Honda’s Afeela Can’t Bypass Franchise System in Virginia

Last month, Automotive Trade Association Executives placed an ad with Automotive News regarding both Honda Motor Co. and Volkswagen AG's respective electric vehicle brands, Afeela and Scout. Afeela is a joint venture between Honda and Sony, called Sony Honda Mobility; Scout Motors is a subsidiary of VW.

The advertisement, included here, was signed by numerous state and regional dealer associations and emphasized that companies directly or indirectly affiliated with OEMs are prohibited by state law from selling motor vehicles without going through a franchised dealer network.

The ad was placed at the same time many of those associations sent letters to former American Honda president Noriya Kaihara that reinforced the message from the ad: companies affiliated with OEMs must sell through the franchise system.

American Honda responded to NADA on April 23:

"American Honda and Sony Honda Mobility (SHM) are separate, independent entities. SHM (and/or its subsidiaries) has made, and will continue to make, its own business decisions about the sale, marketing and distribution of its future, separately branded products. We have been clear and transparent with our dealer networks that American Honda and our Honda and Acura brands have not and will not be involved in SHM's business decision-making or the sale or distribution of Afeela brand vehicles.

"We also have made it unequivocally clear that we consider Honda and Acura dealers to be our essential business partners, and we have no plan to change the dealer franchise business model."

You can see American Honda's full letter, with much more detail, here.

On April 30, VADA President and CEO Don Hall sent a letter to NADA President and CEO Mike Stanton and ATAE chair John Devlin reminding them of the major victory in Virginia that protects the way dealers do business best. "VADA successfully sought legislation to ensure that the franchise system was protected in Virginia. Some of our colleagues around the country criticized our aggressive approach to this issue. We feel vindicated in reading the response from Honda as one of the changes we made in 2023 makes clear that manufacturers cannot simply set up a subsidiary to circumvent our franchise protections," Hall wrote.

Legislative action in 2023 solidified state law and made it clear that manufacturers cannot simply set up a subsidiary to circumvent franchise protections. The law now reads (emphasis added):

"It shall be unlawful for any motor vehicle manufacturer, factory branch, distributor, distributor branch, or subsidiary thereof to own, operate, or control any motor vehicle dealership in the Commonwealth. This prohibition includes the ownership, operation, or control of any dealership of a new line-make established by a manufacturer, factory branch, distributor, or distributor branch, licensed as such by the Department, or a subsidiary thereof or a company affiliated through ownership of the manufacturer, factory branch, distributor, or distributor branch of at least 25 percent of the equity of the company..."

Under the new language in Virginia, Hall wrote, Honda is a licensed manufacturer and, therefore, Afeela would not be able to own and operate dealerships in Virginia without franchised dealers. "Honda cannot simply claim Afeela is a separate entity and do as it pleases with the vehicles it produces under that company’s name. Virginia law prohibits it," Hall wrote. "Afeela is no different than Honda or Acura in the state of Virginia."

See the full letter to NADA and ATAE.