On December 20, 2024, the California New Car Dealers Association (CNCDA) issued a cease-and-desist letter to Volkswagen (VW) and its affiliate, Scout Motors. This action followed VW’s announcement to sell vehicles directly to California consumers under the Scout brand, which the CNCDA claims violates state law.
The CNCDA, which represents nearly 1,200 dealerships across California, including more than 50 VW dealerships, is committed to preserving the franchise system and protecting consumers by ensuring that business practices are legal and ethical.
The cease-and-desist letter points out Volkswagen’s violation of California Vehicle Code section 11713.3(o), which prohibits manufacturers from competing against their own franchisees by using affiliates to sell or service vehicles. According to this code, Scout is subject to the same restrictions. Therefore, VW’s plan to sell vehicles directly through the Scout brand constitutes a direct breach of this law.
Potential impact on the franchise system
The CNCDA argues that VW’s actions could have far-reaching consequences, including job losses for thousands of VW dealership employees and a significant economic impact on local tax revenues. The proposed direct sales model bypasses California’s established legal framework that ensures consumer choice and competition, potentially undermining fair pricing, customer service standards, and accountability within the state’s automotive marketplace.
“Volkswagen’s direct sales through its Scout brand threaten California’s jobs, investments, and consumer protections,” stated Brian Maas, President of the CNCDA. “We urge Volkswagen to follow California law and stop selling Scout vehicles directly to consumers without involving local dealers.”
In response to concerns over VW’s potential use of Scout to directly compete with franchisees, CNCDA sponsored Assembly Bill 473 (AB 473), strengthening California’s Vehicle Code to expressly prohibit such actions. Scout actively participated in the bill’s legislative journey, even stating that it would be unable to adopt its current distribution model if it passed.
Signed into law by Governor Gavin Newsom in 2023, AB 473 became effective on January 1, 2024. The bill, passed unanimously by the California legislature, clarified that manufacturers could not bypass franchised dealers for direct vehicle sales.
Despite this, VW’s intentions to sell Scout-branded vehicles directly to consumers, bypassing dealers, is seen as a blatant violation of this newly strengthened law.
Nevertheless, the CNCDA has made it clear that it will take further legal action if VW does not immediately halt its direct sales plans through Scout. The association remains committed to enforcing California’s franchise laws to protect both dealerships and consumers and ensure a fair and competitive automotive marketplace in the state.
