In Arkansas, can a motor vehicle leasing company that is a subsidiary of an automaker lease vehicles directly to Arkansas consumers without going through a franchised dealer?

Plain-English summary

Arkansas, like most states with traditional dealer-franchise laws, bars motor vehicle manufacturers from leasing or selling directly to retail consumers. The Arkansas Motor Vehicle Commission Act, A.C.A. § 23-112-403(a)(3)(A), makes it "unlawful…[f]or a manufacturer…or an officer, agent, or other representative thereof…to directly lease a motor vehicle at retail leasing in this state."

Senator Johnson asked: what about a leasing company that is "separate" from a manufacturer but "affiliated" with one? Can it lease cars directly to Arkansas consumers, or does the manufacturer's prohibition follow the affiliate?

The AG's answer: it depends on whether the affiliate is an "officer, agent, or other representative" of the manufacturer.

• An "officer" is an individual (CEO, president, secretary, treasurer), not a corporate entity. So a leasing company is not an "officer" of an automaker.

• An "agent" is "[s]omeone who is authorized to act for or in place of another." Whether a corporate affiliate is an agent depends on a ten-factor test from Blankenship v. Overholt, 301 Ark. 476 (1990): control over details, distinct business or occupation, supervision needed, skill required, who supplies tools and workplace, length of employment, payment by time vs. job, work part of regular business of principal, parties' belief about the relationship, and whether the principal is in business. The "primary factor" is the right to control (Howard v. Dallas Morning News, 324 Ark. 91, 1996).

• A "representative" is "[s]omeone who stands for or acts on behalf of another," which usually requires explicit "authority" to act (Hubbard v. Nat'l Healthcare of Pocahontas, 371 Ark. 444, 2007).

Mere parent-subsidiary status is not enough. Green v. Mission Health Communities (2020) confirmed that "[t]he mere fact that [one company is] a subsidiary of [a parent company]…[does] not make [the subsidiary an] agent or alter ego [of the parent]."

The AG also addressed "directly lease." The statute does not define it, but the ordinary meaning is leasing "straight" to consumers. So a manufacturer can indirectly lease through a non-affiliate intermediary. The intermediary cannot be an officer, agent, or representative.

Bottom line: a wholly independent leasing company that is just a manufacturer's affiliate (sister entity, joint venture, etc.) probably can lease in Arkansas. A leasing company that operates as a manufacturer's agent or representative cannot. The fact-intensive analysis means automaker counsel should structure carefully and dealer counsel should test aggressively.

What this means for you

Automaker corporate counsel and leasing company executives

If you are setting up an Arkansas-facing leasing operation that is affiliated with a manufacturer, the goal is genuine operational independence, not just legal separation on paper.

Concrete steps that matter under the Blankenship factors and the Howard right-to-control test:

• Independent management. The leasing company should have its own officers, board, and employees who report up an independent management chain, not into the manufacturer's executive team.
• Independent finances. The leasing company should manage its own funding, profit-and-loss, and tax accounting. Not transfer pricing dictated by the manufacturer.
• Independent operations. The leasing company makes its own decisions about which vehicles to acquire, how to price leases, which credit standards to apply, and which lessees to accept or reject.
• No manufacturer authority. The leasing company should not have authority to bind the manufacturer in any contract or to act as the manufacturer's agent in any context. The manufacturer should not have authority to require the leasing company to take any particular action.
• No commingled customer-facing branding. If the leasing company's storefront, website, and contracts read like manufacturer-branded retail, that is evidence the leasing company is acting as a representative.

Each of these protections corresponds to one of the agency factors. Stack them all and you have a defensible position. Skip even one and you create a Blankenship-factor liability.

Franchised motor vehicle dealers and dealer counsel

If you are a franchised dealer (or representing one) and you suspect a manufacturer-affiliated leasing operation is functionally an agent of the manufacturer, the AG's framework gives you a roadmap to challenge.

