In October, Car Pro Show host Jerry Reynolds shared his thoughts about Volkswagen's (VW) decision to cut its dealers out of Scout sales, and instead create a stand-alone brand to sell direct to consumers. At the time, Reynolds said: "You can bet dealers are unhappy and, in my opinion, rightfully so - and you can expect legal challenges as a result. "
Reynolds' prediction is now ringing true. The California New Car Dealers Association (CNCDA) - which represents over 50 VW dealers - is demanding VW "cease unlawful competition through (the) Scout Brand." It recently issued a cease-and-desist letter to VW and its affiliate Scout over their plan to sell vehicles under the Scout brand to California consumers in direct violation of state law.
CNCDA is the nation’s largest state dealer trade association and says its goal is to protect both the franchise system and California consumers while promoting legal and ethical business practices. Its letter details what CNCDA calls VW’s ongoing violations of California Vehicle Code section 11713.3(o). The trade group argues that Scout is a VW affiliate under California’s Vehicle Code. California law states that 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.
In a statement, CNCDA goes on to say that VW’s violation of California's state law threatens the livelihoods of thousands of existing VW dealership employees and could significantly impact tax revenues. The group also says VW’s illegal direct sales plans disregard the legal framework that protects consumer choice and competition within California’s automotive marketplace. 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.
“Volkswagen’s direct sales via its Scout brand represent a direct threat to the jobs, investments, and consumer protections California’s franchise laws are designed to safeguard,” said CNCDA President Brian Maas. “We strongly encourage Volkswagen to heed our call to abide by California law and immediately stop offering Scout vehicles directly to consumers without using their business partner local dealers.”
Last year, the CNCDA sponsored a franchise bill in the California State legislature, Assembly Bill 473 (“AB 473”) that strengthened the state Vehicle Code to prohibit these actions. CNCDA says Scout publicly stated that it would not be able to choose its current distribution model if the bill were to go into effect. The bill was unanimously approved by California’s legislature, signed into law by Governor Newsom, and became effective on January 1, 2024. CNCDA says VW’s intent to sell vehicles without using franchisees using the Scout brand is a brazen violation of the law.
CNCDA says it remains steadfast in ensuring California law is followed and franchised dealers are protected. The association says it is prepared to take further action should it's letter not result in the immediate cessation of direct sales by VW via Scout.
To see the Cease & Desist letter filed, click here.
To read Car Pro Show host Jerry Reynolds' message to VW, click here.
Photo: VW/Scout.