One of the largest state dealer’s associations in the U.S. has taken the first legal step to stop Volkswagen (VW) from implementing its plan to sell electric vehicles directly to consumers.
The California New Car Dealers Association (CNCDA) issued a cease-and-desist letter Dec.20, 2024, to VW and its affiliate Scout following their recent announcement that they plan to sell the electric vehicles to California consumers in what they believe is a violation of state law.
CNDCA officials maintain Scout is a VW affiliate under California’s Vehicle Code. California law states that manufacturers may not compete with their own franchisees by using affiliates to directly sell or service vehicles, which Golden State dealers alleged is precisely what VW and Scout intend to do.
California Dealerships
CNCDA President Brian Maas explained the violation of this state law threatens the livelihoods of thousands of existing VW dealership employees and could significantly impact tax revenues as the direct sales plans disregards the legal framework that protects consumer choice and competition within California’s automotive marketplace. VW’s sales of Scout-branded vehicles without participation from franchised dealer partners circumvent its legal obligation to ensure accountability, fair pricing, and consistent customer service.
“Volkswagen’s direct sales via its Scout brand represent a direct threat to the jobs, investments, and consumer protections California’s franchise laws are designed to safeguard,” said Maas. “We strongly encourage Volkswagen to heed our call to abide by California law and immediately stop offering Scout vehicles directly to consumers without using their business partner local dealers.”
Scout Sales Infrastructure
Scout Motors CEO Scott Keogh recently stated he expects the electric SUV and truck brand will have around three dozen U.S. retail centers when sales begin in 2027, eventually rising to 100. Keogh noted other EV sellers like Tesla, Rivian and Lucid have direct sales models.
“I think it’s critical moving into the future in unstable environments to control your customer, control your margin, control your operational excellence,” Keogh said, referring to the direct sales plan.
Besides CNCDA, the decision to attempt to bypass franchised dealerships is being challenged by the National Automobile Dealers Association (NADA). NADA CEO Mike Stanton said their organization and state associations “will challenge this and all attempts to sell direct in courthouses and statehouses across the country.”
“VW’s decision to attempt to sell Scout vehicles direct to consumers and compete with its U.S. dealer partners is disappointing and misguided, and it will be challenged,” said Stanton. “Unfortunately, it’s also not terribly surprising, as VW AG CEO Oliver Blume and Scout CEO Scott Keogh have avoided engaging with or even responding to NADA for months.”
California Law
CNCDA is the nation’s largest state dealer trade association, made up of nearly 1,200 California dealerships and over fifty VW dealerships. In response to concerns that VW would use the Scout brand to compete directly with their franchisees, last year, CNCDA sponsored a franchise bill in the California legislature.
The bill strengthened the state vehicle code to prohibit these actions. Scout was active throughout the bill’s legislative journey and publicly stated that it would not be able to choose its current distribution model if the bill were to go into effect. The bill was unanimously approved by California’s legislature, signed into law by Gov. Gavin Newsom (D-CA), and became effective on Jan. 1, 2024.
VW’s intent to sell vehicles without using franchisees using the Scout brand is a “brazen violation” of the law, according to CNCDA officials, who sated they are prepared for further action should this letter not result in the immediate cessation of direct sales by VW.
