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During the semiconductor shortage, dealerships imposed substantial markups on many vehicles. Buyers expressed frustration, and one poll revealed that 76 percent of Americans considered dealerships misleading about vehicle costs. Those who share this view may have considered direct-to-consumer sales, or DTC, which lets shoppers purchase a car much like ordering from a technology company website.

In the automotive sector, the DTC approach is established, as seen with Tesla purchases over the past decade. This model removes intermediaries found in franchise dealership setups, offering clearer pricing and possible cost reductions compared with conventional methods.

Franchise laws designed to shield dealerships complicate DTC adoption nationwide. Tesla, Rivian, and Lucid have encountered legal challenges while attempting direct sales. These EV firms avoided franchise contracts from the start and built their businesses around the DTC model. They contended that older dealership statutes did not apply because no franchise partners required protection.

Tesla led the effort, with Rivian and Lucid pursuing similar legal paths and securing exemptions in select states. Legacy automakers remain restricted from direct sales, and Ford dealers voiced strong objections when the company explored consumer-direct options.

Rules Must Evolve With Modern Conditions

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Franchise protections originated in the 1920s when manufacturers pressured dealers to accept excess inventory even amid weak demand. Noncompliant dealers risked losing their agreements or facing new competing outlets. By the 1930s, dealers secured laws that banned direct manufacturer sales and prevented automakers from undercutting them through their own stores. Today, vehicle purchases in the United States must route through dealers.

Market conditions have shifted since the last century with the rise of online commerce. Not every state opposes DTC sales. The Electrification Coalition notes that Arizona, California, Colorado, Florida, Illinois, and twelve additional states permit direct sales by EV-only manufacturers. In contrast, Montana, Nebraska, New Mexico, Oklahoma, Texas, and eleven other states prohibit DTC entirely. A middle group, including Washington, New York, and Ohio, grants limited allowances to specific manufacturers.

State rules differ in detail, yet those that allow DTC generally restrict it to EV-focused companies or sellers of zero-emission vehicles without existing dealer agreements. Data from the National Automobile Dealers Association indicates that dealers in states offering both DTC and franchise options recorded stronger revenues due to increased market competition.