Scout's lawsuits regarding direct to consumer Sales

[Hmhank]

I think it's more involved than that based on other manufacturers that utilitize one or two platforms for every vehicle they make. The vehicles look nothing alike, but a lot of the frame, drivetrain and suspension components are interchangeable to save development cost. Example: You can bolt the high performance suspension and brakes from a Ford Focus RS onto a Ford Transit Connect van. That doesn't make them the same vehicle by any means.

I agree. Just saying the marketing message to me seems disconnected. In your example the Ford Focus or its platform are not marketed as containing all the unique things that made first generation of Focuses great.

 

[Hmhank]

Again, sorry for the hijack. Lets get back to getting rid of car dealerships.

 

[Broverlander]

Would love to see ballot initiatives to let the buyers decide what they want.

YES! I love this idea! Most states allow petitions to place on the ballot whether that state should modify or abandon a law. There could be a referendum on whether to allow DTC sales regardless of whether it violates franchise laws or those franchise laws could be amended. Take the decision out of politicians who might have their hands in the dealers' pockets. The number of signatures on the petition would vary by state, but I have a hard time people would not support allowing DTC.

 

[CRobin]

What’s the gist of these lawsuits?

Scout Motors (I’ll refer to it as “Scout”) is wholly owned and fully funded by Volkswagen Aktiengesellschaft, also known as the Volkswagen Group (I’ll refer to this company as “VW”). This is the VW you all know and love (maybe? Maybe not?). In addition to owning and funding Scout, VW owns and funds a lot of other companies. One of them is called Volkswagen Group of America (I’ll refer to this company as “VGA”). VGA is the company that sells VW automobiles in the United States.

To sell VW automobiles in the U.S., VW uses a “dealer” model. What this means is that there are brick-and-motor stores where you can go buy a VW. Those VW stores aren’t owned by VW. Rather, they are owned by what we call “franchisees.” So basically, a person (I’ll use that phrase because it’s easier to understand) enters into an agreement with VW that gives the person the legal right to sell VW automobiles, they build the brick-and-motor stores and then sell the cars. There are a lot of VW dealers. What most franchisors do is sell territories. They’ll sell the right to sell cars in a certain area in a city to one dealer and sell the right for another part of that city to another.

It’s because of this that every state has a set of laws called “franchise laws.” These laws regulate the relationship between the franchisee (the person selling the cars) and the franchisor (VW). They are intended to protect the franchisee (the car dealer) from the franchisor (VW) because the franchisor typically is much bigger, has more power and money, and has way more leverage. These laws are not designed to help the consumer.

The dealer model isn’t specific to VW. Frankly, with the exception of Tesla and Rivian, and maybe a few others, almost all cars are sold through this model. This model has been around for a long time. The car companies make money because they sell cars and the dealers make money because they increase the cost of the car slightly and when they sell them, they pocket the cost (called markup). In truth though, most of the profits for dealers come from used cars, accessories, parts, and service. The markup on new cars these days is pretty small though not insubstantial. That markup has the tendency to increase the cost of the car. And the dealer has the tendency to increase the complexity of purchasing a car (not the mention the hassle).

For this reason, some new auto manufacturers are selling direct to consumer (I call this “DTC”). Telsa and Rivian are two examples. DTC allows consumers to purchase vehicles through the website or their Scout Service centers or whatever they’ll call them. Having purchased a Rivian that way, it’s way, way, way better.

Scout does not intend to use the dealer model and instead, intends on DTC sales. To engage in the business of selling cars in a state, however, Scout needs a license in each state in which it intends to sell them (presumably all). Scout is in the process of applying for those licenses.

The various VW dealers around the Country are upset. They’re upset because Scout intends to use the DTC model, which cuts them out of the picture, and doesn’t let them profit from Scout sales. Some have been so mad that they’ve objected to Scout’s seeking of licenses and have filed civil lawsuits against Scout. In these lawsuits, the VW dealers have alleged that Scout cannot sell DTC because it violates certain states’ franchise laws. They argue that because VW owns Scout. They argue that they have agreements with VGA to sell cars. They argue that because VW owns both Scout and VGA, their agreements with VGA require VW to use them to sell Scouts.

I’ve not dug into the merits of the argument, but I’m skeptical to say the least. VGA is separate from VW. Dealers have an agreement with VGA. VW owns Scout. Dealers don’t have an agreement with VW. I’ll start digging into the filings to see what they say.

