99-054

Response May 9, 2000

 

 

REQUEST LETTER

 

September 2, 1999

 

Re: Motor Vehicle Dealer Licensing Requirements

 

Dear NAME:

 

We are writing on behalf of an Internet company (the "Website") that contemplates providing marketing and other related services to duly licensed Utah motor vehicle dealers. The Website's services will be designed to facilitate such dealers' sales of new motor vehicles to Utah customers over the Internet. However, the Website will not, under any circumstances, be conducting motor vehicle sales nor do we believe it will be acting as a broker.

 

We respectfully request that you provide us with a written opinion of the Utah Motor Vehicle Enforcement Division (the "Division") that the Website's activities will not require licensing under Utah Code ' 41‑3‑201.5(1). Utah Code ' 41‑3‑201.5(1) provides that a person, may not, for a fee, commission, or other form of compensation, arrange, offer to arrange, or broker a transaction involving the sale or lease of more than two new motor vehicles in any 12 consecutive month period, unless the person obtains a dealer license. To assist you in your analysis, we are providing a detailed explanation of the Website's organization and interaction with duly licensed Utah motor vehicle dealers. Please note that the Website will have no place of business in Utah and its only contact with consumers located in Utah will be through the Internet.

 

Background

 

Unlike traditional sales channels, the Internet has allowed countless marketing organizations, media companies and financial institutions to enter into a channel of commerce once reserved for auto dealers, brokers and lessors. In order to effectively compete on the Internet, companies must marshal substantial technical and marketing resources. By their nature, most motor vehicle dealerships and dealer groups lack the resources needed to establish a sophisticated Internet

presence and proliferate awareness over the Internet with effective penetration. With ever‑increasing intensity, well‑capitalized competitors, such as Microsoft Corp., Autobytel LLC, Autoweb.com, Inc., and Cars.com are entering the Internet automobile market in an attempt to draw consumers from motor vehicle dealers' traditional channels of commerce, only to sell them back to such dealers as "leads."

 

To compete in this emerging climate, a nationwide association of state‑licensed motor vehicle dealers, including duly licensed Utah motor vehicle dealers, has formed a STATE LLC (the "ASSOCIATION"). The ASSOCIATION is owned in majority (85%) by its member dealers ("Member Dealers"). It is our understanding that the ASSOCIATION was formed to afford motor vehicle dealers the opportunity to compete in the burgeoning Internet automobile sales and marketing arena, by giving its Member Dealers a unified and competitive footprint on the Internet.

 

Business Arrangement

 

We understand that the ASSOCATION has entered into a long‑term marketing agreement ("Marketing Agreement") with the Website, whereby the Website will, at its own cost and expense, establish a broad‑based, national presence on the Internet. The Website's corporate and affiliate sites will provide automobile research, pricing and advice in order to attract users.

 

With respect to pricing, the Dealer Association will furnish the Website with pricing grids for all makes and models represented by the Member Dealers. In addition, Member Dealers will allow the Website to access their back‑end dealer management Systems, thereby enabling the Website to poll Member Dealers' inventory on a continuous basis. Neither the Website nor the Dealer Association will have control over the price of any motor vehicle. All prices will be set by each Member Dealer for its specific inventory.

 

Users who visit the Website will have the opportunity to 'build" a vehicle online and view Member Dealer‑supplied prices and resulting monthly payments. All financing disclosures shown on the site will comply with the Federal Reserve Board's Regulations M and Z, as well as the federal Truth and Lending Act and Consumer Leasing Act. Users interested in purchasing or leasing a new motor vehicle constructed on the Website may then submit a "request" for the vehicle and complete an online credit application for financing the vehicle. The application will be transmitted directly to the Website's accredited financing partner. The Website will neither view nor have access to the credit application.

 

Once a user locates a vehicle in a Member Dealer's inventory or orders a vehicle through one of the Member Dealers, the Website's financing partner will deliver a "Closing Kit" to the user. The Closing Kit contains duplicates of all documents necessary to execute the sale transaction

with the Member Dealer. Documents in the Closing Kit include, the lease or loan agreement, applicable consumer disclosure documents, title, odometer and registration documents along with instructional materials, including a scheduled appointment to meet with the Member Dealer to consummate the purchase of the vehicle. The original documents are sent directly to the applicable Member Dealer. The user then meets with the Member Dealer at the dealership at the appointed time, signs the documentation and accepts delivery of the vehicle.

 

Important Details

 

The following are details that may be relevant to your analysis:

 

1. Dealers who become members of the Dealer Association will be given "territories" identified by zip codes, in a manner similar to that practiced by vehicle manufacturers.

 

2. Member Dealers will be awarded territories on a first‑come, first‑serve basis.

 

3. Member Dealers join the Dealer Association for two‑year terms, as opposed to the 30‑day cancelable agreements typical of most Internet automobile buying services.

 

4. Member Dealers will be required to treat users in accordance with the Dealer Association's Code of Conduct. Member Dealers who fail to adhere to these standards may have their membership revoked.

 

5. Each Member Dealer will maintain a ADealer Trust Account@ into which users' funds will be deposited from time to time.

 

6. Users who wish to reserve or order a vehicle from a Member Dealer will furnish a deposit, through the Website by way of a credit card, directly into the Member Dealer's Dealer Trust Account.

 

7. The Website will administer the transfer of funds described above, but will receive no compensation or earnest money from users.

