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Opinion: Freeing EVs From the Dealer Cartel

A lawsuit challenges a Texas law that bars direct company sales

By WSJ Editorial Board November 13, 2022

Protectionism can flourish anywhere, and Republican-led states are not immune. Exhibit A is Texas, where state regulators have made it impossible to sell cars without using car dealers as a middleman. Now a federal lawsuit challenging the dealer cartel could make it easier for car buyers to go straight to the company.

The direct-sales business model isn’t new to car buyers. Tesla has been doing it for a decade, and many consumers prefer to deal directly with a car maker and pay a uniform sticker price instead of enduring the village market-style haggling of nearly all car dealership experiences. “What can I do to get you in this car today?” and all that.

But car dealers are still a powerful lobby, even if their numbers have fallen as cars have become more reliable. According to the National Conference of State Legislatures last year, at least 17 states have dealer protection laws that prohibit manufacturers from selling directly to the consumer, and another nine states have laws limiting the practice to already established locations.

Like many burdensome state licensing regimes, Texas law on motor vehicle sales requires a license called a “general distinguishing number” to sell cars. To block manufacturers from operating their own dealerships and getting their own licenses, the state then specifically bars car makers from owning, operating, controlling or otherwise acting as dealers to sell what they make.

For electric vehicle makers, the restrictions are especially onerous because manufacturers want to include engagement to educate consumers about the new technology. Like Tesla, EV maker Lucid wants to sell its cars directly to consumers, cutting out pass-through costs and other headaches.

In Lucid Group USA v. Johnston, the EV maker argues that Texas’s ban on direct sales is a “restraint of trade” that reduces competition in the market and violates the Constitution’s due process and equal protection clauses.

No doubt the Texas laws are bizarre. According to the lawsuit, Texas law “allows auto manufacturers like Lucid to lease and rent vehicles to Texans from within the state, sell previously leased or rented vehicles to Texans from within the state, and even sell new vehicles directly to Texans from out-of-state dealerships.” But Lucid can’t do a direct sale.

The effect of the Texas law is to reduce the overall number of EVs on the road, send more new vehicle sales out of state, and decrease convenience for consumers. The law also lets vehicle sales evade state consumer-protection laws. A 2021 open letter from more than 70 academics across the political spectrum noted that the original concerns that prompted dealer protection laws (namely, protecting small franchisees) no longer apply and the “advent of EV technology has created an urgent need to permit direct distribution.”

American car makers have struggled with the dealer cartel for ages. When GM launched its “employee discounts for everyone” sale in 2005, it had the effect of weakening dealers’ power to influence customers’ view of GM. Getting rid of haggling sold more cars. Buyers liked the idea, and the company has brought the sales back periodically.

Car dealers don’t want to give up a system that allows them to charge some customers more than others. But more competition and greater transparency would improve the car market by increasing the confidence of consumers that they are getting a square deal.

Electric vehicles start to enter the car-buying mainstream

By Jack Ewing and Peter Eavis

The first wave of people who bought electric cars tended to be affluent, environmentally aware technology enthusiasts who lived in California. The second wave may be people like Russell Grooms, a librarian in Virginia.

Mr. Grooms last year bought a battery-powered Nissan Leaf, spending about $20,000 after government incentives, as a way to save money on gasoline.

“I don’t have the disposable income to throw $50,000 or $60,000 at a car just to help the environment,” said Mr. Grooms, a resident of Manassas, who works at a community college. “It really came down to numbers.”

Mr. Grooms, who is married and has a 5-year-old daughter, figures he is saving about $1,200 a year on gasoline, and he has so far spent nothing on repairs or maintenance. (Electric vehicles don’t need oil changes.) “It keeps our expenses much more predictable,” he said.

Electric vehicles are starting to go mainstream in the United States after making earlier inroads into the mass markets in China and Europe.

Battery-powered cars now make up the fastest-growing segment of the auto market, with sales jumping 70 percent in the first nine months of the year from the same period in 2021, according to data from Cox Automotive, a research and consulting firm. Sales of conventional cars and trucks fell 15 percent in the same period. Buyers of electric vehicles in 2021 were more likely to be women and tended to be younger than in 2019, according to Cox data.

“Two years ago it was the E.V. nerds,” said Scott Case, the chief executive of Recurrent, a research firm focused on the used electric vehicle market. More recent buyers belong to what he calls the early majority — “when the first sizable segment of a population begins to adopt the innovation.”

Gasoline-powered cars, of course, still account for most of the new car market. But electric vehicles’ share of new vehicle sales almost doubled in the first nine months of the year, to 5.6 percent from 2.9 percent in the same period in 2021, according to Cox.

That growth could have been stronger if automakers had been able to make more electric cars. Many manufacturers have long waiting lists because production has been limited by shortages of computer chips, batteries and other parts.

Buyers of battery-powered cars are concerned about climate change, but lower costs are also a powerful attraction, according to more than 3,000 respondents to a request for stories about electric car purchases on The New York Times’s website. Driving on electricity is generally much cheaper than gasoline. Scores of respondents said they were using energy they generated from rooftop solar panels to charge their cars, potentially lowering costs even further.

Electric car buyers used words like “love” and “awesome” to describe their vehicles. Many said they would never buy a gasoline car again, but many others said they intended to keep at least one conventional vehicle because traveling long distances by electric car can be inconvenient and sometimes impossible because of difficulties in finding charging stations.

Electric vehicles are now becoming popular in places other than where they took off, like California, where 39 percent of all U.S. electric vehicles were registered as of June, according to data from the Department of Energy. Registrations outside California jumped 50 percent in 2021, compared with a 32 percent increase in the state.

In the long run, much wider use of electric vehicles will require many more affordable models. The Leaf and the Chevrolet Bolt are among the few lower-cost battery-powered cars available, with several on the way, including a Chevrolet Equinox sport utility vehicle, which will start at around $30,000. But it may be a while before there are enough affordable models, including used cars, which sell in much greater numbers than new vehicles. For now, Tesla, Ford Motor, Mercedes-Benz and other companies have focused on premium models that are more profitable.

Yet, many buyers are concluding that electric vehicles make economic sense even when they cost thousands of dollars more than similar gasoline vehicles.

Volatile gas prices, which hit record highs this year, swayed people like Tracy Miersch, a resident of Miramichi, New Brunswick. She drives 3,000 miles a month setting up merchandising displays for retailers.

“I had been kind of averse to all the new technology,” Ms. Miersch said, adding, “My purpose was getting rid of gas.”

She figures she saves more than 600 Canadian dollars a month, or about $440, with the Tesla Model 3 she bought used for 70,000 Canadian dollars in January 2021. Charging the car at home costs about 6 dollars, she said.

The fuel savings can be even bigger for some people.

David Kreindler, who lives in northern Vermont, three miles from the nearest paved road, powers his home and car solely with solar panels.

Mr. Kreindler, an information security specialist, designed and built his home to run on solar panels and batteries because of the high cost of a new utility connection. His system generates far more than his house needs. He uses the surplus to charge his Volkswagen ID.4 S.U.V., which he bought in July. “I’m my own utility,” Mr. Kreindler said.

