By on March 29, 2021

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]

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29 Comments on “Illinois Auto Dealers Sue State Over Rivian’s Direct-Sales Model [UPDATED]...”


  • avatar
    SCE to AUX

    Move the plant.

  • avatar
    Detroit-X

    Instead, I would sue because Rivian’s SUV looks like an International Scout, and people hate teensy headlights. How could the 22 year-old-designers mess that up for those not in their generation? Duh. How could the 32 y/o CEOs make this mistake?!!

    P.S. Will never buy a 100% electric, unless it’s my 4th car for my estate, which impresses someone.

  • avatar
    28-Cars-Later

    This model Tesla created is a much bigger deal than anyone realizes, IMO. Dealers suck but they provide localized places of service/repair and in theory as competitors keep the price of the vehicle to some market level. When there is no competition, pricing will be set by the competitor to match their production capacity. Then of course, who will service it?

    • 0 avatar
      mcs

      “as competitors keep the price of the vehicle to some market level”

      They’re only competing on their own margins. The companies still set the price to the dealers. Tesla and the newer companies just cut out the middleman. For service, you have the Tesla service center and locally, I even have the choice of several independents staffed by ex-Tesla employees.

      Besides, how much competition is it when most of the dealerships are owned by a single mgacorporation in an area.

      • 0 avatar
        28-Cars-Later

        “I even have the choice of several independents staffed by ex-Tesla employees.”

        Just wait until Tesla starts enforcing IP claims the way Apple does to fight independent repair. Even if Tesla opens its own repair centers, they aren’t going to be everywhere so you are geographically locked into a specific location(s) if you need service.

        “They’re only competing on their own margins. The companies still set the price to the dealers.”

        So now the mfg eats up that margin and then decides next year, we’re upping this 10% because we can. There’s no private dealer network to keep this in check.

        • 0 avatar
          FreedMike

          “Just wait until Tesla starts enforcing IP claims the way Apple does”…

          That’s a valid issue but it seems now that the “but Tesla won’t provide service centers” objection has been answered (as it does provide just that – here in Denver I have two facilities to choose from) you seem to have moved onto another one.

          The big question is whether manufacturers can sell cars directly to consumers. I see no reason why that should violate any state law.

    • 0 avatar
      sirwired

      And the manufacturer wouldn’t open their own service facilities without a franchise dealer? And dealers “competing” with each other are just fighting over who can be the cheapest middleman.

    • 0 avatar
      SCE to AUX

      Nobody is forcing anyone to buy their product, so raising prices only hurts the mfr.

      If I don’t like the price of a Rivian, I can consider a Tesla, Hyundai, Mercedes, GM, or Ford product.

      Even with dealers in place, I can do this. Nobody expects to get a Mercedes for Hyundai prices, so in fact, people start their price shopping based upon MSRP anyway.

    • 0 avatar

      As some one who has seen numbers on both sides of this (a long time ago but I’m betting it still holds true) it gets complicated.

      So direct sales you control everything, but you also incur all the costs (this works for Tesla a bit better then most thanks to the cult like status) Dealers keep inventory perform service, take trade ins handle financing, purchase set quantities of cars, advertise the vehicles locally, etc.

      Franchise model, you lose out on how your customer sees your product and possibly some revenue. But you avoid the cost of land the employee cost overhead etc etc.

      If you do direct sales alot of the money that went to the middle man gets eaten up by the infrastructure required. Based on my experience playing with this with a similar product the cost to consumer was almost identical. But your margins became alot more variable. Basically dealers order large amount of cars and guarantee some level of income at least a couple months in the future you can’t do with direct sales.

      For the consumer the experience might be better but the cost of the car will likley not go down at all, and the chance of there being somewhere to buy or service a car in your hometown will drop significantly outside of large metro areas.

  • avatar
    here4aSammich

    So why can’t Rivian use a “Chick-fil-a” franchise model to comply with the law? Rivian owns the building, the transaction is conducted online. The automaker charges a flat “doc and delivery” fee, that is paid at time of purchase. The car is sold to the “dealer” at transaction price, the “dealer” completes the transaction on site. The “doc and delivery” fee goes to the dealer. There’s a “customer satisfaction” bonus for the “dealer” based on customer feedback. If the “dealer” isn’t meeting the goals, their contract can be cancelled, and another person brought in to act as the “dealer”. Not having been a dealer, my plan may not be viable, but hey it’s an idea.

    • 0 avatar
      mcs

      If you own a business, why should you be forced to give a portion of your sales revenue to local millionaires in order to have the privilege of selling in a particular state?

      • 0 avatar
        SCE to AUX

        Because those local millionaires support the re-election of the legislators who defend their syndicate.

        • 0 avatar

          They also employ a lot of people. Having large amounts of dealers go out of business is political suicide.
          On a personal level I would say the best compromise is either a automaker has to choose all in or all out (direct sales or dealer) or possibly laws forbidding direct sales locations from being located to near to existing franchised dealers. So say Ford could take over the location of a bankrupt former franchised dealer and his territory but could not open a store across the street from a current franchised dealer.

          • 0 avatar
            FreedMike

            @mopar:

            Car dealers have spent a solid century mistreating and ripping off car buyers. If moving to direct sales puts them out of business, then they have no one to blame but themselves. The dealers who do business the right way will survive; the others won’t. Capitalism 101. Sucks for the workers, but that’s usually the way it works when you’re working in an industry that gets better-mousetrapped.

        • 0 avatar
          FreedMike

          @sce:

          Bingo

  • avatar
    jkross22

    It’s Illinois. What’d you expect. Chicago sold its parking meter revenue for cash flow. It’s like LA telling homeowners that they’re responsible for city side walk maintenance by their homes.

    These municipalities – cities and states – have gotten away with graft in the sunlight and will continue to do so until residents decide they’ve had enough.

    No sign of that happening en masse, though.

    • 0 avatar
      bullnuke

      “telling homeowners that they’re responsible for city side walk maintenance by their homes”. Not at all a new thing. Springfield, Ohio, has made homeowners responsible for the public sidewalks in front of their residences since at least 1955 when my father complained about the cost of city-required repairs to “our” sidewalk. He had to replace that walkway two more times before selling the house in 2002.

    • 0 avatar
      FreedMike

      We can’t just bag on Illinois here, as much as they deserve to be bagged on – Michigan has a similar law.

  • avatar
    ToolGuy

    As a member of the public, I greatly appreciate these dealer associations looking out for my interests.

  • avatar
    indi500fan

    Years ago, the top lobbying money and campaign donations to state legislators was from car dealers, insurance agents, and realtors. I suspect this hasn’t changed.

  • avatar
    stuki

    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.

  • avatar
    FreedMike

    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.

    • 0 avatar
      28-Cars-Later

      Yes, but notice this isn’t on any radar. Those problems are features not bugs.

      • 0 avatar
        FreedMike

        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.

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