California DMV Guidance Resolves Doubt About Where Digital Sales Occur

The COVID-19 pandemic has forced automobile dealers to increase their emphasis on digital sales as customers demand greater convenience and less physical contact with dealership personnel. Some dealers are gaining a competitive edge by offering a completely online purchase process with delivery of a new car to the customer’s home, virtually eliminating all physical contact or even the need for a customer to go to a dealership. 

This rapid innovation to meet new customer demands has presented a particular challenge for California dealers. That state, like every other state, prohibits dealers from selling vehicles at a location other than their licensed place of business, i.e., the brick and mortar dealership. See Cal. Veh. Code § 11714(b). Unlike other states that allow the use of e-signatures in new motor vehicle sales, however, California still requires a “wet signature” from the buyer, meaning a customer must physically sign a contract to buy a car. See Cal. Civ. Code § 1633.3(c). 

The twin requirements of on-site sales and wet signatures created uncertainty as to whether California dealers could even offer an online purchase experience with delivery of the new vehicle at the customer’s home. The California Department of Motor Vehicles (DMV) dispelled any uncertainty, however, with recently issued guidance memorandum regarding online vehicle sales and off-site delivery during the pandemic period, specifically declaring that those practices are permitted in California.

The memorandum clarifies that dealers can conduct online sales and off-site delivery from their brick and mortar locations so long as vehicles offered for sale are either (1) present at the dealership at the time of the transaction; or (2) available to the dealer from the manufacturer. If these conditions are met, then the “dealership is permitted to deliver the vehicle to the customer at an off-site location in order to complete the sale through the licensed location,” so long as the dealer complies with certain additional requirements, including:

• All products must be contracted for sale prior to delivery;
• All terms of the transaction must be agreed upon prior to delivery. Negotiations may not be conducted at the delivery location;
• All contracts must be signed by the dealership before delivery. The purchaser may sign the contract at the time of delivery;
• Any person engaged in the negotiation and sale of the vehicle must be a licensed salesperson; and
• Adherence to social distancing requirements and sanitization of the vehicle is required if a test drive of the vehicle occurs.

Although the guidance states that it only applies “during the outbreak period,” dealers will make investments to provide these services and consumers will come to expect them to be available, and it would be difficult for the California DMV to issue contrary regulations once the COVID-19 pandemic has passed. Moreover, although the guidance is only applicable to California dealers, it is likely to be cited as persuasive authority if issues arise as to whether dealers in other states have violated their state laws by delivering a car to a customer’s home in connection with a vehicle sale, rather than at the dealership’s brick and mortar location.