But for all the enthusiasm, buyers have had problems.

The lack of fast and convenient places to charge electric cars on longer trips has been the main frustration. Chargers are few and far between outside coastal urban areas. In North Dakota, for example, there are just 19 fast chargers, according to the Alliance for Automotive Innovation, a car industry group. Fast chargers can fill a car battery in 10 minutes to an hour depending on the device and the vehicle. Home chargers generally take a full night to replenish a battery.

Ruth Milligan, a resident of Columbus, Ohio, tried taking her daughter, Maggie Daiber, to Michigan State University in August. Ms. Milligan calculated where she would need to charge her ID.4 during the four-hour trip.

“I did my homework on the charging network,” said Ms. Milligan, an executive speech coach, “or so I thought.”

But she hadn’t considered that the battery would drain faster when the car was weighed down with her daughter’s possessions and her husband, Dave Daiber, who is 6 feet 4 inches tall.

Less than two hours into the trip, Ms. Milligan realized that the car was not going to make it to Toledo, Ohio, where she had planned to charge. Instead, they got off the highway in Findlay. Of the four chargers in town, one was behind a locked gate; another was at a Toyota dealership that would not let a Volkswagen use its charger; a third would charge only Teslas; and the fourth had been installed recently and was not yet working.

The family wound up spending the night at a hotel and making the rest of the trip in a rented van.

Still, Ms. Milligan says she likes the ID.4, which she bought after waiting 10 months for delivery. “In general I’m happy with the car but I’m going to be cautious as I push its bounds,” she said.

A few electric car owners surveyed said the charging stations they stopped at sometimes lacked shelter and felt unsafe.

“Women don’t want to sit in a dark parking lot waiting for their car to charge,” said Caroline Gambell, a Vermont resident and a curriculum writer for an education nonprofit who bought a Chevrolet Bolt last year. “Range anxiety is real. If you are trying to get stuff done, and you have kids in the back, the last thing you need is, ‘Is my car going to get there?’”

For the most part, Tesla owners have found that the company’s proprietary charging network works well.

Some electric car owners said they also had gasoline vehicles to help them avoid the hassles of charging on longer trips. Beth Gonzalez, of Austin, Texas, said her husband had a Jeep Wrangler and her daughter a Hyundai Santa Fe, which the family used for longer trips. Her primary vehicle is a 2017 Mercedes B250e, a car the automaker developed with Tesla and sold in small numbers.

Ms. Gonzalez, a graphic designer who works from home, couldn’t find the car in Texas so she bought one from California for $19,000 through CarMax and had it shipped to her. The car travels about 80 miles on a full charge and fewer if the air conditioning is on, but that is enough for her daily needs, she said. “I absolutely love this car.”

Charging at home is generally not an obstacle for people with a garage or driveway. But millions of Americans live in apartment buildings, which rarely provide charging. Even in Los Angeles, there are not yet enough street chargers for renters, says Arianna Stern, a copywriter who bought a used Nissan Leaf last year.

She typically uses a public charging space that is three blocks from her apartment but it is out of order about 20 percent of the time. When it is not working or another car is using it she uses chargers farther away. “The thing that would make the difference is the city installing more charging stations and keeping them working more consistently,” Ms. Stern said.

Yet, like many other electric car buyers, Ms. Stern is happy with her choice, saying it has allowed her to reduce her reliance on planet-warming fossil fuels. “Overall,” she said, “for someone in my situation I would recommend it without reservation.”

Jack Ewing writes about business from New York, focusing on the auto industry and the transition to electric cars. He spent much of his career in Europe and is the author of “Faster, Higher, Farther,” about the Volkswagen emissions scandal. 

Peter Eavis is a New York-based reporter covering companies and markets. Before coming to The Times in 2012, he worked at The Wall Street Journal. 

A version of this article appears in print on Nov. 14, 2022, Section B, Page 1 of the New York edition with the headline: Mainstream Car Buyers Turn Toward Electrics. 

CFPB funding is ruled unconstitutional

The Fifth Circuit says the scheme violates the separation of powers

The originalist legal revolution continues to pay dividends, and the latest evidence is a bombshell appellate ruling on Wednesday that the Consumer Financial Protection Bureau’s (CFPB) funding scheme is unconstitutional. Congress’s attempt to end-run political accountability for financial regulators has suffered a direct hit.

In 2010, before she was a Senator, Elizabeth Warren designed the CFPB to have extraordinary independence, and it passed as part of Dodd-Frank. In 2020 the Supreme Court struck down the law’s limit on the President’s ability to remove the CFPB director. But Democrats also severed its budget from Congressional appropriations by giving it an automatic funding draw on the Federal Reserve.

Each year the CFPB director simply requests funding from the Fed, which must transfer the money as long as it doesn’t exceed 12 percent of the central bank’s operating expenses. Most other regulatory agencies are subject to Congress’s annual appropriations.

Companies challenged the CFPB payday lending rule in court and argued that the agency’s unique funding scheme violates the separation of powers (Community Financial Services Assn. v. CFPB). A three-judge Fifth Circuit Court of Appeals panel agreed this week, explaining that the bureau’s “double insulation from Congress’s purse strings” is “unprecedented.” It is double insulated because the Fed finances itself through bank assessments and earnings on its bond portfolio, not through Congress.

Dodd-Frank even dictates that “funds derived” from the Fed “shall not be subject to review by the Committees on Appropriations of the House of Representatives and the Senate.” If Congress doesn’t like what the CFPB is doing, tough. Members can’t use appropriations to rein in the agency the way it can, say, the Internal Revenue Service.

The law evades the Constitution’s dictate that “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The Founders viewed “Congress’s exclusive ‘power over the purse’ as an indispensable check on ‘the overgrown prerogatives of the other branches of the government,’” Judge Cory Wilson writes for the unanimous appellate panel, citing the Federalist Papers.

Alexander Hamilton warned that uniting Congress’s power of the purse with the executive’s sword would “destroy that division of powers on which political liberty is founded, and would furnish one body with all the means of tyranny.” The CFPB “is the epitome of the unification of the purse and the sword in the executive,” writes Judge Wilson, in an opinion that seems destined for the Supreme Court.

Ms. Warren didn’t take this well. She tweeted that the ruling will “stop the CFPB from enforcing rules that prevent debt collectors from harassing you” and “financial firms charging you outrageous junk fees.” No, it will merely subject the bureau to proper supervision by Congress, as the Constitution intended.

Ms. Warren added that the Fifth Circuit’s logic “endangers the funding of numerous other bank regulators, including the Fed, OCC, and FDIC, which monitor our entire financial system.” Possibly, if they were also insulated from political accountability in the same way. But they aren’t. The opinion also stresses that these agencies don’t wield “enforcement or regulatory authority remotely comparable to the authority the [bureau] may exercise throughout the economy.”

The Senator denounced the “extreme right-wing” judges who wrote the opinion—an attack on the political motives of judges that she may have learned from Donald Trump. But those same judges rejected the plaintiffs’ other arguments that the payday lending rule violates the Administrative Procedure Act and the Constitution’s nondelegation doctrine. We’d have ruled with the plaintiffs on those issues too, but the judges were hardly acting like a partisan wrecking crew.

