Overview
State dealer laws generally prevent motor vehicle manufacturers and distributors from obtaining dealer licenses and selling their vehicles directly to consumers. In a recent decision interpreting the Illinois Motor Vehicle Franchise Act (“MVFA”), however, an Illinois court ruled that at least some manufacturers may do just that.
In March 2021, the Illinois Automobile Dealers Association (“IADA”), other trade associations, and numerous Illinois dealers filed a lawsuit claiming that the MVFA prohibits Rivian and Lucid—new EV manufacturers with no independent dealers in the State—from obtaining Illinois dealer licenses allowing them to sell their vehicles directly to consumers. (Tesla obtained dealer licenses in the mid-2000s and secured renewal of those licenses in 2019 following a settlement agreement and Consent Order with the IADA.)
The plaintiffs’ primary argument had three components: (i) Illinois’ licensing statute requires an applicant for a dealer license to be “authorized by contract in writing between himself and the manufacturer … to sell [the line make] in this State”; (ii) a manufacturer obviously cannot contract with itself; (iii) therefore, only those who do contract with manufactures—i.e., “franchisees”—may obtain a new vehicle dealer license in Illinois. The MVFA requires that new vehicle dealers be licensed, of course, and prohibits any person from “engag[ing] … in the business of selling or dealing in … new vehicles of any make” without such a license. 625 ILCS 5/5-101(a).
The court rejected plaintiffs’ argument. It observed that the MVFA “defines ‘motor vehicle dealer’ and ‘franchisee’ separately,” such that “there must be some ‘motor vehicle dealers’ who are not franchisees.” The court also noted, among other things, “the conspicuous absence of any provision [of the MVFA] specifying that manufacturers cannot be motor vehicle dealers (of their own vehicles or otherwise).” The court thought it implausible that the legislature would try to “indirectly deny manufacturers dealer status as to their own vehicles … by imposing an inherently impossible requirement on them”—i.e., to contract with themselves— “in the absence of any apparent legislative intent to do so.” Instead, the court concluded that the licensing requirement of a written contract “simply does not apply to such a situation.”
While the decision thus clears the way for Rivian and Lucid—manufacturers without existing franchisees in the State—to operate their own dealerships, a big question still lingers: What about legacy manufacturers and distributors that do have existing franchisees in the State? It is far from clear that the MVFA’s licensing provisions would, or even could, allow for any such distinction.
Plaintiffs have filed an appeal to the Illinois Appellate Court. Stay tuned to this space for further developments.
Motor Vehicle Group
BFKN’s Motor Vehicle Group works with automotive, truck, and motorcycle manufacturers across the country and around the world to implement market representation and development initiatives, litigate protests and lawsuits, and develop effective dealer agreements, standards, and policies. Our attorneys are knowledgeable and creative strategic partners. Whether litigating, counseling, or negotiating transactions on behalf of our clients, we bring to the table extensive in-depth knowledge of the motor vehicle industry and exceptional legal ability, a combination that uniquely positions us to help our clients efficiently and effectively solve difficult problems and achieve their business objectives.