In my opinion, these lawsuits are about nothing but money. These car dealers want the right to sell Scouts so they can profit, (mostly) to the detriment of the consumer.

Thank you for sharing this information!!!

 

[chucchinchilla]

I think Scout would have a very good argument that they aren't poaching VW customers.

Both paragraphs raise some great points about the nuances of this case, but I want to add one extra layer of nuance to this layer of nuance. When you say "VW customers" you're referring to VW the brand, however I believe this case is referring to VW AG customers which includes all the brands. As such, Scout could potentially poach Audi customers since Audi plays in the same price brackets Scout is targeting. Why buy an Audi SUV from some dealer when you could get a Scout directly from Scout?

The kneejerk reaction to that argument is that Audi vehicles are focused on road while Scout is focused off road. But that's a weak argument because whose to say Scout won't make a more on road focused trim with all season tires that could compete against Audi (they will), or who says Audi won't start making a rugged off road focused SUV (they said they will). Actually just realized something, I am a VW AG customer (Audi A6) that Scout will end up poaching.

 

[chucchinchilla]

That was my first thought. I'd happily fly an hour or three to another state and roadtrip home instead of paying a dealer $10k markup. That buys me a lot of Starbucks, in n out and holiday inn rooms.

Or maybe Scout can take a page out of Tesla's book and just open up on tribal lands. Who wouldn't want to visit a Scout Store and Casino?

 

[J Alynn]

Both paragraphs raise some great points about the nuances of this case, but I want to add one extra layer of nuance to this layer of nuance. When you say "VW customers" you're referring to VW the brand, however I believe this case is referring to VW AG customers which includes all the brands. As such, Scout could potentially poach Audi customers since Audi plays in the same price brackets Scout is targeting. Why buy an Audi SUV from some dealer when you could get a Scout directly from Scout?

The kneejerk reaction to that argument is that Audi vehicles are focused on road while Scout is focused off road. But that's a weak argument because whose to say Scout won't make a more on road focused trim with all season tires that could compete against Audi (they will), or who says Audi won't start making a rugged off road focused SUV (they said they will). Actually just realized something, I am a VW AG customer (Audi A6) that Scout will end up poaching.

Generally true but there are plenty of name shoppers out there. Why buy a Lexus when Toyota has a very similar vehicle, just not quite the same. People with money like to name drop-same reason people will pay $400 for an Armani sweater when I can buy a similar sweater at Costco for $49.99. It’s the perceived image generally speaking. We bought Acuras for years-but similar Hondas were considerably less. But that is human nature. Though I keep wondering the same thing so not challenging your thoughts-just expanding on society’s need to one up their neighbors and friends

 

[Broverlander]

Both paragraphs raise some great points about the nuances of this case, but I want to add one extra layer of nuance to this layer of nuance. When you say "VW customers" you're referring to VW the brand, however I believe this case is referring to VW AG customers which includes all the brands. As such, Scout could potentially poach Audi customers since Audi plays in the same price brackets Scout is targeting. Why buy an Audi SUV from some dealer when you could get a Scout directly from Scout?

The kneejerk reaction to that argument is that Audi vehicles are focused on road while Scout is focused off road. But that's a weak argument because whose to say Scout won't make a more on road focused trim with all season tires that could compete against Audi (they will), or who says Audi won't start making a rugged off road focused SUV (they said they will). Actually just realized something, I am a VW AG customer (Audi A6) that Scout will end up poaching.

This is an excellent point. And yes, when I was referring to VW customers, I was referring to VW the brand. Passat, Jetta, Atlas, etc. (not even sure if the first two are around any longer. I'm not a huge VW fan). I didn't actually think about the other brands, such as Audi, under VW AG. But have you heard/do you remember the rumor that Audi is going to use Scout's platform and Scout's production capacity to produce up to 25K vehicles for Audi per year? What if VW is doing this to throw VW dealers a bone and get them to stop the lawsuit? So they can get in on the Scout sales without VW having to sell through them? Like other cars with their normal and luxury brands? Sure, you run the risk of direct competition now, but does that defeat the lawsuit? Maybe? At the very least, it may make the plaintiffs less desirous of a lawsuit. It's an interesting plot twist I would not have thought of before, which is why this exercise is so awesome!