***

The CFPB ruling continues the trend of originalist judges attempting to restore the proper understanding of the Constitution’s separation of powers. This means reining in the administrative state and requiring Congress to reassert its powers in writing laws with specificity and funding the government.

In creating the CFPB, Congress abdicated its duty and created an agency that has too much unaccountable power. The Fifth Circuit has done its duty to call out the CFPB as Congress’s illegitimate child.

3CDC releases renderings of Duke Energy Convention Center

City of Cincinnati is expected to approve $7 million for the $200 million project on October 19

By   –  Staff reporter and columnist

The Duke Energy Convention Center would be radically overhauled under a proposal by the Cincinnati Center City Development Corp., which would demolish and replace all street-facing facades of the aging building and wrap it with glass, as well as adding a rooftop solar garden.

3CDC CEO Steve Leeper, who led the efforts to build a new convention center and stadiums in Pittsburgh, previously told the Business Courier the facade should be replaced in an update of the convention center, but Monday was the first time he revealed how encompassing it could be. The proposal calls for an arched roofline aimed at evoking the region’s hilly terrain.

A rendering of a future CIncinnati Auto Expo was among the renderings presented to officials

3CDC has hired Moody Nolan, a Black-owned architecture firm out of Columbus, and TVS, an Atlanta architecture firm, to work on the project. They worked together on convention centers in Nashville and New York. The goal? Make the convention center more attractive, useful, flexible and environmentally friendly in a way that will last for decades. The city is expected to approve $7 million for the $200 million project on Wednesday.

The potential cost of the project has doubled since a 3CDC presentation in May, although Leeper cautioned then the cost likely would be more. A full expansion across Elm Street would cost even more.

“I took to heart statements … saying be bold in our thinking,” Leeper told Cincinnati City Council’s budget committee. “We’ve asked them to really dream, and our goal is to match their dreams and their vision with a budget that we can all afford.”

A primary funding source for the project is expected to be the city and county hotel taxes, whose complicated use formula will have to be overhauled. Leeper called it a “tall order.”

Today, hotel tax revenue is used to pay off debt on and operate the existing convention center, the Sharonville Convention Center, the Millennium Hotel purchase, fund the Visit Cincy convention and visitors bureau and the public infrastructure portion of TQL Stadium, to which then-Mayor John Cranley and the previous City Council committed the city.

3CDC plans to refinance all of the debt in order to open up revenue for the convention center overhaul, plus attempt to secure state capital funding. Contingent on funding, the project could see a construction manager hired and break ground sometime next year, potentially in the third quarter.

The last update of the convention center occurred in 2005, and it has struggled the more it ages, with the lack of a first-class headquarters hotel being another major obstacle.

At the behest of the city and Hamilton County, 3CDC also is leading the effort to replace the headquarters hotel, which will go on a vacant parking lot south of Fifth Street, and refresh the convention center. Four firms were selected to respond to a request for proposals for the hotel, which are due on Monday. After the firms are interviewed by stakeholders, 3CDC will make a recommendation to the city and county on which firm with which to enter into negotiations.

The refreshed convention center renderings include an expected, 58,000-square-foot park and outdoor convention space at the former site of the now-demolished Millennium Hotel on the east side of Elm Street. The park also will be programmed and eventually be developed into an expansion of the convention center.

Elm Street generally would be closed under the proposal to create a seamless connection to the convention center, but it could be open if necessary.

“That would be the exception rather than the rule,” Leeper said.

Other aspects of the plan include:

  • 12,000 square feet of extended exhibit hall space on the building’s east side.

  • Upgraded meeting and ballroom space.

  • Making the building have net zero emissions with improvements to building systems and technology.

Council members praised the plan.

“Love the design,” said Councilman Mark Jeffreys. “Our convention center is so out of date.”

Keeping employees healthy with seasonal shots to avoid outbreaks

Although flu activity typically peaks in January, it is not uncommon for your workforce to start displaying signs of the sickness well before the holidays. The time to prepare for an outbreak is now. You can start by educating yourself about preventive steps you can take and planning for what you will do if an outbreak hits your workplace this winter.

Under the FLSA, if you have a bona fide sick leave policy (and some states or localities may require it), you can take deductions from an exempt employee’s salary if the sick leave bank is empty, but only in full-day increments only, not for half-days missed. If there is no bona fide sick pay policy, no deductions for illness may occur in any week during which a salaried exempt employee has worked.

Use Common Sense

Several commonsense actions can be utilized to help keep a flu epidemic from breaking out at your company. Some of these measures are very easily implemented and cost-effective. For example, you should urge your workers to thoroughly wash their hands and to use proper cough and sneeze etiquette. Keep a supply of antibacterial or waterless soap readily available. You should provide cleaning supplies for telephones, keyboards, and desks to help limit the spread of germs.

In the coming weeks, you should introduce these measures and train your workforce to take advantage of them. And, of course, encourage those workers under the weather to stay at home in order to reduce the contagion.

Take a More Proactive Approach

Depending on your business operations and the potential effect of a widespread flu outbreak among your workers, you may want to take a more aggressive approach to help limit flu cases. For example, you may want to consider suspending or changing some of your workplace policies in order to encourage workers to avoid spreading the flu. You may want to temporarily alter your paid-time-off or attendance policy to lessen the chance that sick employees will rush back to work.

Or perhaps you could permit workers to telecommute or otherwise work from home during an outbreak so that an entire department doesn’t get wiped out for days or even weeks. At the first sign of symptoms, consider sending sick workers home or providing them with protective gear, such as face masks, to help prevent the spread of germs. With the implementation of new work-from-home policies and updated remote work capabilities, this option should now be easier to implement than in recent years. Work-from-home flexibility is a tool that should be used to your advantage this time of year.

Another smart idea is educating employees about the benefits of the flu vaccine. The CDC and medical professionals urge the general public to get the flu vaccine to lessen the effects of an outbreak. You should consider suggesting and even encouraging your employees to get a flu shot this season, preferably before Thanksgiving. You can even consider bringing in a qualified medical professional to administer shots at your workplace.

The Pushback to Mandatory Vaccination

Requiring employees to get mandatory flu vaccinations is a controversial issue and one that has been exacerbated by the COVID pandemic. Many workers may refuse to comply, although in some industries such as healthcare, mandatory flu shots are common.

The Occupational Safety and Health Administration (OSHA) and the Equal Employment Opportunity Commission (EEOC) have largely deferred to the CDC policies to determine the proper way to view and handle mandatory flu shots in the workplace. A risk assessment is the first step in making such a determination, and the nature of the workplace and the responsibilities of the employees will be major factors to be considered. In fact, OSHA requires you to assess each task performed by employees to determine what personal protective equipment, including hats, gloves, and other clothing, is required to perform a job safely.

Certainly, some jobs and some businesses will face far more serious problems with the flu than others, and you must be prepared to take into consideration many elements when an employee objects to the vaccination. For example, is the worker objecting to the vaccine on religious grounds? Would the vaccine aggravate another health condition or set off an allergic reaction? Does the employee simply fear needles?