 

8. At the consummation of each sale, the Member Dealer who made the sale will pay the Dealer Association a flat processing fee.

 

9. The Dealer Association will compensate the Website with a flat monthly marketing and advertising fee plus an adjustable fee based on the number of hours or projects performed for the Dealer Association that month.

 

We assume, for purposes of this letter, that the user will opt to finance the purchase of his or her vehicle through the Website's financing partner. Users who wish to obtain their own financing or pay cash will receive a Closing Kit appropriate for their specific transaction.

 

Utah law provides that a person may not, for a fee, commission, or other form of compensation, arrange, offer to arrange, or broker a transaction involving the sale or lease of more than two flew motor vehicles in any 12 consecutive month period, unless the person obtains a dealer license under Utah Code ' 41‑3‑202(1). Utah Code ' 41‑3‑201.5(1).

 

The Website believes that its activities will fall outside the licensing requirement for motor vehicle dealers. The Website will not be arranging, offering to arrange, or brokering a transaction involving the sale or lease of a motor vehicle. Furthermore, inasmuch as it will have no agency relationship with the Member Dealers, the Website cannot do any of these things on behalf of the Member Dealers. The Website will merely provide e‑commerce marketing technology pursuant to its Marketing Agreement with the Dealer Association. Therefore, the Website believes that it need not obtain a Utah dealer license.

 

The Website will not participate in the actual sale or lease of any motor vehicles, nor will it have any involvement or control over the pricing of the Member Dealers' inventory. It will merely provide a means for consumers to locate a dealer that has the vehicle he or she is seeking. The Website will be neither the agent of the consumer, nor the agent of the Member Dealers, and will be compensated by neither. Furthermore, it will not negotiate the purchase for the consumer (activities which are typically associated with brokering). From the Website's perspective, it is merely a conduit or platform (similar to the newspaper) via which consumers will be permitted to access directly the vehicle inventory of the Member Dealers, each of whom will be duly licensed motor vehicle dealers.

 

Consumers nationwide have migrated to the Internet in record numbers to purchase automobiles. According to Forrester Research, more than 8 million auto transactions will originate on the Internet by 2003. The Website and Dealer Association have recognized this trend and are attempting to address consumer demand while maintaining the various consumer protections afforded by Utah law. The Website has an exclusive agreement with the Dealer Association that requires all transactions originating from the Website be directed to Member Dealers for consummation. Consumers must take delivery and sign all documents at the Member Dealer's dealership. In addition, all deposit monies flowing from customers go directly to Member Dealer trust accounts, again ensuring that the economic transaction stays within the purview of a licensed dealership.

 

The Website believes that, based on the foregoing, it is not an automobile broker and is not required to be licensed. The Website merely operates to give the Dealer Association's Member Dealers visibility in an increasingly crowded Internet landscape.

 

We would appreciate if you could provide us with a formal written opinion that the Website's activities will not require it to be licensed as a motor vehicle dealer under Utah law, either on the basis of our analysis above or on some other independent basis. Please respond directly to me at the address above. Also, if you have any questions or if you require further information, please do not hesitate to contact me at the number above.

 

Thank you for your attention to this matter. I look forward to hearing from you.

 

 

Very truly yours,

 

NAME

 

 

RESPONSE LETTER

 

May 9, 2000

 

 

Re: Motor Vehicle Dealer Licensing Requirements for Internet Activities

 

Dear NAME,

 

You describe activities to be performed by an Internet company (the AWebsite@), which plans to provides marketing and other services to licensed Utah motor vehicle dealers (AMember Dealers@). Customers would be able to access information on the Website regarding vehicle pricing and Member Dealers= inventories. When purchasing vehicles from Member Dealers, customers could also use the Website to have an application to finance these vehicles forwarded to the Website=s financing partner. Given these and the other facts supplied in your letter, you ask whether the Website is required to obtain a Utah dealer=s license under Utah Code Ann. '41-3-201.5(1).

 

Utah Code Ann. '41-3-201.5(1) requires that A[a] person, may not, for a fee, commission, or other form of compensation, arrange, offer to arrange, or broker a transaction involving the sale or lease of more than two new motor vehicles in any 12 consecutive month period, unless the person is licensed under Subsection 41‑3‑202(1).@ For purposes of this opinion, we presume that the Website will generate the sale of more than two new motor vehicles in any 12 consecutive month period. In addition, the Website will receive compensation from the Member Dealers not only for the described marketing services, but also for each sale originating from the Website. The only question that remains regarding the licensing requirement is whether the Website, under the circumstances described, is deemed to Aarrange, offer to arrange, or broker@ the transactions originating from its Website.

 

A Abroker@ is defined in Black=s Law Dictionary (5th ed. 1979) to include an agent employed to make bargains and contracts for a compensation, a middleman or negotiator between parties, a person dealing with another for the sale of property, or a person whose business it is to bring buyer and seller together. Your description of activities to be conducted by the Website differ from those activities an entity in the business of advertising would perform. An entity in the business of advertising is generally compensated for placing the advertisement and does not receive any additional compensation upon the completion of a transaction. Accordingly, we deem that the Website would be in business to bring a buyer and a seller of motor vehicles together and, accordingly, is a broker. As the Website would meet all the licensing conditions required under section 41-3-201.5(1), the Website must be licensed as a dealer under section 41-3-202(1).

 

If you have any other questions, please contact us.

 

For the Commission,

Marc B. Johnson

Commissioner