End of EV mandate tempts out-of-state buyers to acquire California dealerships

But other regulations still make the state undesirable to some potential automotive franchise owners.

Out-of-state buyers have long been reluctant to acquire dealerships in California due to what they describe as an over-regulated environment that is not friendly to do business in.

One regulation was seen as especially onerous: the mandate that an increasingly larger percentage of vehicles sold be zero-emission beginning in 2026, with the share reaching 100% of passenger cars, SUVs and light-duty trucks by 2035.

The effective end of that mandate has ignited interest in acquiring stores in the state, but other burdensome regulations mean California is still unattractive to some.

“Once the mandate was effectively rolled back in late 2025, we saw a significant rebound in buyer confidence,” Jayson Crouch, managing director of sell-side advisor Haig Partners, told WardsAuto in an email. “Demand returned quickly and in many cases, dealership valuations increased by 20% of more based on transactions we had in market.”

Ignoring market size “shortsighted”

In May of 2025, a Congressional Review Act removed the authority of the California Air Resources Board to enforce a mandate that 35% of all vehicle sales in the state be zero-emission vehicles in the 2026 model year. President Trump signed it into law in June.

The mandate was widely decried by dealerships and dealer organizations as going against actual market demand, thus placing an undue burden on dealerships in California.

Simply doing away with the ZEV mandate, as it is known, doesn’t mean the state is a dealer’s dream to operate in, of course. Dealers still face a variety of stiff regulations.

But the huge size of the market is too big a temptation.

Houston-based Lapis has already completed two transactions in California in 2026, acquiring Ferrari of Rancho Mirage and four dealerships in Livermore, in Northern California.

“California is a very difficult place to do business in,” Lapis CEO Todd Blue told WardsAuto on a Zoom call.

The state is not as pro-business as Texas or Florida, he said.

Nonetheless, given the size of the California market, to overlook the state when buying dealerships would be “shortsighted,” Blue said.  

In 2025, there were 1.81 million new light vehicle registrations in California, up 3.3% compared to the previous year, according to the California New Car Dealers Association.  That made it the largest market in the U.S by sales.

According to Kerrigan Advisors’ The Blue Sky Report 2025 Annual Report^®, the state is also the largest auto retail market in the U.S. by revenue at $157 billion, 12% of the national market share.

“While operating dealerships in California remains more expensive due to higher compliance and legal expenses, the car-culture state represents the largest auto retail market in the U.S. with concentrated high-income populations who represent the largest retail spend (particularly in luxury) of any market in the U.S.,” the report said.

Kerrigan Advisors, a sell-side advisory firm, handled a number of large transactions in California in 2025, managing director Erin Kerrigan told WardsAuto during a phone call.

The size of the market is a “huge driving force” of the level of buy-sell activity in the state, she said.

“California is the largest market in the country by a significant factor,” Kerrigan said, “and while there are higher expenses associated with human resources and legal, those expenses can be absorbed quickly, given the volume you can achieve.”

Too bothersome for some

Not all dealers are eager to acquire franchises in the Golden State.

RBM Automotive Group, a newly established dealership group based in Atlanta, just acquired three dealerships in South Carolina and is eager to grow.

Co-president Casey Frames told WardsAuto on a Zoom call that the group is open to acquiring dealerships “except maybe California.”

David Ellis, Frames’ co-president and brother, elaborated.

“First and foremost, it’s on the opposite side of the country,” he told WardsAuto in an email.

But the regulatory environment is also very unattractive, Ellis said.

“I’ve been in numerous meetings with dealers from California and every time we met, a new law would be passed, making running any type of business difficult,” he said.

Corporate taxes and insurance premiums are also very high in California, Ellis added.

Knowledge is power

Some dealers see knowing how to navigate California’s business environment as an advantage.

While operating in California has its challenges, the market is alluring, Keith May, president of Fletcher Jones Automotive Group, told WardsAuto on Zoom call.

“There’s 40 million people who buy cars in California,” May said. “Being based in California and being very well-known are advantages.”

Fletcher Jones Motorcars, the group’s flagship Mercedes-Benz store in Newport Beach, is the number one Mercedes store in the U.S., May said.

“We have a pretty strong brand image in Southern California,” May said, “and we know how to operate. I think that’s the key.”

Fletcher Jones in January acquired BMW of Santa Monica in Santa Monica, Calif.

Understanding the California market is a type of competitive advantage, Rick Khan, operating partner of Ghreiwati Holdings/Dealerships, told WardsAuto in a phone call.

Ghreiwati Auto Group in March acquired Mazda and Kia dealerships in Northern California from Hello Auto Group.

California’s legal environment makes doing business difficult and land is very expensive, Khan said, but his group is saving money in part by generating its sales lead opportunities internally and using the margins to improve the group’s profitability.

For Ghreiwati Auto Group, California is “a great opportunity,” Khan said. “If it is harder for everyone else to operate there and we have figured out the secret sauce, there is a ton of upside.”

The perception that California is a tough place to do business has, at least until now, created a bit of a pricing advantage, Blue said.

“Texas and Florida stores are being sold at a premium,” he said. “California is still a little bit on sale.”

But that may be ending. “I think now people have woken up,” Blue said a bit ruefully.