According to the EEOC, an employer must interact with any employee who objects to vaccines, whether based on religious or health reasons. You need to consider possible issues under the Americans with Disabilities Act (ADA) and whether reasonable accommodations are necessary.

You should consider creating forms for employees to fill out if they want to request exemptions from any required inoculations based on religious, disability, or medically related reasons. Make sure you have a team available to review and resolve any such requests in a professional and expeditious manner.

Keep COVID-19 in Mind

Although most employers are happy to leave COVID-19, quarantining, and vaccinations in the past, you should remain vigilant in tracking the remnants of the pandemic. As we have seen in past winter seasons, COVID-19 can develop new and sometimes more aggressive variants and COVID is still lingering around. We would not be surprised if the number of positive COVID-19 cases sees an uptick as we head into the winter months. The U.S. Department of Health and Human Services (HHS) recently announced the purchase of 66 million doses of COVID-19 booster in preparation for potential variants arriving in the fall and winter.

As with the flu vaccine, employers should educate employees on their options and make informed risk-assessments on vaccine mandates. Employers should track outbreaks, keep abreast of region-specific positivity rates, and provide flexibility for employees who wish to get vaccinated or wear PPE in the workplace as a precaution.

Collective Bargaining Concerns

If your employees are represented by a union, remember that you may have a duty to bargain about flu-prevention policies and vaccine mandates. Before you make any policy changes or implement any mandatory actions, make sure that you can do so under the collective bargaining agreement.

Charging fees to lessees who exercise purchase option

NADA reminds members about potential legal issues that arise when dealers charge documentary or other fees to consumers who exercise an option to purchase at the end of their lease agreement when those fees are not provided for in the lease agreement. This issue continues to draw scrutiny, and NADA would like to remind dealers about the importance of consulting with their legal counsel about any contractual and regulatory obligations that could arise in connection with consumer fees charged with lease-end vehicle purchases.
In order to more fully explain the requirements and limitations that apply to fees that a dealer may charge a lessee who exercises an option to purchase, we have set forth below the relevant excerpt from NADA’s Driven: A Dealer Guide to Federal Consumer Leasing Act Requirements.
 
As the excerpt generally explains:
  • the lessee has a contractual right to purchase the vehicle from the holder of the lease for the purchase option price and any purchase option fee that are disclosed in the lease agreement; and

  • except for official fees, charging additional amounts to the lessee for exercising the purchase option exposes the dealer to potential claims for breaching the lease agreement and for violating the disclosure requirements set forth in Regulation M.
 
The excerpt provides important details regarding these limitations. Dealers are encouraged to review with legal counsel their current procedures for handling options to purchase leased vehicles.
 
Excerpt from NADA’s A Dealer Guide to Federal Consumer Leasing Act Requirements
 
The CLA [Consumer Leasing Act] disclosures related to a lessee’s purchase option can affect your ability to charge a documentary fee to a lessee purchasing a vehicle pursuant to the disclosed purchase option.
 
Most motor vehicle leases offer the lessee the option to purchase the leased vehicle for a stated, fixed price if the lessee chooses to exercise the purchase option at the scheduled end of the lease term (the “scheduled end option”) or based on a formula if the lessee chooses to purchase the vehicle before the scheduled end of the lease term (the “early termination option”). Under both options, the lessee has a contractual right to purchase the vehicle for the applicable option price (the “lease purchase option price”). The lease purchase option price is legally binding on the holder of the lease (the “lease holder”).
 
If a lessee elects to purchase the vehicle, many leasing companies will enlist a dealer to handle the sale (a “dealer-lessee purchase transaction”).[i] Some leasing companies reassign the lease and sell the vehicle to the dealer. In these cases, the dealer, as the lease holder, is contractually obligated to sell the vehicle to the lessee at the lease purchase option price. Other leasing companies simply sell the vehicle back to the dealer, in which case the dealer takes ownership of the vehicle subject to the lessee’s right to purchase it for the lease purchase option price.
 
For the purposes of this discussion, we assume a documentary fee (however labeled) is a fee a dealer charges a vehicle purchaser for services related to registering and titling the vehicle where the amount of the charge does not vary depending on whether the buyer purchases for cash or on credit and is not regarded as a finance charge under TILA.
 
For the reasons discussed below, charging a documentary fee in a dealer-lessee purchase transaction risks a claim against the lease holder (and potentially the original lessor and other lease holders) that the practice breached the contract and or violated the CLA, unless:
 
  1. The original lease disclosed the amount of the documentary fee charged in the dealer-lessee purchase transaction as a separate purchase option fee; or

  2. The sum of the documentary fee and the price charged the lessee for the vehicle (excluding official fees and the price of any voluntary protection products sold to the lessee in connection with the dealer-lessee purchase transaction)[ii] is equal to the lease purchase option price.
 
If a documentary fee will be added to the lease purchase option price in a dealer-lessee purchase transaction, these Reg M requirements can be interpreted to compel disclosure in the original lease of the amount of the documentary fee as a kind of “purchase option” fee. For a scheduled end option, the lease must state a sum certain for the lease purchase option price. If there is a purchase option fee, Reg M permits a lessor to disclose it separately. And while it permits the lessor to disclose that official fees are not included in the lease purchase option price, Reg M does not give similar permission to disclose that the purchase option price does not include other fees and charges, such as a documentary fee. Taken together, this suggests that a lessor should either disclose the amount of the documentary fee as a purchase option fee or a part of the fixed lease purchase option price.
 
For an early termination option, a lessor must disclose the purchase option price as a sum certain or as a sum certain to be determined at a future date by reference to a readily available independent source. In most leases, the lease purchase option price is disclosed as a formula that incorporates elements of the early termination charge that are used to determine how much to add to the fixed purchase price provided for in the scheduled end option. Again, Reg M permits the lessor to contract for the early termination option price and a separate purchase option fee and to disclose that official fees are not included in the disclosed lease purchase option price. But as with the scheduled end option, it does not give similar permission to disclose that the purchase option price does not include other fees and charges, such as a documentary fee. Therefore, the choices for providing for a documentary fee as part of the lease option price in the early termination option are essentially the same as those discussed above for the scheduled end option.
 
If a lease does not disclose the documentary fee as a purchase option fee, charging a documentary fee in addition to the lease purchase option price risks a claim that the initial disclosure of the lease option price was not accurate and thus violated Reg M. It also risks a claim that the lease holder breached the original lease agreement by charging more than the agreed to lease option price.
 
A lessor could argue that a documentary fee is for separate services performed by the dealer for transferring title to the lessee and re-registering the vehicle. As such, the dealer should be able to charge additional consideration for these separate services. This argument is strengthened if the dealer offers lessees the option to perform these services themselves to avoid the charge and some lessees elect that option. But there remains a risk that a court or regulator will conclude that the term “purchase option fee” as used in Regulation M includes such services and thus must either be disclosed separately or included in the lease option purchase price.
 
This summary is offered for informational purposes only and is not intended as legal advice. Consult an attorney who is familiar with federal, state, and local law addressing these topics and your operations for guidance on the legal sufficiency of your operations.
 
