The Franchise System

Why should I care?

State franchise laws are the additional rules and regulations between manufacturers and franchise retail establishments governing how automobiles are sold. The franchise system, which was first introduced over 100 years ago, is a free-market approach that allows for a level playing field as the market is pushed to innovate and meet consumer demands. In addition to OEM specific franchise agreements, which Toyota has with its Toyota and Lexus dealers, these laws were developed to create an equitable system protecting the manufacturer, dealers, consumers, and local communities.

What should I know?

All 50 states have enacted laws governing the sale and servicing of new and used cars. Each year these laws are constantly changing in state legislatures and state regulatory agencies throughout the U.S. Whereas Toyota directly engages and monitors all legislative issues impacting state franchise laws, each state dealer’s associations focus is different. Their bills primarily include a handful of the issues listed below, but this is not a comprehensive list.

Reimbursement Rates and the use of Third-Party Time Guides for OEM warranty work
Direct Sales to Consumers is led by a growing number of direct sales advocates such as Tesla, Rivian, Lucid, Scout
Over the Air Updates (OTA)
Right to Repair
Vehicle Allocation
Subscription Services
Safety Recalls
Privacy and Data Protection

There are also decisions made within various state agencies such as the Department of Motor Vehicles (DMV) that impact state franchise laws.

What Should I Say?

Warranty Time Guides / Third-Party Time Guides – Toyota stands behind its warranty reimbursement time guides that trained, certified technicians use at Toyota and Lexus dealerships. We do not agree with changes proposed in various states that would allow third party time guides or other industry guides for warranty service work that is guaranteed to our dealers to perform.
- We believe Toyota’s approved time guides offer an equitable system for the dealer, consumer, and manufacturer.
- Many non-Toyota/Lexus dealers are requesting adjustments to these reimbursement rates, which adversely impact Toyota, creating an unfair system, and could cause the industry a $5.5-6 Billion annual increase in costs. These changes will increase costs for consumers as well.
Direct Sales – Toyota strongly supports its dealer network and opposes direct sales. The industry has no better friend than Toyota to support the franchise system. Toyota believes in a cooperative working relationship which supports the success of both the manufacturer and individual dealership owners to meet consumers’ needs.
- Exceptions to the franchise system should not be made for the sale of electric vehicles or new market entrants.
- Toyota and Lexus dealers have made significant investments within their communities including providing long-term, good paying jobs and generous charitable contributions, as well as generating significant tax revenue.
Over the Air Updates (OTA) – Toyota advocates for the ability to distribute and allow the consumer to perform software updates wirelessly to vehicles after they have been purchased. Automotive over the air updates are increasingly important as the industry incorporates more sophisticated infotainment and new features in vehicles. Additionally, as the industry progresses to fully autonomous driving, maintaining the software that enables these functions is important.
- This rapidly growing technology is under attack. Some states want to ban the practice all together. Other dealers want to require all OTA occur at the dealership and want a reimbursement fee paid to them for performing this work at their site. Toyota believes there is a better path forward. OTA can be performed similarly to the way a smart phone or computer is updated at one’s home or office while connected to Wi-Fi. If a dealer is asked by a customer for support, then reimbursement is arranged.
- o Toyota does not support specificity in state statue as we have such a strong working relationship with our dealers.
Right to Repair – Toyota advocates for a comprehensive, consumer-focused federal standard that preserves parity between franchised dealers and independent repair facilities in being able to perform diagnostic and repair services on vehicles. Vehicle-generated data should be protected from unauthorized access, safeguarding consumer privacy.
- Ensures repairers can follow engineer-recommended safety standards—not insurer-mandated shortcuts
- Puts repair decisions in the hands of consumers, not insurance companies
Toyota and has been a part of an industry MOU since 2014 to ensures independent repair shops has access to the same repair information and tooling that dealers have. This allows consumers to choose where to have their vehicle repaired. In addition, the Texas legislature recently recognized this proactive approach that was lauded as the gold standard by the U.S. Federal Trade Commission.

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The Rest of the Story

The current franchise system is under attack as new EV automakers seeking to sell directly to consumers and other dealers are trying to create financial changes to the dealer model. Toyota will continue to defend the many components of the franchise system because of the value our dealers provide to customers. As Chairman Akio Toyoda stated, “There is no Toyota without our dealers.”