money out of their pockets, so they're willing to spend their time and money to pass laws preventing it. And why would the legislature and courts even give this a second look? Because they've been paid to. Campaign finance reform would solve a myriad of political problems in America, this one included.

    • See 1 previous
    • FreedMike FreedMike on Mar 30, 2021

      @28-Cars-Later Agreed, and that's why I keep beating the drum. People either don't know or don't care, or are too damn busy and stressed to really think about this issue. People seem to think that voting one way or another will eventually lead to authoritarianism, but I disagree - if it happens, it'll happen because of apathy, and a great deal of that apathy has to do with the wholly sensible belief that politicians aren't beholden to us anymore. And the system of legal bribery does nothing but reinforce that belief.

  • Varezhka I have still yet to see a Malibu on the road that didn't have a rental sticker. So yeah, GM probably lost money on every one they sold but kept it to boost their CAFE numbers.I'm personally happy that I no longer have to dread being "upgraded" to a Maxima or a Malibu anymore. And thankfully Altima is also on its way out.
  • Tassos Under incompetent, affirmative action hire Mary Barra, GM has been shooting itself in the foot on a daily basis.Whether the Malibu cancellation has been one of these shootings is NOT obvious at all.GM should be run as a PROFITABLE BUSINESS and NOT as an outfit that satisfies everybody and his mother in law's pet preferences.IF the Malibu was UNPROFITABLE, it SHOULD be canceled.More generally, if its SEGMENT is Unprofitable, and HALF the makers cancel their midsize sedans, not only will it lead to the SURVIVAL OF THE FITTEST ones, but the survivors will obviously be more profitable if the LOSERS were kept being produced and the SMALL PIE of midsize sedans would yield slim pickings for every participant.SO NO, I APPROVE of the demise of the unprofitable Malibu, and hope Nissan does the same to the Altima, Hyundai with the SOnata, Mazda with the Mazda 6, and as many others as it takes to make the REMAINING players, like the Excellent, sporty Accord and the Bulletproof Reliable, cheap to maintain CAMRY, more profitable and affordable.
  • GregLocock Car companies can only really sell cars that people who are new car buyers will pay a profitable price for. As it turns out fewer and fewer new car buyers want sedans. Large sedans can be nice to drive, certainly, but the number of new car buyers (the only ones that matter in this discussion) are prepared to sacrifice steering and handling for more obvious things like passenger and cargo space, or even some attempt at off roading. We know US new car buyers don't really care about handling because they fell for FWD in large cars.
  • Slavuta Why is everybody sweating? Like sedans? - go buy one. Better - 2. Let CRV/RAV rust on the dealer lot. I have 3 sedans on the driveway. My neighbor - 2. Neighbors on each of our other side - 8 SUVs.
  • Theflyersfan With sedans, especially, I wonder how many of those sales are to rental fleets. With the exception of the Civic and Accord, there are still rows of sedans mixed in with the RAV4s at every airport rental lot. I doubt the breakdown in sales is publicly published, so who knows... GM isn't out of the sedan business - Cadillac exists and I can't believe I'm typing this but they are actually decent - and I think they are making a huge mistake, especially if there's an extended oil price hike (cough...Iran...cough) and people want smaller and hybrids. But if one is only tied to the quarterly shareholder reports and not trends and the big picture, bad decisions like this get made.
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