[i] In some states, the exercise of a lease purchase option must be handled in this way because a motor vehicle dealer license is required to handle the transaction and the leasing company is not eligible to obtain the required license.
 
[ii] While not free from doubt, a strong case can be made that, if properly disclosed, the dealer is free to sell separate optional products and services to the lessee for additional consideration above and beyond the lease purchase option price.

EV disruptors like Rivian, Arrival hit familiar auto industry speed bumps

The slumping stock market and rising interest rates have made it tougher for EV companies to raise fresh capital from investors.

JOE WHITE and BEN KLAYMAN – Reuters

DETROIT — Electric vehicle startups that promised to disrupt the automotive industry by using a software- and technology-heavy approach are now scrambling to cut costs amid the type of industry slowdown that has bedeviled Detroit automakers over the years.

To remain a player in an increasingly competitive business as incumbent automakers introduce their own EVs, startups like Rivian Automotive Inc. and Arrival SA will need to tighten their belts and in some cases reinvent themselves, industry officials and analysts said.

In many cases, they are partnering with larger, deep-pocketed companies to aid their survival and provide access to funds.

Those who fail to control their spending or find the right partners could wind up like electric delivery van startup Electric Last Mile Solutions, which filed for Chapter 7 bankruptcy protection last month. Industry officials do not expect that to be the last startup to hit a pothole.

“Like every company that is burning money, you need to make the right adjustments so that you can get to the other side of the desert,” said Evangelos Simoudis, a Silicon Valley venture capital investor and industry adviser.

Even as overall new-vehicle sales have slumped during the COVID-19 pandemic, EV demand remains strong. Global sales of battery electric and plug-in hybrid electric vehicles nearly doubled last year to 6.6 million, according to the International Energy Agency.

On Tuesday, British startup Arrival said it planned to cut spending, reorganize its business and potentially shed 30 percent of its workforce in response to the challenging economic environment.

Arrival, trying to launch production of electric delivery vans, is following the lead of industry stars Tesla Inc. and Rivian, which have cut jobs as supply-chain snarls hobbled production, holding revenue below expectations and sending costs soaring.

Arrival said its $500 million in cash on hand would last until late 2023 with the proposed cuts. The question is whether that will be enough.

“One billion dollars doesn’t last very long in the auto business. That’s a redesign for a Malibu or something,” Cox Automotive executive analyst Michelle Krebs said.

No more ‘free money’

Partnerships or long-term contracts with financially strong companies are one lifeline for EV startups.

Stellantis CEO Carlos Tavares said on Wednesday that rising inflation is cutting off easy access to “free money.”

“This means some startups will have a little bit more difficulty to develop by themselves,” he said during an awards presentation to startups with whom the carmaker works.

Rivian not only has a large deal to supply vans to Amazon.com, but the online giant also is a major investor.

Rivian CEO RJ Scaringe told employees on Tuesday that job cuts were coming in order for the company “to stay ahead of the changing economic landscape.”

Lordstown Motors Corp., an Ohio startup that briefly had a larger market value than Ford Motor Co., has restructured, selling assets to and partnering with Taiwanese contract manufacturer Foxconn. The company on Tuesday announced its third CEO is less a year — Edward Hightower, a former General Motors and Ford executive who is also the first Black CEO of a U.S. automaker in more than 100 years.

‘Incredibly tough business’

The staff cuts and restructuring in the new EV industry reflect challenges common to all automakers, and some that are unique to small companies in a capital-intensive industry where even global economies of scale sometimes are not enough to assure profitability.

When Tesla CEO Elon Musk last month told top executives in his company in an email that he had a “super bad feeling” about the economy, and said the world’s most valuable automaker needed to cut its salaried staff by 10 percent, he was amplifying concern about the global economy other CEOs shared.

“This is an incredibly tough business,” said Barry Engle, a former auto executive who started a special-purpose acquisition company that merged with air taxi startup Lilium. “With the success of Tesla, it’s easy to forget that was a story that was 20 years in the making and along the way there were many points where they stared death in the face.”

In Tesla’s case, economic turbulence struck as the company was launching large assembly plants in Texas and Germany. Supply-chain bottlenecks had turned those operations into “money furnaces,” Musk told members of a Tesla fan club last month.

Detroit not immune

Detroit automakers are at risk too from rising money costs and persistent supply-chain problems.

At General Motors, executives look at a dashboard of market indicators “every day, every week, every month,” CFO Paul Jacobson told investors at Deutsche Bank conference in June. “I don’t want to end up in a situation where we walk off a cliff.”

So far, established automakers have been able to raise prices on their popular, high-volume combustion trucks and SUVs to keep cash flowing. GM, Ford and Stellantis have so far stuck to their full-year profit forecasts.

EV startups do not have established model lines churning out cash the way the Ford F-series truck lineup does. The slumping stock market and rising interest rates have made it tougher for new companies to raise fresh capital from investors. That intensifies pressure to start building and selling vehicles, and to slash expenses to conserve cash on hand.

Canoo Inc. shares got recharged on Tuesday when the company said it had landed the deal to deliver 4,500 delivery vans to retailer Walmart.

Canoo shares rose more than 50 percent, although from a low base. The company told investors in May its management had “substantial doubt” about the company’s ability to remain a going concern.

Automotive News contributed to this report.

More Americans Would Buy an Electric Vehicle, and Some Consumers Would Use Low-Carbon Fuels, Survey Shows

In CR’s largest-ever nationally representative survey, more than a third say they’d consider buying an EV today

A growing number of consumers are eager to buy a battery electric vehicle, especially if certain concerns related to EV ownership are addressed, such as creating greater access to charging, extending vehicle range, and lowering purchase prices, according to findings from the largest-ever nationally representative survey from Consumer Reports (PDF).

The survey of 8,027 U.S. adults found differences across racial/ethnic and income groups in terms of how people perceive EVs and the potential purchase barriers. Almost half of respondents also reported being unaware of existing federal and state incentives that would defray the purchase price of many EVs, sometimes up to $7,500 for the federal credit, key knowledge that might sway someone to make an EV purchase. 

With improvements to the nation’s charging networks, more lower-priced EVs coming to market, and increasing range from battery technology advances, many barriers to EV ownership are showing signs of breaking down over time. The survey results bear this out: We found that 14 percent of American drivers say they would “definitely” buy or lease an electric-only vehicle if they were to buy a vehicle today. That’s up markedly from the 4 percent who said the same in a 2020 nationally representative survey from CR of 3,392 licensed U.S. drivers.

Overall, our latest survey found that more than a third of Americans would “definitely” or “seriously” consider buying or leasing an electric-only vehicle) if they were to buy a vehicle today. Among their reasons: More than 3 in 10 U.S. adults say that it costs less to charge an EV than to refuel a gas car (33 percent), overall lifetime costs are lower (31 percent), and maintenance costs are lower (28 percent). 

“The survey shows that there is clear interest among Americans in reducing costs for transportation and lowering their environmental impact,” says Quinta Warren, PhD, CR’s associate director of sustainability policy. “It underscores some key concerns, but fortunately, many of these barriers to owning a battery-electric vehicle EV can be addressed through experience and education.”