 

[chucchinchilla]

This is an excellent point. And yes, when I was referring to VW customers, I was referring to VW the brand. Passat, Jetta, Atlas, etc. (not even sure if the first two are around any longer. I'm not a huge VW fan). I didn't actually think about the other brands, such as Audi, under VW AG. But have you heard/do you remember the rumor that Audi is going to use Scout's platform and Scout's production capacity to produce up to 25K vehicles for Audi per year? What if VW is doing this to throw VW dealers a bone and get them to stop the lawsuit? So they can get in on the Scout sales without VW having to sell through them? Like other cars with their normal and luxury brands? Sure, you run the risk of direct competition now, but does that defeat the lawsuit? Maybe? At the very least, it may make the plaintiffs less desirous of a lawsuit. It's an interesting plot twist I would not have thought of before, which is why this exercise is so awesome!

It's an interesting theory however I'd only believe it if all the lawsuits were dropped and the Audi Scout SUV was announced shortly thereafter. Announcing it before the lawsuit is done gives VW AG no leverage since it'll happen either way.
***
Had to pause because I couldn't remember if it was officially announced by Audi or just reported on by the press. I checked and this car was indeed only reported on by the press meaning yes, your scenario is still in play. Ok so yes, that could be a bone VW AG throws the dealer groups and let's toss in a VW pickup truck as well for good measure.

 

[chucchinchilla]

Generally true but there are plenty of name shoppers out there. Why buy a Lexus when Toyota has a very similar vehicle, just not quite the same. People with money like to name drop-same reason people will pay $400 for an Armani sweater when I can buy a similar sweater at Costco for $49.99. It’s the perceived image generally speaking. We bought Acuras for years-but similar Hondas were considerably less. But that is human nature. Though I keep wondering the same thing so not challenging your thoughts-just expanding on society’s need to one up their neighbors and friends

Scout could also be a prestige brand for the very same name shoppers you mentioned.

 

[J Alynn]

Scout could also be a prestige brand for the very same name shoppers you mentioned.

I think those wanting to be “influencers” in their circles you are very likely correct

 

[speedrye]

It's an interesting theory however I'd only believe it if all the lawsuits were dropped and the Audi Scout SUV was announced shortly thereafter. Announcing it before the lawsuit is done gives VW AG no leverage since it'll happen either way.
***
Had to pause because I couldn't remember if it was officially announced by Audi or just reported on by the press. I checked and this car was indeed only reported on by the press meaning yes, your scenario is still in play. Ok so yes, that could be a bone VW AG throws the dealer groups and let's toss in a VW pickup truck as well for good measure.

On the flip side, maybe that tidbit was intentionally slipped to the media as a bargaining chip. "This could be yours if you drop this mess"

 

[Broverlander]

On the flip side, maybe that tidbit was intentionally slipped to the media as a bargaining chip. "This could be yours if you drop this mess"

Excellent point! I could see that happening!

 

[6-ScoutFamily]

Or VW could tell the dealers who are suing that their VW franchise agreements were “under review”.

 

[Broverlander]

Or VW could tell the dealers who are suing that their VW franchise agreements were “under review”.

HA! If only!

 

[bwdavis7]

I say forget the lawsuits and change the laws! Again, I realize that is not realistic, but we have the responsibility as citizens to help form those laws and not let our governments over regulate and over step. The incoming South Carolina governor, Alan Wilson, has stated before that the dealer franchise laws are constitutional. While that might be accurate, he either misses the point or intentionally sidesteps the issue. These laws are outdated and either need to be eliminated or at least reformed. However, we know the lobbies have deep pockets and so the consumer voice gets squelched. Alan Wilson has requested South Carolinians to share their thoughts via a website https://wilson.sc.gov/ . Here is my feedback for him to ignore. I encourage others in this state to voice your opinion as well.
________________________________________________________________
Subject: Free-Market Reform: Modernizing SC’s Auto Market for Consumers and Local Businesses (S.C. Code § 56-15-45)

Dear Governor-Elect Wilson and Transition Team,

Congratulations on your election to serve as South Carolina’s next Governor. In response to your invitation for citizens to share ideas on how state government can better serve South Carolina families, I urge your administration to champion the repeal or reform of South Carolina’s mandatory auto dealership franchise restrictions under Title 56, Chapter 15 (specifically S.C. Code § 56-15-45).

In virtually every other retail industry, the free market thrives because consumers have choices. A South Carolinian who wants an Apple product can buy it directly from Apple—online or in a store—or purchase it from an independent retailer like Amazon or Best Buy. No state law forces consumers to go through a government-protected middleman just to buy everyday goods.

