Scout Motors’ decision to bypass Volkswagen stores and sell vehicles directly to consumers has stirred significant concerns in the retail automotive industry. In light of dealers’ recent success in the CDK class action settlement, many are now considering a similar approach to Volkswagen.
In today’s episode of Inside Automotive, Len Bellavia, founding partner of the law firm of Bellavia Blatt, also known as DealerLaw.com, will help us unpack this issue.
What sets Scout fundamentally apart from brands with similar direct-to-consumer (DTC) sales models, such as Tesla and Rivian, is that they are entirely independent brands, whereas Scout is affiliated with Volkswagen. If there is an existing network of franchise dealers, the manufacturers have an obligation to treat them fairly.
Volkswagen’s attempt to present Scout as a separate entity is a roundabout way to circumvent state franchise laws that explicitly prohibit manufacturers from competing with dealerships.
Bellavia equates Volkswgen’s decision as “waging war against their own dealers” as it brashly leverages the imbalanced power dynamics to push Scout forward. The automaker knows that most dealers are reluctant to pursue legal recourse, and it heavily relies on that fact to avoid legal trouble.
The potential ripple effect of Scout’s success with this new venture is a major concern. If they succeed, it could pave the way for other manufacturers to follow suit, significantly altering the dynamics of the automotive industry. While it’s highly unlikely that they will, Bellavia suspects that Volkswagen will attempt to settle with dealers in an arrangement that still gets them what they ultimately want–DTC sales access—and get the dealers to play along.
Bellavia advises dealers to exercise their rights and oppose Volkswagen. The National Automobile Dealers Association (NADA) and state dealer groups across the U.S. are already standing in solidarity and rallying to challenge Scout Motors in court.
"The franchise model isn't just about selling cars; it's about consumer protection, service, and competition, which all benefit the end customer." - Len Bellavia
