Decoding Florida’s Recently Ratified House Bill 637 on the Auto Industry
The functions of automakers and dealerships have been notoriously inconsistent, creating disparities among political and economic factors in the auto industry for decades.
In Florida, Governor DeSantis recently heightened the precarious nature of this vital relationship by ratifying House Bill 637 (HB 637).
Advantageous to dealership franchises, HB 637 bans most direct-sale transactions (automaker to consumer) in Florida. Beneficial to Florida, HB 637 forces automakers to sell through franchise dealerships at a time when new and used vehicles continue to sell with historically high “market adjustment” premiums. According to the Bureau of Labor Statistics, the average dealer markup in 2022 rose to nearly 11.5% of MSRP. That being said, franchise owners should be aware of which vehicle models are most likely to be profitable so that they can order inventory accordingly.
The relationship among automakers, franchise dealerships, and consumers in Florida may face increased tension since the bill was ratified on July 1st, 2023, which can be mitigated by providing competitive dealership service to consumers while continuing to meet their vehicle demands. For example, the International Energy Agency predicts a 35% increase in EV sales from 2022 – 2023, leaving dealership franchise owners questioning whether or not they must compensate for the forecasted increase.
The opportunity to capitalize is a decision left to the franchise dealerships who may hesitate to order EV inventory, even in today’s market. In fact, the Sierra Club published a report in 2023 stating that 45% out of the 66% of dealerships that did not have an EV available for sale, were not interested in offering one despite automaker supply. With EV marketability at its prime, franchise dealerships have begun reading in-between the lines and are more skeptical of “electrification”.
Clueless are the thousands of head-scratching consumers who wonder why franchise dealerships have not committed to electrification. According to an article by Reuters, EVs have sat on dealership lots for upwards of 130 days, demonstrating the mitigated supply-chain bottleneck which has given the opportunity for automakers to produce greater quantities of EVs. Combine that with buyer’s hesitation as they glance at the continuously high sticker-prices of EVs (net of tax credit and price reductions), and the days-in-inventory statistic becomes more understandable.
Exemptions to HB 637 include Tesla and ostensibly Lucid and Rivian, all of whom utilize a direct-sales model. With Tesla selling 3 out of the top 5 bestselling EVs in 2022, it can be inferred that strictly-EV automakers will have a greater contribution to the forecasted increase in 2023 EV sales than other automakers, especially because their EV production costs are below legacy automaker costs.
Florida House Bill 637 provides more than just the advantage of directing business to franchise dealerships, it provides insight on being accountable for future marketable inventory orders. A duty of franchise dealerships is to preserve the image of the automaker which they are loyal to. However, if essentially all non-Tesla EVs are required to be sold through franchise dealerships who struggle to realize profit and move inventory, the requisite factor in maintaining stable relationships among automakers, franchise dealers, and consumers is manipulating the constraints and allowances of HB 637 so that all parties can walk away satisfied, a goal that will not come easily.
During a tumultuous period in vehicle retail, cooperating with automakers in adherence to regulations is often easier said than done. Florida joins many other states who have banned automakers’ direct-sales model yet made exceptions for EVs, including but not limited to New York, Pennsylvania, and Virginia.
