The California New Car Dealers Association (CNCDA) has filed a lawsuit against Volkswagen Group and its electric vehicle startup, Scout Motors Inc., seeking to block the company’s plans to sell vehicles directly to consumers in California. The complaint, filed on April 21 in San Diego County Superior Court, alleges Scout’s retail model violates a newly amended state law requiring affiliated manufacturers to sell through franchised dealerships.
In addition, the lawsuit also names Volkswagen of America and Volkswagen Group of America as defendants. It marks the latest clash between the influential dealer association and Scout, which is fully owned by Volkswagen AG but claims operational independence.
Under the law that took effect on January 1, 2024, manufacturers affiliated with existing automakers must sell and service their vehicles through franchises. CNCDA argues that Scout, despite being branded as a standalone EV startup, falls under this requirement due to its corporate ties to Volkswagen.
“Volkswagen can’t pick and choose which vehicles to sell on its own or through its franchised dealer network, reserving the most profitable or desirable vehicles for itself,” said Brian Maas, CNCDA president, in a statement on April 22. “Illegal competition will harm not only dealers but also the communities and car buyers that they serve.”
According to the suit, Scout’s model unlawfully bypasses the franchise system, depriving VW dealers in California of the opportunity to sell what it describes as “highly desirable” vehicles, such as the upcoming Traveler SUV and Terra pickup.
Furthermore, the association is asking the court to declare Scout’s direct-to-consumer plans unlawful and to issue multiple court orders: a temporary restraining order, a preliminary injunction, and a permanent injunction prohibiting direct sales, as well as a halt to accepting deposits from California residents. It is also seeking financial penalties under the state’s False Advertising Law- claiming fines could exceed $35 million based on the estimated number of EV buyers misled by Scout’s advertising.
Scout began taking $100 refundable reservations for its vehicles on October 24. The suit claims the brand has engaged in extensive advertising across California without disclosing the alleged illegality of the transactions.
This legal action follows a series of disputes between Scout and dealer groups. In December, CNCDA demanded that Scout stop taking deposits. In response, Scout asserted its independence and argued VW dealers have no entitlement to its vehicles.
In February, Florida-based VW and Audi dealerships filed a similar lawsuit, and in March, the National Automobile Dealers Association sent a letter to VW Group CEO Oliver Blume urging the company to reverse course on Scout’s retail strategy.
