A Different Twist on Direct Sales

Can Hyundai Sell Thru Amazon or Honda Thru Sony?

By Richard N. Sox

There have been a number of questions raised by Hyundai Motor America’s announcement that it is piloting a program for selling new Hyundai vehicles on the Amazon digital retail platform.  Likewise, Honda dealers have lots of questions related to American Honda Motor Company’s announcement that it plans to partner with Sony to manufacture and sell new vehicles.

The penultimate question is will Hyundai and Honda dealers still be in a position to handle selling the vehicles under these programs?  And, to be clear, “selling” includes the entire transaction from start to finish.

State motor vehicle franchise laws across the country prohibit legacy OEMs such as Hyundai and Honda from selling new vehicles directly to customers.  But, what about selling new vehicles directly to customers through a partnership or affiliation with another entity?  Most state motor vehicle franchise laws are silent on this question.  In the case of the Honda/Sony partnership, if the vehicle continues to be branded as a “Honda” vehicle then pursuant to both the applicable Dealer Sales and Service Agreement and state franchise laws, Honda dealers would have the exclusive right to sell those vehicles to the retail customer.  However, if the vehicle were sold as a “Sony” vehicle, there is a strong possibility that Honda dealers would not have a right to sell those vehicles, despite AHM’s involvement with manufacturing the vehicle.  

Some states are looking at tackling the issue of a legacy OEM partnering with another entity to avoid prohibitions on direct sales (i.e. competing against their own dealers) by including within the direct sales prohibition an affiliation with another entity in which the legacy OEM has control or ownership above a threshold level.

The Hyundai/Amazon program was announced as one which will allow customers to search for a new vehicle on Amazon and select the dealership from which the customer wants to purchase the vehicle.  So, although it does not appear to be an attempt by Hyundai Motor America to sell direct, the nuance is the potential control that HMA and/or Amazon have over the sales process.  It is unclear whether this program will be a platform allowing HMA and/or Amazon to eventually accept vehicle deposits and orders, to sell F & I products to the customer and to control the price at which the new vehicle is sold.

To address the nuance of legacy OEMs involving themselves in the new vehicle sales process without selling the vehicle direct to the customer, some states are proposing to beef-up their definition of what constitutes being in the business of selling new vehicles and making clear that only licensed franchised dealers can engage in those activities.  Such activities would necessarily include accepting vehicle orders and deposits, negotiating terms of the transaction, selling the consumer F & I products and delivering the vehicle to the customer.

Now more than ever, franchise new motor vehicle dealers and their dealer associations must be vigilant in monitoring OEM programs which infringe on dealers’ rights to sell the OEM’s vehicles to the consumer.  Such programs threaten the massive investment dealers have made in their franchises and, most importantly, are not in the best interest of the consuming public.