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?