One of the ongoing fights in the car industry is between US states and automakers over the automakers being allowed to sell cars directly to consumers. This hasn’t been a particularly large problem for legacy car companies that have large established dealer networks. However, many new companies have gone to a direct-sales model to avoid the hassle of bringing in separate parties to sell their vehicles. Tesla was one of the first to embrace the model, but so have companies such as Lucid and Rivian. The latest dust-up in the battle between states’ dealer laws and car companies’ sales models involves Rivian and Ohio, and it has an interesting wrinkle thanks to Tesla.

Ohio Doesn’t Allow Direct Sales, Except For Tesla

Many states have laws against direct sales that apply to all car companies. Michigan is one of them, and the law is why you can’t purchase a Tesla in the state, despite there being some showrooms scattered about. Ohio is a strange one. The state didn’t have a specific law banning direct sales until 2014. That law came about because Tesla was opening its own stores in the state, and dealers pushed the government to do something to stop Tesla. According to The Columbus Dispatch, Tesla and dealers came to a compromise in which the car company could continue operating their Columbus and Cincinnati locations, as well as completing a new Cleveland one, but that no future direct-sales dealers could be opened by anyone.

This probably seemed like a reasonable decision at the time when Tesla was really the only car company with this sales strategy. More than a decade later, other companies want to do the same, and the Tesla exemption in Ohio looks unfair. Rivian specifically cites the Tesla exemption in its lawsuit:

“The State of Ohio takes the position that Ohio law bars Rivian from selling new

Rivian vehicles in the state directly to Ohio consumers. In 2014, the Ohio Legislature enacted a

bill providing that the Ohio Registrar of Motor Vehicles shall deny a motor vehicle dealers’

license—which is required to sell vehicles in Ohio—to anyone who is “a manufacturer, or a parent

company, subsidiary, or affiliated entity of a manufacturer, applying for a license to sell or lease

new or used motor vehicles at retail.” R.C. 4517.12(A)(11). At the same time, the Legislature

enacted a special provision for Tesla that not only permitted Tesla to continue selling vehicles

from two dealerships it already had in the state, but also to sell vehicles from an additional

dealership. See id. This special provision does not apply to Rivian. As a result, Ohioans seeking to

purchase Rivian vehicles must do so through Rivian’s dealer-licensed locations in other states.”

The lawsuit goes on to note that this exemption is a something unique, and not simply a case of “grandfathering” in the existing dealers, since it allowed the completion and operation of the Cincinnati dealer.

The Lawsuit Is About Direct Sales Broadly

Although Rivian highlights the Tesla exemption in Ohio, the company seems to be suing in a more broad sense, arguing that it and other companies should be permitted to sell their vehicles straight to buyers. It argues that the prohibition on additional direct car sales doesn’t do anything to protect customers, only to protect franchised dealers. It further argues that franchised dealers can result in markups for customers, and that allowing Rivian to operate would not be a threat to dealers as the company only sells directly, not through franchises. As such, Rivian couldn’t undercut a hypothetical franchised Rivian dealer, since it wouldn’t have one anyway.

We also reached out to Rivian for an official statement regarding its lawsuit. Rivian’s Chief Administrative Officer Mike Callahan echoed the basic points of the lawsuit in saying:

“Rivian believes that consumers should be able to choose the vehicles they purchase. Consumer choice is a bedrock principle of America’s economy. Ohio’s archaic prohibition against the direct-sales of vehicles is unconstitutional, irrational, and harms Ohioans by reducing competition and choice and driving up costs and inconvenience.

The results of this lawsuit will be interesting. If Rivian is successful, it would certainly assist that company, but could also open the door for other direct-sales companies to begin selling in Ohio, such as Lucid. We could see Ohio still putting limits on companies that do use franchised dealers to protect them, so you might not see corporate-run dealers from GM, for example. A company such as Scout would be a strange edge-case, since it’s going to have a direct-to-consumer model, but it’s owned by Volkswagen, which does use franchised dealers. In fact, Scout’s in the middle of its own legal issues for just that reason. Because of that, we’re sure that there will be plenty more legal fights over how companies can sell their cars in the years to come.

Source: Rivian, United States District Court For The Southern District Of Ohio via Gongwer, The Columbus Dispatch