The Volkswagen Group and its emerging Scout EV brand are facing backlash from existing dealerships in California regarding the state’s dealership franchise regulations.
Dealers in California, a state recognized for its progressive stance on electric vehicles, are voicing their concerns over VW Group’s intention to adopt a direct-sales strategy for the newly formed Scout brand. The Terra pickup truck and Traveler SUV prototypes, recently unveiled, are scheduled to enter production in 2027.
According to a report from Automotive News, the California New Car Dealers Association dispatched a cease-and-desist letter to VW Group and Scout on December 20, addressing the proposal to sell Scout vehicles directly to consumers in California.
This dealer association, which represents more than 1,200 dealerships statewide, including over 50 affiliated with VW Group, contends that California’s dealership franchise laws prevent automakers from competing against their franchisees through direct sales or service via affiliates, noting that, by California statutes, Scout is categorized as an affiliate of VW Group.
The dealership representatives express that if the direct-sales model moves forward, it would prevent both new and existing VW Group dealerships—many of which have long urged the automaker to introduce a pickup—from having the chance to sell and service Scout vehicles.
Direct-sales operations are already in place for other automakers like Tesla, Rivian, and Lucid in California. Nonetheless, those brands are not directly affiliated with a major automaker, although Rivian’s situation is evolving with a recent $5.8 billion investment commitment from VW Group.
Polestar, associated with Volvo, utilizes a direct-sales model in California while managing to maintain a level of integration with customer service and service via Volvo dealerships. This type of integration may have eased the strain on VW Group’s attempts to establish Scout’s own retail locations.
Working together with existing dealerships can bring substantial benefits, especially in service areas, as it negates the need to create new physical infrastructure. Rivian CEO RJ Scaringe recently referred to dealership franchise laws as being “as close as you can get to corruption” during a media discussion, acknowledging that his company is currently grappling with a service backlog while trying to expand its service network.
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