There’s no denying soaring demand for electric vehicles and hybrids. Gas prices are at record highs, and Americans increasingly are turning to electric vehicles. EV sales rose 76 percent in the first quarter, compared with the same period last year, according to Cox Automotive, an information and services company. EVs promise reduced operating costs, and there are more choices on the market, with more models from various categories on the way

Consumer Reports conducted the survey to better understand demand and awareness of battery EVs and low-carbon fuels. It was partially funded by the environment-focused philanthropic group Breakthrough Energy and the Energy Foundation, a nonprofit organization dedicated to a safe, equitable economy powered by green energy. It was fielded Jan. 27 to Feb. 18, 2022, when the national average price for gasoline ranged from $3.34 to $3.52 per gallon. The price of gas has surged to a national average of about $5 per gallon for regular as of late June. (Download a PDF of the survey report.)

The survey results illustrate an EV landscape in transition, as more Americans become aware of the purchase option in a societal atmosphere of increasing concern about climate change and the role fossil fuels are playing. 

CR is committed to supporting sustainable transportation, reducing harmful emissions, and saving drivers money—so much so that fuel economy is a key factor in the Overall Score that we give to every car we purchase and test. As a result, the Overall Scores elevate good all-around models that are energy-efficient, helping shoppers make their purchase decisions and encouraging automakers to prioritize energy efficiency. CR also launched a Green Choice designation last year using vehicle emissions data from the Environmental Protection Agency, highlighting the vehicles that are among 20 percent lowest contributors to smog-forming and greenhouse gas emissions for their model year. You can find these Green Choice vehicles on our website and in our print publications. They are denoted by a green leaf icon wherever our ratings are presented.

Highlights From the Survey

EV visibility: Four in 10 Americans (44 percent) have seen a battery-electric vehicle in their neighborhood in the past month.

EV experience: 17 percent of all Americans have been a passenger in an electric-only EV in the past 12 months, and only 7 percent have driven one. Only 2 percent of Americans currently own or lease a battery electric vehicle.

Views on climate change: Seven in 10 Americans say the issue of climate change is personally “very important” (35 percent) or “somewhat important” (35 percent) to them. Three out of 4 Americans agree that human activities contribute to climate change. 

Erasing barriers: Charging logistics (61 percent) is the top barrier to getting an EV, followed by the number of miles the vehicle can go before needing a charge (55 percent) and the costs involved with buying and maintaining an EV (52 percent).

EV incentives: Almost half of Americans (46 percent) have not heard about any incentives available for electric-only vehicle owners. 

Demographic viewpoints: Our survey found that some groups are more likely than others to buy or lease an EV as their next vehicle:
• Males are more likely than females.
• Younger adults are more likely than older adults. 
• Americans with a higher education are more likely than those with a lower education.
• Americans with a higher household income are more likely than those with a lower household income.
• Americans who live in urban areas are more likely than those living in suburban or rural settings.

Low-carbon fuels: Overall, two-thirds of Americans (67 percent) say that given a choice, they would be likely to use low-carbon fuel in their personal vehicle if the cost per gallon were the same as the cost of traditional fuel.

Experiences With EVs Affect Attitude and Desire

Americans who have experience with EVs, including simply being a passenger in one, are more likely to be interested in purchasing one. Overall, only 7 percent of Americans have driven one in the past 12 months, whereas 20 percent of those who say they would definitely buy/lease an EV as their next vehicle, have driven one. This makes sense because EVs are relatively new and in some ways quite different from a traditional gasoline car. 

“Many EVs are enjoyable to drive, with quick, silent acceleration, and balanced handling, aided by their large, low-mounted battery,” says Gabe Shenhar, associate director of auto testing at Consumer Reports. “In short, they are often quite a treat to drive.” 

EV Sticker Shock

Of Americans who said cost-related factors were holding them back from getting an EV, almost 6 in 10 said purchase price was the biggest barrier. Of those, a larger percentage of white (60 percent) and English-speaking Asian Americans (66 percent) surveyed say “purchase price” is one of the cost considerations holding them back from getting an electric-only vehicle, compared with Hispanic (55 percent) and Black Americans (46 percent).

The attitude toward purchase price may be influenced by the attention given to pricey models currently on the market from Audi, BMW, Lucid, Mercedes-Benz, Porsche, Rivian, and Tesla. But mainstream automakers are introducing lower-priced models, including the Kia NiroSubaru Solterra, and Toyota bZ4X. Some shoppers may be surprised to learn that prices for the Chevrolet Bolt and Bolt EUV, Hyundai Kona, and Nissan Leaf have dropped. The 2023 Chevy Bolt now starts at just $26,595—putting it around $20,000 less than the price of the average new car. 

And for many EVs, the true purchase price may be even less than the sticker price because of federal, state, and even power utility incentives. Almost half of Americans (46 percent) are unaware that there are incentives available. “Tax rebates and other incentives can reduce the purchase price of EVs by thousands of dollars,” says Warren, CR’s associate director of sustainability policy. 

It can be tricky to determine which incentives are applicable to a given model because federal tax credit eligibility is based on overall sales volume. To make this easier, Consumer Reports’ Electric Vehicle Savings Finder highlights local and federal incentives and tax rebates, based on your ZIP code and the model you’re researching. This feature is part of our free membership at CR.org, requiring just an email address to access.

Cost of Vehicle Ownership

“Most EVs are less expensive to own than similar traditional cars,” according to Warren, “even when factoring a higher purchase price for a comparable gasoline-powered vehicle.” 

And yet, just over half of Americans (52 percent) who weren’t already committed to buying an EV said the costs of buying, owning, and maintaining it would prevent them from leasing or purchasing one. 

The views and concerns vary among different groups. Of those who say cost-related factors would prevent them from getting an EV, a larger percentage of Black (54 percent) and Hispanic (48 percent) Americans than white Americans (37 percent) say maintenance and repair costs are holding them back. However, a previous study by CR, conducted in 2020, revealed that EV owners spend around half as much on maintenance and repair over the vehicle’s typical lifetime as gas-only car owners do. EVs have fewer moving parts and fluids that need to be changed. Even the brakes tend to last longer. Plus, the cost of powering the car is also far lower, especially now with $5-per-gallon gas.

Charging an EV

About 6 in 10 Americans who weren’t already committed to purchasing an EV say concerns about where and when they would be able to charge it (61 percent) and how far that charge will take them (55 percent) have been holding them back from buying. In particular, concerns for charging logistics are greatest among white and English-speaking Asian Americans at 67 percent for each group. 

The good news: There are now more than 48,000 U.S. public charging locations, often with multiple charging connections, and many more on the way. Fifty percent of Americans say free public charging stations are the charging option that would most likely encourage them to buy or lease an electric-only vehicle, followed by 47 percent who say it is the ability to charge where they live, and 45 percent who say easy access to fast-charging public stations. Only 10 percent considered workplace charging to be the most important option. 