• Discovery should focus on the relationship between the affiliate and the manufacturer. Get the management agreements, profit-sharing arrangements, board composition, and operational manuals. The Blankenship factors are evidentiary; you need the documents.
• The right-to-control prong is dispositive in most analyses. A manufacturer that can direct the affiliate's daily operations or that supplies its tools, workplace, or operating procedures has effectively retained control.
• The "representative" theory is a parallel attack. If the affiliate stands for or acts on behalf of the manufacturer in any meaningful sense (uses manufacturer warranties, processes manufacturer warranty claims, executes documents the manufacturer signs off on), that supports the representative theory even where pure agency control is harder to prove.
• Arkansas Motor Vehicle Commission enforcement is a forum independent of court litigation. The Commission has authority under § 23-112-301 to act on complaints and impose remedies. Use both forums where appropriate.

Tesla-style direct-sale advocates and EV manufacturers

The AG's opinion is consistent with the broader pattern of state franchise laws blocking direct manufacturer-to-consumer sales and leases. The Arkansas statute reaches manufacturers, agents, and representatives. A pure-play direct manufacturer cannot lease in Arkansas. An attempt to use a wholly-owned subsidiary as the customer-facing entity walks straight into the agent/representative analysis.

The viable path under current law is a fully independent third-party financing and leasing structure where the customer's contract is with an entity that does not act for or stand for the manufacturer. This is structurally compatible with how most legacy automakers run "captive finance" arms but only when those captives function with genuine independence.

State franchise law attorneys

The opinion is a useful Arkansas-specific elaboration of agency-law tests in the franchise context. Two Arkansas-specific factors stand out: the Hubbard formulation that a representative requires "authority" (not merely a nominal title), and the AG's note that the Motor Vehicle Commission Act explicitly contemplates business entities being agents (compare § 23-112-103(26) and § 23-112-301(d)(1)(B) with § 23-112-1004(c)(1)). The legislature was thinking about corporate agents, not just individual ones.

Common questions

Why does Arkansas bar manufacturers from leasing directly to consumers?
Like most state franchise laws, Arkansas's Motor Vehicle Commission Act protects franchised dealers from direct competition by manufacturers. The premise is that vertical integration would let manufacturers dominate the retail experience, while franchised dealers provide local consumer-protection safeguards (recall service, warranty support, lemon-law liability, regulatory compliance). The AG did not address whether the policy is correct, only how it applies.

Is a wholly-owned subsidiary of a manufacturer automatically the manufacturer's agent?
No. Green v. Mission Health Communities (M.D. Tenn. 2020) confirms that subsidiary status alone does not establish agency or alter ego. The legal test is fact-intensive and requires evidence of operational control or representative authority.

What's the difference between an "agent" and a "representative" under the statute?
An agent acts for or in place of the principal under the principal's control. A representative stands for or acts on behalf of the principal under the principal's authorization. The agency test (Blankenship) emphasizes control. The representative test (Hubbard) emphasizes authority. They overlap substantially but are not identical.

Can a manufacturer use an independent leasing company as an intermediary?
Yes, if the intermediary is genuinely independent. The Arkansas statute bars the manufacturer from leasing "directly," which means "straight" to the consumer. A non-affiliated, independent leasing company is a permissible intermediary. The catch: the intermediary cannot be the manufacturer's agent or representative.

What are the consequences of violating § 23-112-403?
The Arkansas Motor Vehicle Commission can suspend or revoke licenses, impose fines, and order other remedies under § 23-112-301 and related provisions. Private parties (typically franchised dealers) may also have claims for unfair-trade-practice or franchise-protection remedies. A violator could face both regulatory and civil liability.

Does this opinion apply to electric vehicle manufacturers like Tesla, Rivian, and Lucid?
The opinion does not single any manufacturer out. It applies to the general statutory framework. Whether a particular EV manufacturer's Arkansas operations comply depends on the same agency-law analysis. EV manufacturers that operate retail outlets directly through affiliated entities should be especially careful about the agent/representative analysis.

Why doesn't Arkansas have a direct-sale exception for EVs like some states?
The Arkansas legislature has not created one. As of this 2024 opinion, the bar applies uniformly across powertrain types. Other states (e.g., Colorado, Massachusetts, New Jersey, Indiana) have carved out exceptions for direct EV sales. Arkansas had not.

Background and statutory framework

Direct-leasing prohibition. A.C.A. § 23-112-403(a)(3)(A) makes it "unlawful…[f]or a manufacturer…or an officer, agent, or other representative thereof…to directly lease a motor vehicle at retail leasing in this state." The statute also reaches distributors, distributor branches/divisions, and factory branches/divisions.

