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On April 1, the City of Los Angeles issued a modified version of its Safer At Home order initially issued on March 19. This order applies only to dealers in the city of Los Angeles. The updated version contains a statement that “no auto dealership shall operate, with the exception of its auto service and parts stores.” This follows closely behind modified orders issued by local jurisdictions in Northern California that require closure of dealership sales operations. The Northern California orders, however, expressly state that they are not intended to prohibit online sales if the vehicle is delivered to an essential business or residence. The Los Angeles City order does not mention online vehicle sales at all.
Therefore, the seemingly unequivocal language of the Los Angeles City order gives the impression that both in store and online sales are prohibited. A deeper look at the order, however, suggests that the order can be interpreted to permit online vehicle sales with deliveries to residences or essential businesses.
Language prohibiting dealer operation
The LA City order is structured first as a general order to stay at home, cease travel and shutdown businesses, followed by a host of exceptions and qualifications. In the first, general section containing the actual shutdown order, all businesses in the City are ordered to cease operations that require in-person attendance by workers at a work place. Nothing in the first part of the order shows any intent to shut down any business where workers’ physical presence at a workplace is not required. This shutdown order is subject to numerous exceptions contained in the following provisions of the order, including an exception for auto part supply and auto repair shops. It is within this exception language where the statement is made that “no dealership may operate” except for parts and service.
With this blunt language existing only in the section of the order addressing exceptions, it can be argued that the intent was only to clarify the scope of the auto parts and service exception, not to serve as a ban of online vehicle sales. Further, although blunt, the “no auto dealership may operate” language uses the term “dealership,” not “dealer.” This is consistent with the intent to close the facility, but not any portion of the business that does not require use of the facility. This is consistent with the long established and legally supported distinction between the word dealership, referring to a facility, and dealer, referring to a licensed business.
Further, the Order states that “to the extent that business operations may be maintained by telecommuting or other remote means, while allowing all individuals to maintain shelter in their residences, this Order shall not apply to limit such business activities.” This express exclusion from the order to shutdown does not exclude vehicle sales, nor the sale of any other good or service, for that matter. This provision offers support for offering sales through remote means, but only if the physical dealership sales facilities were completely shut down.
Considerations for LA City dealers
While the modified Order may allow some room for remote sales by LA dealers, the ambiguity of the order prevents reaching a definitive legal conclusion, one way or the other. Even if a dealer evaluated the risks with competent counsel and decided to engage in online sales, there are several practical issues to consider.
First, the trajectory of the pandemic is clearly at a point where governmental officials are looking for ways to encourage people to stay home, period. Regardless of today’s rules, there may come a time where officials feel that vehicles sales, even if online, contribute to more people leaving their homes. As such, even for those who elect to engage in 100% online sales, any marketing and advertising of sales that does not limit itself to emergency sales or sales to essential workers and businesses could invite a backlash by regulators in the next order that might be issued.
Second, dealers in LA must ask whether they have systems in place to allow their sales staff to negotiate and document a sale or lease of a vehicle in a compliant manner. This is not an easy question, as dealers must continue to follow Vehicle Code rules regarding sales and negotiations, while also continuing to make proper disclosures and complete deal documentation. And on top of all of these normal requirements, the deal must be handled in a manner that is compliant with social distancing and shelter in place requirements. Contact us for details on your options for complying with these requirements.
Third, dealers will need to consider how to actually deliver vehicles to customers in a manner consistent with the Order. Although the order contains an exception for businesses that deliver goods directly to residences, there are nuances in the language that must be observed. Dealers will need to be sure any delivery personnel and activities come within the exception and think carefully about how to manage deliveries.
Finally, dealers will need to consider whether title clerks may continue to operate at the dealership. There are additional exemptions from the Order for employees whose “work [is] necessary to …. operate" … “phone retail sales and servicing, and web-based services," which arguably applies to title clerks. Further, clerks are necessary for providing vehicles to any essential infrastructure sector and for communication with the DMV. Dealers will need to carefully consider these exceptions to craft a basis for the continued work of title clerks.
Action LA City dealers must take
In response to the modified Order, all LA City dealers should close their showrooms, sales lots, and other facilities dedicated to vehicle sales. These dealers should also stop any advertisements offering vehicle sales at the dealership and change their websites to reflect that sales will not go forward at the dealerships.
For dealers who wish to offer remote sales, they should evaluate with counsel any potential risks of doing so under the ambiguities of the modified order and, if they do, determine if they have the means to conduct these sales. In any event, they should consult competent dealership counsel to build a legal framework for remote sales as well as necessary compliance steps to ensure continued compliance with all applicable state and federal consumer laws, as well as COVID-related orders.
Request for feedback
Scali Rasmussen is working with our clients to protect their ability to offer limited sales, including defending their sales practices to local authorities. If your dealership has completed sales under the Executive Order to an essential employee, for an essential business, or in an emergency situation, please let us know. These examples demonstrate why dealerships are in fact essential businesses that contribute to public welfare and should be encouraged to continue limited sales and can be used to garner support for limited sales mandates.