Are you a manufacturer that wants to sell a new motor vehicle or trailer that you manufactured? Generally, in Virginia, you must sell through a dealer licensed by the Virginia Motor Vehicle Dealer Board.

However, when a manufacturer wants to sell a new vehicle or trailer directly to consumers in Virginia, being both the manufacturer and the dealer, the task is a little more complicated. Virginia law makes it unlawful for any manufacturer of motor vehicles, motorcycles, trailers, or recreational vehicles to own, operate, or control a dealership in the Commonwealth. The Code of Virginia also sets out exceptions for when ownership, operation, or control is not prohibited. One of those exceptions allows for the ownership, operation, or control of a dealership by a manufacturer if the Commissioner of the Virginia Department of Motor Vehicles (DMV) determines, after a hearing requested by the manufacturer, that there is no dealer independent of the manufacturer available in the community or trade area to own and operate the franchise in a manner consistent with the public interest.

So what does all of this mean and why does it matter? For manufacturers that cannot find a dealer to sell their vehicles or trailers either because none exists or none is able to adequately sell the vehicles or trailers, the prohibition could be a bar to selling in Virginia. This prohibition applies not only to manufacturers of specialty vehicles and trailers, but it also applies to mass marketed vehicles like electric cars and trucks.

It only applies to manufacturers. So, what is a manufacturer? A manufacturer is a person who is licensed by the DMV and engaged in the business of constructing or assembling new motor vehicles, trailers, recreational vehicles, and motor homes. It also includes those who construct vehicles or trailers using the parts of other manufacturers.

What types of vehicles are covered by this prohibition? It includes self-propelled vehicles, vehicles designed to be self-propelled, motorcycles, trailers, semitrailers, and recreational vehicles. However, it does not include manufactured homes, watercraft trailers, camping trailers, or travel trailers.

The prohibition applies to all manufacturers regardless of whether any manufacturing will occur at the dealership, somewhere else in Commonwealth, or outside the Commonwealth. The prohibition even applies if the manufacturer can’t grant the authority for anyone else to sell the finished vehicles in the Commonwealth. Even if the manufacturer purchases chassis and parts from multiple manufacturers and merges them to form a new vehicle, so-called second-stage manufacturers, the prohibition applies. Virginia law makes no distinction between so-called first- and second-stage manufacturers.

Once you determine that you are a manufacturer, what do you need to prove if you want to own, operate, or control a dealership in Virginia? First, you need to seek a hearing. The purpose of the hearing is for you to prove (1) that no dealer independent of the manufacturer is available in the community and (2) if there is an “available” dealer that the dealer cannot own and operate the franchise in a manner consistent with the public interest. Being “available” means that the dealer must have, currently, or in the near future, the capabilities of selling your vehicles or trailers, not just that someone has expressed an interest in owning or operating a dealership. To operate a dealership in a manner consistent with the public interest, the independent dealer must be able to operate at a profit so that it will be around to service customers in the future.

What doesn’t matter? Whether the manufacturer can make a profit is irrelevant. So is whether the community will benefit from the dealership.

Even if you are a manufacturer that doesn’t use franchised dealers, you still must seek a hearing from the DMV Commissioner. If the manufacturer and dealer are separate companies with common ownership and control or if the dealer entity owns the manufacturing entity, the statute still applies. The relevant factor is actual control, not how the control is exercised.

Do you manufacture cars, trucks, motorcycles, or trailers? Are you having a tough time finding a dealer to sell them in Virginia? Maybe your business model provides for direct sales in Virginia. If you have questions about this article, or for more information, please contact Mitchell Goldstein (mgoldstein@setlifflaw.com) at (804) 377-1269, or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.