Statutory definitions. § 23-112-103(26) defines "person" to include "any...form of business enterprise" (i.e., business entities can be agents). § 23-112-103(28) defines "retail sale" to mean disposition of a new motor vehicle "to an ultimate purchaser for use as a consumer." § 23-112-301(d)(1)(B) and § 23-112-1004(c)(1) contemplate business entities acting as agents.

Ordinary meaning rule. State v. Jernigan, 2011 Ark. 487, 385 S.W.3d 776, holds that undefined statutory words have their "ordinary and usually accepted meaning."

Agency test. Blankenship v. Overholt, 301 Ark. 476, 786 S.W.2d 814 (1990), sets out a ten-factor test for agency:
1. Principal's control over details of work
2. Whether agent performs a distinct business
3. Whether the work is of a kind requiring supervision
4. Skill required
5. Who supplies tools, instrumentalities, workplace
6. Length of employment
7. Payment by time vs. by job
8. Whether work is part of principal's regular business
9. Parties' belief about the relationship
10. Whether the principal is in business

Howard v. Dallas Morning News, Inc., 324 Ark. 91, 918 S.W.2d 178 (1996), confirms that "the right to control is the primary factor."

Representative test. Hubbard v. Nat'l Healthcare of Pocahontas, Inc., 371 Ark. 444, 267 S.W.3d 573 (2007), and Progressive Eldercare Servs.-Chicot, Inc. v. Long, 2014 Ark. App. 661, 449 S.W.3d 324, establish that a representative's status requires "authority" to act.

Subsidiary status alone insufficient. Green v. Mission Health Communities, LLC, No. 3:20-cv-00439, 2020 WL 6702866 (M.D. Tenn. Nov. 13, 2020), confirms that being a subsidiary does not by itself create agency.

"Directly" interpretation. The AG read "directly" by ordinary meaning to mean "straight" to consumers. So manufacturers can use intermediaries, but the intermediary cannot be an agent or representative of the manufacturer.

Citations

• A.C.A. § 23-112-101 (Motor Vehicle Commission Act, scope)
• A.C.A. § 23-112-103(26) ("person" includes business enterprises)
• A.C.A. § 23-112-103(28) ("retail sale" definition)
• A.C.A. § 23-112-301(d)(1)(B) (business entity as agent)
• A.C.A. § 23-112-403 (unlawful acts)
• A.C.A. § 23-112-403(a)(3)(A) (direct retail lease prohibition)
• A.C.A. § 23-112-1003(13) ("person" definition)
• A.C.A. § 23-112-1004(c)(1) (business entity as agent)
• State v. Jernigan, 2011 Ark. 487, 385 S.W.3d 776 (ordinary meaning rule)
• Blankenship v. Overholt, 301 Ark. 476, 786 S.W.2d 814 (1990) (ten-factor agency test)
• Howard v. Dallas Morning News, Inc., 324 Ark. 91, 918 S.W.2d 178 (1996) (right-to-control as primary factor)
• Hubbard v. Nat'l Healthcare of Pocahontas, Inc., 371 Ark. 444, 267 S.W.3d 573 (2007) (representative requires authority)
• Progressive Eldercare Servs.-Chicot, Inc. v. Long, 2014 Ark. App. 661, 449 S.W.3d 324 (representative ability tied to authority)
• Green v. Mission Health Cmtys., LLC, No. 3:20-cv-00439, 2020 WL 6702866 (M.D. Tenn. Nov. 13, 2020) (subsidiary status not sufficient for agency)

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2024-047
March 29, 2024
The Honorable Mark Johnson
State Senator
Post Office Box 241022
Little Rock, Arkansas 72223
Dear Senator Johnson:
You have requested my opinion regarding the prohibition against motor vehicle manufacturers directly leasing to Arkansas consumers under the Arkansas Motor Vehicle Commission Act (the "Act"). You ask if motor vehicle leasing companies that "operate distinctly from affiliated manufacturers" and that are "separate entit[ies] from a 'manufacturer'…under A.C.A. § 23-112-403 [may] do business in Arkansas."