Yet South Carolina’s auto franchise laws carve out a unique statutory protection that blocks automakers from selling directly to consumers. Even more telling, federal antitrust and economic analyses by the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) have found that these state bans act as an unnecessary "middleman tax" that inflates vehicle prices—and that lifting them can actually increase profitability for strong local dealerships by reducing bloated inventory overhead and expanding high-margin service, warranty, and maintenance business. Furthermore, as new automakers invest and build vehicles right here in South Carolina, it makes no sense for state law to block them from selling directly to the very citizens who build and buy their cars.

True free enterprise means businesses earn customers through better pricing, transparency, and service—not through state laws that shield them from competition. As you prepare to take office in January, I ask that you stand with South Carolina consumers and free-market principles by:

1. Supporting legislation in the 2027 General Assembly session to repeal the ban on direct-to-consumer vehicle sales and modernize outdated franchise protections.
2. Backing a statewide ballot referendum if the legislature hesitates to act, letting the people of South Carolina decide directly whether to end mandatory dealership middleman laws.

South Carolinians deserve the same freedom of choice when buying a car that they already have when buying every other product. Thank you for listening to the people of our state and considering this reform for your Day-One agenda.

Sincerely,

 

[6-ScoutFamily]

Excellent! Did you post this to them?

 

[codythacker]

For those of you who may not know, I'm a lawyer and have been for the past 22 years. I was in private practice with a law firm for 15 of those years but for the last seven, have been employed by a municipality in an in-house capacity (much less stressful!). During those 22 years, I practiced mainly in Minnesota (I live in Minneapolis/St. Paul). In addition to being licensed in Minnesota, I was also licensed in Wisconsin and Iowa. On top of that, I've handled cases around the Country (when you're not licensed in a state, you can get admitted on a case-by-case basis). To this day, I have two specialties. First, I advise employers on human resources issues. Second, I defend civil lawsuits for corporations and now, a municipality. I'm also a new vehicle addict, love off-road vehicles (even though I rarely take them off road, thus my user handle), and have a reservation in for both the Traveler and the Terra. To say I'm all-in on Scout would be an understatement (ask my wife. She'll tell you).

A lot of forum members seem to have lots of questions about the civil lawsuits that some car dealers have started against Scout in some states (California, Washington, Colorado, and somewhere on the East Coast). I plan on using this thread to explain what's going on and why the dealers' associations are doing this (that will be my first post). Then, at some point, I plan to gather most of the legal documents that have been filed publicly and give you my thoughts and opinions on them. This thread is in no way, shape, or form intended to be, or should be constructed as, legal advice. Rather, it's my chance to try to help the forum members understand what's going on and let them know what I think--in my own opinion--the legal landscape looks like for Scout.

I also don't want this to be just me spouting my thoughts. Everyone who wants to give an opinion or thought should. Honestly? Some of the best ideas I've gotten over the years have been because of comments or questions I got from my clients. I literally won a trial about a year ago because of a question a client asked me that I hadn't' thought of.

Broverlander, well done! You’ve captured a lot of the dynamics.

If it’s of interest to you (and the group) other relevant topics to add to your thread and research:

- interplay of dormant commerce clause and state licensing regimes
- the concept of line-make and the case law on line-make badging swaps
- the concept and definition of “authorized products” within OEM-dealer sales and service agreements (“franchise” agreements)
- the various state statutory definitions of “reservation” and “sale”

With your initial analysis and the above, you’ll begin to see the hollowness of the dealer claims.

 

[bwdavis7]

Excellent! Did you post this to them?

Oh yes. I did! It is not the first time either.

 

[J Alynn]

Broverlander, well done! You’ve captured a lot of the dynamics.

If it’s of interest to you (and the group) other relevant topics to add to your thread and research:

- interplay of dormant commerce clause and state licensing regimes
- the concept of line-make and the case law on line-make badging swaps
- the concept and definition of “authorized products” within OEM-dealer sales and service agreements (“franchise” agreements)
- the various state statutory definitions of “reservation” and “sale”

With your initial analysis and the above, you’ll begin to see the hollowness of the dealer claims.

Love it when Cody Thacker joins the forum. Thank you sir. Appreciate that you gave him a compliment. It’s great when members with expertise offer education for the rest of us