Connecticut legislators are currently debating whether consumers should be allowed to purchase electric vehicles (EVs) directly from a manufacturer without requiring a franchised dealership as a middleman.
Support for this pro-consumer, free-market model include a wide variety of interests such as: environmental groups (who know that EV adoption is three to five times higher in states that allow direct sales); consumer advocates (who have noticed discriminatory and predatory sales and lending practices from dealerships); EV drivers (who face bureaucratic hurdles to driving electric); free-market advocates (who see dealer protectionism as undermining basic economic freedoms) and EV manufacturers (who want to bring retail locations and jobs to the state).
Only one group is opposed: Connecticut’s auto dealers, who enjoy a monopoly as the guaranteed middlemen to all new vehicle sales. This group has considerable political leverage and has succeeded in blocking healthy competition.
A recent oped by three dealers in this publication attempts to portray franchised dealerships as consumer advocates. They cite the state’s lemon law to support this false premise. The dealers argue: “Connecticut was also a leader in protecting consumers, passing the ‘Lemon Law’ in 1982, one of many measures that ensure car buyers cannot be taken advantage of.” They claim these laws “won’t apply to EV manufacturers,” and “when something goes wrong with your car, it’s you against the manufacturer, with no dealer required by law to help you.”
However, under the plain language of the statute, the law could not be clearer. An aggrieved customer can notify either the manufacturer or its registered dealer. As stated by the law itself: “If a new motor vehicle does not conform to all applicable express warranties, and the consumer reports the nonconformity to the manufacturer, its agent or its authorized dealer…” “the manufacturer, its agent or its authorized dealer shall make such repairs as are necessary to conform the vehicle to such express warranties.”
All automobile manufacturers already comply with lemon and other consumer protection laws in all 50 states, regardless of direct sales status.
Besides this obviously disproven falsehood, there is evidence that actually shows how dealers are anything BUT consumer advocates. A 2021 investigation by Consumer Reports found shocking evidence of predatory and discriminatory lending. The investigation found that even buyers with high credit scores were not protected from outrageous markups by franchised dealers.
Yale Law Professor Ian Ayres has spent decades researching discriminatory lending and markups from dealers in Connecticut and nationwide. In 2019’s “Guess how much cheaper your auto loan would be if dealers had to play fair,” Ayres states, “Auto dealers consistently charge Black consumers prices that are hundreds or thousands of dollars more than their offers to white shoppers. These inflated prices can more than double the dealer’s profits compared with selling the same vehicle to a similar white customer.”
The National Consumer Law Center led a class-action lawsuit based on Ayres’ research. The dataset from these lawsuits showed Connecticut dealer financing rate markups were 279% higher for Black customers than for white customers—and worse in Connecticut than in 37 other states. This is because the dealership model relies on negotiations for pricing and financing vehicles, in which personal biases can come into play.
In the direct sales model, vehicle pricing and lending terms are fully transparent (and can be verified online). This is more urgent as limited vehicle supply has caused rampant markups: Right now 82% of car-buyers are paying above MSRP at the dealership. Popular EV models are seeing markups as high as $30k, prompting manufacturers to push back.
Despite this behavior, Connecticut’s dealers argue they are essential to the mass adoption of EVs. This is another bold claim: In 2020 the average dealership in Connecticut only sold 1.3 electric vehicles—among the lowest in the country.
If Connecticut dealers really are interested in promoting EVs and supporting their customers, they should stop the lies about direct sales and prove the value of their business model on the open market. Rivian welcomes allowing Connecticut consumers to decide for themselves whether they wish to purchase their EV directly from a manufacturer or a franchised dealer. We hope the legislature agrees.
James Chen is vice president of public policy and chief regulatory counsel, Rivian Automotive.