RESPONSE

The answer to your question turns on whether the affiliated manufacturers (1) control the motor vehicle leasing companies as agents, such as by managing their daily operations, or (2) have authorized the leasing companies to be representatives acting on behalf of or standing for the manufacturers. In short, if the leasing companies are wholly independent of the manufacturers, then they likely can lease motor vehicles to Arkansas consumers. But I cannot make a factual determination regarding these matters because I am not a factfinder when issuing opinions.

DISCUSSION

Under A.C.A. § 23-112-403(a)(3)(A), it is "unlawful…[f]or a manufacturer…or an officer, agent, or other representative thereof…to directly lease a motor vehicle at retail leasing in this state." You have reported that the motor vehicle leasing companies at issue are not manufacturers, so I will focus my analysis on (1) whether the leasing companies are an officer, agent, or other representative of the manufacturers and (2) the meaning of "directly lease" in this provision.

1. Officers, agents, or other representatives. Whether the leasing companies are officers, agents, or other representatives of the manufacturers turns on the meaning of those terms. Because the Act does not define "officer," "agent," or "representative," the words have their "ordinary and usually accepted meaning." And since your question concerns "leasing companies," I limit the definitions of "officer," "agent," and "representative" to the context of business entities.

With that context, Black's Law Dictionary provides the following definitions for "officer," "agent," and "representative":

• Officer: "[A] person elected or appointed by the board of directors to manage the daily operations of a corporation, such as a CEO, president, secretary, or treasurer."
• Agent: "Someone who is authorized to act for or in place of another; a representative."
• Representative: "Someone who stands for or acts on behalf of another."

Although a business entity's "officers" are limited to individuals (for example, the CEO or president), a leasing company could be an "agent" or "other representative" of a manufacturer. In fact, the chapter in which § 23-112-403 is located explicitly contemplates business entities being agents. Determining whether one company is the agent of another is fact intensive because "[t]he mere fact that [one company is] a subsidiary of [a parent company]…[does] not make [the subsidiary an] agent or alter ego [of the parent]."

Although I am not a fact finder, I offer the relevant legal factors upon which courts rely. An agency relationship is more likely to exist if: (1) the "principal" exerts control over the details of the work, (2) the "agent" does not perform a distinct business or occupation, (3) the occupation of the "agent" is the kind that is usually done with supervision, (4) a high level of skill is necessary for the particular occupation, (5) the "principal" supplies the instrumentalities, tools, and place of work for the "agent" performing the work, (6) the "agent" is employed for a lengthy time, (7) the "agent" is paid "by the time," instead of "by the job," (8) the work is part of regular business of the "principal," (9) the parties believe they are creating an agency relationship, and (10) the "principal" is in business. "[T]he right to control is the primary factor for making [the] determination."

Section 23-112-403(a)(3)(A) also prohibits "other representative[s]" of a manufacturer from directly leasing to consumers. A representative "stands for or acts on behalf of another." As above, this will be a fact-intensive inquiry focused on the relationship between the manufacturer and leasing company. Here, the outcome will predominately hinge on whether the leasing company had "authority" to act as the affiliated manufacturer's representative.

In short, I can opine that a leasing company is not an "officer, agent, or other representative" of an affiliated manufacturer, unless the affiliated manufacturer (1) controls the leasing company as an agent, such as by managing the daily operations of the leasing company, or (2) the leasing company is authorized to act on behalf of or stand for the manufacturer. If the leasing company is an "officer, agent, or other representative" of the affiliated manufacturer, it cannot directly lease to Arkansas customers.

2. "Directly lease." As noted previously, A.C.A. § 23-112-403(a)(3)(A) prohibits manufacturers from "directly leas[ing]" motor vehicles to Arkansas consumers. As with an "officer," "agent," or "other representative," the Act does not define "directly lease." Although "directly lease…at retail" is not defined, the ordinary meaning is that manufacturers may not lease "straight" to consumers. So I can opine that, under A.C.A. § 23-112-403(a)(3)(A), manufacturers can indirectly lease motor vehicles to Arkansas customers through an intermediary. This intermediary, however, cannot be an "officer," "agent," or "representative" of the manufacturers because such entities are separately prohibited from leasing to Arkansas customers, as discussed above.

Assistant Attorney General Jodie Keener prepared this opinion, which I hereby approve.

Sincerely,
TIM GRIFFIN
Attorney General