The ambitious launch of the Volkswagen Scout brand in California has hit an immediate roadblock. The California New Car Dealers Association (CNCDA) has issued a formal cease-and-desist letter to Volkswagen (VW) and its electric vehicle venture, Scout, challenging their plan to sell vehicles directly to consumers in the state. This move by CNCDA signals a significant clash over established franchise laws and the future of automotive retail in California.
Breaking News: Volkswagen Scout Receives Cease and Desist Letter from California Car Dealers Association
CNCDA, representing nearly 1,200 dealerships across California, including over fifty Volkswagen franchises, is the largest state dealer trade association in the U.S. Their action underscores a commitment to upholding the franchise system, protecting consumer interests, and ensuring ethical business practices within the automotive sector. The cease-and-desist letter directly accuses VW and Scout of violating California Vehicle Code section 11713.3(o), which is designed to prevent manufacturers from unfairly competing with their franchised dealers through direct sales by affiliated entities. Under California law, Scout is considered a VW affiliate, making their direct-to-consumer sales model a point of contention.
The core of the dispute lies in the potential disruption to the livelihoods of thousands of employees at existing VW dealerships and the anticipated negative impact on state tax revenues. CNCDA argues that Volkswagen’s strategy to bypass franchised dealerships undermines the legal framework that safeguards consumer choice and healthy competition in California’s auto market. By selling Scout vehicles directly, VW allegedly circumvents its responsibility to guarantee accountability, transparent pricing, and consistent customer service – all cornerstones of the franchise dealer model.
“Volkswagen’s direct sales approach with the Scout brand poses a clear and present danger to the jobs, investments, and consumer protections that California’s franchise laws are meant to secure,” stated Brian Maas, President of CNCDA. He urged Volkswagen to respect California law and immediately cease offering Scout vehicles directly to consumers, emphasizing the importance of utilizing their established business partners – local dealerships.
This legal challenge follows previous concerns raised by CNCDA regarding VW’s intentions to use the Scout brand to compete directly with its franchisees. In response to these concerns, CNCDA sponsored Assembly Bill 473 (AB 473) in the California State legislature last year. This bill, actively opposed by Scout during its legislative process, ultimately strengthened the state Vehicle Code to explicitly prohibit the type of direct sales model VW is now pursuing with Scout. Despite Scout’s public acknowledgment that AB 473 would impact their chosen distribution strategy, the bill received unanimous approval from the California legislature, was signed into law by Governor Newsom, and took effect on January 1, 2024. CNCDA views VW’s current direct sales plan for Scout as a blatant disregard for this recently enacted law.
CNCDA remains resolute in its commitment to ensuring compliance with California law and protecting franchised dealers. The association has indicated its readiness to pursue further legal action if Volkswagen and Scout fail to promptly halt their direct sales operations. The automotive industry and consumers in California are now watching closely to see how Volkswagen will respond to this significant legal challenge to its ambitious Scout venture.
Read CNCDA’s Cease and Desist Letter to Scout here.
