Regulators Unveil Guidance On Best Practices for Internet Vehicle Sales

Acknowledging that “[c]onsumers are clamoring for the opportunity to purchase the vehicles of their choice online because it expands the options available and enables them to save a considerable amount of time and possibly money over traditional vehicle-buying methods,” the American Association of Motor Vehicle Administrators (AAMVA) recently released its much-anticipated guidance on Best Practices for the Regulation of Internet Vehicle Sales. In that guidance, the AAMVA recommends best practices for the regulation of internet vehicle sales involving licensed dealers, unlicensed dealers, and private-party sales, and warns that “[o]utdated or inconsistent regulation of vehicle sales can provide the opportunity for unlawful or criminal activities, may create unfair disadvantages for licensed dealers, or may cause financial harm to individuals and businesses.”

Most notably, the Best Practices recognize that “[a] growing percentage of vehicle sales are being conducted partially or completely over the internet,” so that a purchaser may never set foot in a dealership when buying a new car. Among the best practices for internet vehicle sales by licensed dealers, the AAMVA recommends that regulators maintain an easily-accessible and public list of licensed dealers in good standing; require internet vehicle dealers to provide proof to buyers that all prior liens or other financial encumbrances have been satisfied; allow electronic preservation of records to allow for easier access at the dealer’s licensed location; and require dealers to register the websites they are using with regulators.

The Best Practices also recommend exempting “online-only sellers from physical vehicle display area requirements,” explaining in the accompanying notes that this would allow “these dealers to conduct business as a licensed dealer, from a location that is more conducive to their business model while still providing for consumer protection.” Obviously, a licensed dealer who did not maintain a physical display area would incur significantly less overhead than a dealer who did offer a showroom. Consumers could benefit if those savings are passed on in the form of reduced retail prices, but there is a significant danger of free-riding by online-only sellers on the investment made by dealers with showrooms. The Best Practices add that this exemption would not apply to “service center requirements of jurisdictions or manufacturers required to satisfy vehicle warranty provisions or other manufacturer requirements,” meaning that manufacturers would need to authorize “online-only sellers” before any dealer could adopt this model.

The Best Practices also recommend that regulators adopt rules for internet advertising of vehicles for sale, including requirements that online advertising comply with all state and federal general advertising laws; provide key information about a vehicle offered for sale; and if a stock photo is used to advertise a new vehicle, require that any added options in that stock photo be disclosed and included in the advertised price. Although the Best Practices acknowledge the likelihood that many consumer vehicle purchases will be entirely online, they do not address how those consumers will see the disclosures required under the Monroney Act. That statute, enacted in 1958, requires that manufacturers affix a label in the window of each vehicle they produce showing the suggested retail price for the vehicle and installed accessories. A consumer who engages in an entirely online transaction may never see the label in the window until after they have completed the transaction and take delivery of the vehicle.

The Best Practices urge state regulators to form a team of stakeholders—including agencies, legislators, law enforcers, and dealer associations—to monitor changes in technology and business models and adopt appropriate rules to combat fraud. Although not identified as potential stakeholders in the AAMVA’s white paper, manufacturers obviously have a significant stake in any regulations governing internet sales and advertising of new motor vehicles. Manufacturers own the trademarks used in dealer advertising, and dealers can only use those trademarks in the manner licensed by manufacturers. Manufacturers also have a significant interest in ensuring that consumers have the best possible retail experience, whether that experience is online or in a dealer showroom, so that those consumers will return to the brand when making their next vehicle purchase. Manufacturers would do well to monitor developments and ensure that their interests are taken into account in any rules adopted for the online sale and advertising of new motor vehicles, and regulators would do well to take advantage of the knowledge and viewpoint that manufacturers can bring to the table.