For those who can charge at home, CR has found good wall-mounted charging units for $500 to $700. Installing one costs from $492 to $1,191, according to HomeAdvisor. EV range is commonly around 250 miles (far more than most people typically drive each day), meaning that overnight charging can satisfy most drivers’ common needs. Experienced EV owners consider range to be much less of an issue than non-owners, supporting this assertion.

Hybrid Savings

For those not ready to commit to a full-on EV, hybrids can be a smart alternative and save owners a lot on gas. A hybrid combines a gasoline engine with an electric assist, allowing the powertrain to optimize its operation for maximum fuel economy. With a regular hybrid, the engine and brakes generate electricity, so you never need to plug in the car. 

As an example, trading in a 2017 Chevrolet Equinox V6 for a 2022 Toyota RAV4 hybrid (another small SUV) could save $1,775 a year in fuel costs, based on our tests and gas at $5 per gallon. That’s almost $9,000 in fuel savings over five years. Moving to a pricier Toyota RAV4 Prime plug-in hybrid would yield even greater savings, while providing a balance between 42 miles of local electric-only driving and the long-distance range and convenience that gasoline provides. (For the RAV4 Prime, the total range per tank and one charge is 540 miles.)

The Promise of Low-Carbon Fuels

Running vehicles on electricity is just one way to reduce harmful greenhouse gas emissions in transportation. Another is a shift to low-carbon fuels derived from clean, often renewable sources. Some low-carbon fuels are designed to work in regular gasoline-powered vehicles, and others may require new powertrain technology. The term “low-carbon fuels” refers to a range of solutions, but it is most often associated with ethanol and biodiesel developed from plants. It also encompasses other energy sources such as hydrogen, liquified natural gas, and propane. 

The survey focused on “drop-in fuels” that could be used in current vehicles without modification. The results show that Americans are quite receptive to the possibility of using these in their own personal vehicles, and they see the value in their use for other applications, such as aviation. 

Two-thirds of Americans said they would be likely to use low-carbon fuel instead of traditional gasoline in their personal vehicle if the cost per gallon was the same as the cost for traditional fuel. 

Those who are more likely to purchase an electric-only vehicle are also much more likely to say that they’d use low-carbon fuels in their personal vehicles and if they had the choice would choose a flight on a plane that uses low-carbon fuel.

The survey showed that there is the willingness to shift to another fuel type for its environmental benefit, however, it is important that the cars be designed to use it. Today’s regular gas typically is 10 to 15 percent bio-ethanol, a plant-derived fuel. Higher concentrations require a flex-fuel engine designed to handle the different chemistry, including a special fuel pump and fuel injection system. 

“When it comes to reducing fuels’ carbon emission, there are several things we can do,” says Mohammad Tayarani, PhD, senior policy analyst at Consumer Reports. “As automakers roll out more electric vehicles, there are other low-carbon fuels that could complement the transition to EVs. Plus, there is huge potential for low-carbon fuels to power planes, boats, and other transportation for both freight and people.

Shopping for an Electric Vehicle?

See our hybrid/EV ratings and buying guide.

Car sales continue hot streak, but market shows signs of cooling

Auto makers are likely to report a slowing U.S. sales pace for recent months, as dealers have ready buyers but a lack of inventory

By Nora Naughton  By and Mike Colias

U.S. car sales continued at a blistering pace in the second quarter but showed some signs of slowing in June, as the number of vehicles on dealership lots continues to dwindle.

General Motors Co. reported a nearly 40% increase in vehicle sales for the second quarter compared with the same period a year ago. The Detroit auto maker’s sales were also up compared with the first quarter, but less so, rising 10% over that period.

Sales for Stellantis STLA -5.73% NV increased 32% in the second quarter, compared with the April-to-June period a year ago. The Jeep brand owner’s growth from the first quarter was more modest, up 3% in the second quarter compared with the first three months of the year.

Volkswagen AG VOW -3.54% reported its best first-half U.S. sales in nearly a half-century while managing tight supplies. The company now has about 32,000 vehicles in inventory while aiming to sell around 30,000 vehicles a month, said Scott Keogh, chief executive of Volkswagen’s North American subsidiary.

“We’re losing some sales opportunities,” Mr. Keogh said.

The auto makers’ results mostly reflect analysts’ expectations that the rate of new-car sales growth is beginning to fall off from recent months, when car shoppers turned out in near-record numbers, buoyed by excess household savings and pent-up demand from the pandemic.

Customers are still clamoring for a new ride, dealers say. But it has become harder for salespeople to match buyers to vehicles because of the lack of inventory resulting from a computer-chip shortage that has hobbled car production since winter.

“We really don’t have enough cars to go around,” said Joe Shaker, owner of Shaker Automotive Group, which sells several brands in Connecticut and Massachusetts. He said his Ford -1.81% store is carrying about 14% of its normal inventory.

New-vehicle sales in the first half of the year are expected to reach about 8.3 million units, according to an estimate from J.D. Power, a 32% increase over the same period in 2020 and up nearly 1% from the first half of 2019.

The rate of sales slowed considerably at the end of the second quarter, falling to an annualized selling pace of 15.4 million, according to research firm Wards Intelligence. That is down from April, when the industry was on pace to sell nearly 19 million vehicles for the year. The industry tracks the annualized sales rate as a measure of market strength from month to month because it strips out seasonal factors.

Analysts attribute the deceleration to withering dealership inventory. Dealers started June with about 1.5 million vehicles on their lots or en route to stores, down 42% from the same time in 2020 and down 23% from the start of May, according to Wards Intelligence. The diminishing selection is driving prices to record highs.

The average new vehicle sold eclipsed $40,000 for the first time in June, according to an estimate from J.D. Power, with car shoppers routinely paying above sticker price.

“We’ve been in a full-fledged supply crisis since about June of last year,” said Tyson Jominy, automotive analyst for J.D. Power. “Meanwhile, we have very, very robust demand among some of the wealthiest consumers.”

Consumers are flush with savings from federal stimulus payments and from hunkering down during the pandemic. Interest rates remain at historically low levels and used-car values have soared, giving consumers higher trade-in values when buying a new vehicle.

The unusual market dynamics—bare dealership lots, eager shoppers and heady pricing—are expected to last at least through the end of the year, analysts and car executives say. Despite the dynamics, many auto makers and dealership groups have reported record profits in recent months, bolstered by the stronger pricing and lower costs.

Bob Carter, Toyota Motor Corp.’s North American sales chief, said strong consumer confidence helped the company to its strongest first five months of the year ever, despite having to manage a raft of supply-chain problems.

“We have lots of problems, but I have zero complaints,” he said.

Toyota TM -1.00% typically would have roughly 330,000 Toyota and Lexus models on dealer lots in June. It expected dealers to finish the month with around 70,000 vehicles on hand, Mr. Carter said.

Toyota’s second-quarter sales increased 73% over the prior year, but showed signs of slowing in June, down about 35,000 vehicles from the month before. Rival Honda Motor Co. HMC -2.68% reported a second-quarter sales increase of nearly 66%, while its rate of sales also declined in June from May.

