Car Dealers Must Continue to Provide “Essential Services” During The Coronavirus Pandemic

In the past two weeks, numerous states have ordered businesses deemed non-essential to eliminate their in-person workforce to slow the spread of the coronavirus. All of these states have identified automobile repair and maintenance services as “essential,” recognizing that motor vehicles are more critical than ever given the current risks of public transportation.

Motor vehicle manufacturers and dealers have made common cause in trying to persuade federal and state officials to designate vehicle repair, maintenance, and sales facilities as “essential businesses.” On March 17, 2020, the Alliance for Automotive Innovation (Alliance) and the National Automobile Dealers Association (NADA) jointly sent a letter to President Trump declaring “[i]t is vital that vehicle repair, maintenance, and sales facilities be considered essential operations when federal, state, and local officials impose certain requirements due to the coronavirus outbreak.”

On March 19, 2020, the U.S. Department of Homeland Security (DHS) and the Cybersecurity and Infrastructure Security Agency (CISA) issued guidance on the “Identification of Essential Critical Workers During COVID-19 Response” that listed vehicle manufacturing, automotive supply manufacturing, auto maintenance and repair facilities as essential services.  Widely used by state authorities when drafting their shutdown orders, the DHS/CISA guidance is silent as to whether vehicle sales facilities also should be considered “essential services.”

On March 23, 2020, the Alliance, NADA, and several other industry trade associations sent a second letter to President Trump urging the administration to “clarify[] that certain sales and leasing activities at franchised new-car and -truck dealers are essential services that need to be maintained during the COVID-19 pandemic.”  The trade associations argued in their letter that “not all vehicle sales are discretionary consumer purchases,” that a “significant number of dealership sales transactions occur because a consumer or business is in immediate need of a replacement vehicle for basic transportation,” and that this clarification “is particularly important as various transit services have been curtailed or eliminated due to the public health recommendations about social distancing.”

Some dealers have experienced a significant reduction in foot traffic and sales and service business during the coronavirus pandemic, with an attendant reduction in dealer revenue, but this reduction does not justify a total shutdown of business operations.  Dealers typically are contractually required by the agreements with their manufacturers to operate during normal business hours, and state dealer laws generally prohibit manufacturers from engaging in direct vehicle sales and service activity.  The only way for customers to obtain critical warranty repairs and other vehicle services and, if necessary, a replacement vehicle, is through a licensed dealership.

The coronavirus pandemic may justify (and even require) the curtailment of some dealership activities, but manufacturers can and should demand that dealers offer at least those services that have been declared “essential” by federal and state officials.  This may present some immediate economic difficulty for dealers, but the federal Small Business Administration has made economic injury disaster relief available to help mitigate the impact of the pandemic.  By contrast, shutting down entirely would deprive local consumers of an “essential service” at a critical time.  With the largest dealer trade association in the United States having declared that vehicle repair and sales operations are “essential services,” dealers can hardly argue otherwise.