California Dealers Tell VW To Cease-And-Desist Scout Direct Sales Model

A dealership group in California has sent Volkswagen a cease-and-desist letter over Scout’s direct-to-consumer plans.
The dealers contend the move would violate state law and threaten their livelihoods.
Despite being known for egregious markups, California dealers claimed they want to ensure “fair pricing” and consistent customer service.

We recently caught a Volkswagen dealer in California adding a $35,000 markup on an ID.Buzz, but that hasn’t stopped the California New Car Dealers Association (CNCDA) from claiming they want to protect “consumers while promoting legal and ethical business practices.” The irony certainly isn’t lost on us and they’re up in arms over Scout’s direct-to-consumer model.

As the CNCDA explained, they sent Volkswagen a cease-and-desist letter claiming their plan is a “direct violation of state law.” The group, which is made up of nearly 1,200 dealerships including over 50 VW retailers, went on to say that under California’s vehicle code, Scout is a Volkswagen affiliate. This is important to their argument as they said “manufacturers may not compete with their own franchisees by using affiliates to directly sell or service vehicles, which is precisely what VW and Scout intend to do.”

More: VW Dealers And NADA Will Fight Scout Motors In Court Over Direct Sales

That sounds like an optimistic reading of things, but the dealer group proclaimed the plan “threatens the livelihoods of thousands of existing VW dealership employees and could significantly impact tax revenues.” They went onto say “VW’s sales of Scout-branded vehicles without participation from franchised dealer partners circumvent its legal obligation to ensure accountability, fair pricing, and consistent customer service.”

window._taboola = window._taboola || [];
_taboola.push({
mode: ‘thumbnails-a-mid’,
container: ‘taboola-mid-article’,
placement: ‘Mid Article’,
target_type: ‘mix’
});

window._taboola = window._taboola || [];
_taboola.push({
mode: ‘thumbnails-oc-2×1’,
container: ‘taboola-mid-article-thumbnails-organic’,
placement: ‘Mid Article Thumbnails Organic’,
target_type: ‘mix’
});

The move is just the latest effort by California dealers to get access to Scout. As speculation mounted that the off-road brand would embrace a direct-to-consumer model, the CNCDA sponsored a franchise bill in the state legislature to strengthen the vehicle code to prohibit any such move. The group says it was “unanimously approved by California’s legislature, signed into law by Governor Newsom, and became effective on January 1, 2024.”

It remains to be seen if this will eventually end up in court, but one could easily argue that Scout won’t be competing with Volkswagen dealers. They’ll be selling entirely different products which are aimed at more affluent consumers, so there wouldn’t be any direct competition. Volkswagen could also easily point to numerous examples of less than ethical dealer behavior.