Hyundai Motor Co. reported its best-ever second quarter, selling 240,005 vehicles in the April-to-June period. That is a 69% increase from the quarter a year ago. The pace slowed in June, when the company sold 72,465 vehicles, down significantly from May when they sold more than 90,000 cars.

Kurt McNeil, GM’s vice president of U.S. sales operations, said GM dealers have less than a week’s worth of supply of large sport-utility vehicles, whereas normally they would have enough inventory to last three months.

He said GM expects the semiconductor shortage to ease, but he doesn’t see the situation on dealer lots improving much before the end of the year, and expects inventory to be constrained through 2022. GM said Thursday it ended the second quarter with 211,974 available vehicles, compared with 334,628 at the end of the first quarter.

“There’s so much demand that vehicles are just going to sell” as soon as they hit dealer lots, Mr. McNeil said. “We’re just going to be drastically low for the foreseeable future.”

Pickup trucks and SUVs, significant profit generators for GM and rivals Ford Motor Co. and Stellantis, have been disproportionately hurt by the chip shortage, according to data from research firm LMC Automotive. As a result, the Detroit companies posted falling market shares through the first five months of the year, while Toyota, Honda and Hyundai gained, LMC said.

Toyota outsold GM by about 46,500 vehicles in the second quarter, the first time in more than 20 years that any company has outsold GM, and the first quarter ever that the Japanese auto makers has outsold its Detroit rival, according to car-shopping website Edmunds.com.

On Wednesday, Ford said the chip shortage will force it to cut output across more than a half-dozen U.S. factories in July.

Auto makers in general have given priority to the production of their most popular models, while dealers have begun to assign incoming vehicles to customers in an attempt to expedite shipments to their stores.

Subaru Corp. FUJHY -0.15% said it has sold 20% more vehicles in 2021 relative to last year. The Japanese auto maker blamed the chip shortage for the rally stalling in June, however, when it sold 20% fewer cars than in the same month last year.

Higher used-vehicle prices also are helping drive new-car sales, analysts say, because shoppers are eager to leverage the higher value of their trade-ins. Used-vehicle prices on average were up an estimated 36% in mid-June from a year earlier, according to auction firm Manheim Inc.

The hot used-car market and dearth of shipments from the factory have left car dealers scrounging to feed their pre-owned vehicle lots.

Mr. Shaker said the new-vehicle selling price is no longer his priority in negotiations. Instead, he is telling salespeople to find customers who have a used vehicle they are willing to trade in.

“Right now, it’s far more important for us to sell to someone with a trade-in, because we need more vehicles to sell,” Mr. Shaker said. “When you’re running out of cars, a customer with a trade at least gives you two bites at the apple.”

– Ben Foldy contributed to this article.

Drivers endure near-record gas prices during July 4 travel

Gasoline prices drop below $5 a gallon as a record number of drivers are expected to hit the road over July Fourth weekend, according to AAA

 By Omar Abdel-Baqui and Hardika Singh

Americans are still paying close to $5 at the pump. That isn’t going to stop them from hitting the road this July Fourth, analysts say. 

The average price for a gallon of gasoline Friday was $4.84, compared with $3.12 during the same day last year, according to data from OPIS, an energy-data and analytics provider. 

Yet many drivers aren’t changing their pump habits much, despite the 55% year-over-year increase. 

Amanda Kovacs—a 41-year-old housecleaning business owner in Lorain, Ohio—traveled roughly 130 miles to Columbus, Ohio, this week for her daughter’s college orientation.

“It’s down to, ‘OK, do I have enough to put $20 in?’” said Ms. Kovacs, who said she’s limiting the amount of groceries she purchases to afford gas. 

Bart Melek, head of commodity strategy at TD Securities, said he expects few Americans to cancel July Fourth travel plans because of high gas prices. AAA predicts that auto travel will hit a record this Independence Day weekend, typically one of the busiest travel periods of the year. It expects 42 million people hitting the road, compared with 41.8 million last year.

Mr. Melek said he attributes the consumer resilience in part to many Americans saving cash during the Covid-19 pandemic and to the low unemployment rate. 

Most of all, people are making up for lost time, Mr. Melek said. And with expensive airfare, unreliable flight schedules and a lack of public transit options in much of the U.S., driving is one of the few options left for Americans looking to travel domestically this summer.

There will be some demand elasticity, Mr. Melek said, meaning more people may eventually change their habits as the prices remain around $5 a gallon. “But I think this is a particularly special time when we all just want to get the hell out and do fun stuff,” he said. 

Gas prices have dropped 18 cents a gallon since June 14, when they peaked at $5.02 a gallon. The drop isn’t expected to persist, said Tom Kloza, global head of energy analysis for OPIS. OPIS is owned by News Corp, the parent company of The Wall Street Journal. 

“Prices go up like a rocket, and they come down like a feather,” Mr. Kloza said.

There are some early signs that suggest record prices are prompting at least some Americans to change their driving habits. Gasoline demand in the week ending June 25 is down 6.3% compared with the same period last year, according to OPIS. Demand for gasoline in mid-to-late May fell to its lowest levels in nearly a decade, according to government data.

With consumer inflation also at record highs, many drivers are making more calculated budget decisions. 

“Gasoline prices to consumers are top of mind,” Mr. Kloza said.

Julie Pargo, a recently retired hospital administrative clerk living in Toledo, Ohio, drives about 150 miles every few months to visit her three children in Columbus. 

She spends about $70 filling up her 2018 Buick Envision. To save money, she has started strategizing her grocery shopping trips and where she buys gas.

“It’s sad when $4.69 sounds like a deal now,” she said. The average cost of a gallon of gas across Ohio was $4.78 on Friday, according to OPIS.  

Mr. Melek cautions Americans not to expect relief at the pump until after the busy summer driving season. More oil on the market and an easing of refinery bottlenecks could drag down prices. The Federal Reserve accelerating interest-rate increases could also decrease demand by potentially kicking off a recession, he said.

“There’s a light at the end of the tunnel—maybe a bit of a faint light—that we won’t reach until well past the summer,” Mr. Melek said.

The Biden administration has tried to urge the U.S. oil industry to boost output, but with existing refineries running near capacity, there is little that can be done short-term to ease the supply gap, analysts said.

Gasoline demand and prices typically hover around their highest levels in July and August. Any disruptions to refineries, which sometimes occur during the summer hurricane season, could lead to higher prices at the pump this year, Mr. Kloza said.

A May report from JPMorgan suggested retail gas prices could jump to $6.20 a gallon by August. Mr. Kloza said that isn’t likely without significant supply disruptions in July. 

Several agencies at the state and federal levels have taken measures to slow increasing prices. Some states have suspended their gas taxes. The U.S. Environmental Protection Agency issued an emergency waiver in April that allows gas stations to sell high-ethanol content gasoline this summer, despite concerns about increasing air-polluting emissions. 

The Biden administration has also tapped oil supplies from the U.S. Strategic Petroleum Reserve, releasing 1 million barrels of oil a day.

Ms. Pargo, the retiree in Ohio, said she would drive to visit her family across the state more if prices weren’t so high. 

“You do have to think about, ‘Do I really want to spend $70 just to drive there?’ ” she said.