Two trade associations representing automakers have filed a lawsuit in federal court against the state of Arizona in an effort to block a new law that prohibits car manufacturers from selling directly to consumers via the Internet.
The so-called dealer-franchise law was passed in April and is scheduled to take effect on Monday. But the suit, filed in U.S. District Court in Phoenix by the Washington-based Alliance of Automobile Manufacturers and the Association of International Automobile Manufacturers in Arlington, Va., seeks a temporary injunction to stop Arizona from implementing the law.
"We are not challenging the role of our dealers," said Josephine Cooper, president and CEO of the Alliance of Automobile Manufacturers, in a statement. "Manufacturers and automobile dealers depend on each other to meet consumer needs. We are challenging a flawed law." The Arizona law would hurt consumers by limiting their buying choices and "has numerous provisions that are unconstitutional," she added.
Lance Roberts, a spokesman for the Alliance, said what happens in Arizona could impact similar pieces of legislation that are pending or expected in other states. "We had to file this lawsuit because other states have said they're going to look at this law as a model," he said.
A similar battle is taking place in Texas, for example. That state already has passed a law prohibiting automakers from acting as dealers by selling directly to consumers, and last year it claimed that a Houston-based operation of Ford Motor Co. was violating that law by selling used cars at fixed prices via the Internet -- a claim that drove Ford to shut down the sales and challenge the law as an improper restriction of e-commerce (see story).
According to the Alliance of Automobile Manufacturers, several provisions of the Arizona law would hurt consumers. For example, the ability of automakers to put pricing information on their Web sites other than a manufacturer's suggested retail price would be severely restricted. The law also limits the services that automakers could offer via the Internet, including finance and leasing deals and 24-hour roadside assistance.
Francie Noyes, a spokeswoman for Arizona Gov. Jane Hull, said the governor's office wouldn't comment on the lawsuit because it hadn't had enough time to review the filing. The state was only served with the lawsuit late yesterday afternoon, Noyes added.
"We're starting to see a clash between the old world and the new world" in the auto industry, said Bruce Temkin, an analyst at Forrester Research Inc. in Cambridge, Mass. But as auto dealers lobby for stronger legal protections, car buyers are the ones who stand to be the ultimate losers, he added.
Protecting the turf of auto dealers "is not in the best interest of the consumer," Temkin said. "We have to give [people] the opportunity to buy where, how and what they want. Local dealerships will have to figure out how to add value, rather than [try to] control territory."