VW dealers and NADA will fight Scout Motors in court over direct sales

NADA doesn’t want Scout Motors to sell directly to customers and is preparing for a legal battle.

Scout Motors is furious Volkswagen dealers across the United States last week when it was confirmed that upcoming Terra and Traveler will be available through a direct sales model rather than through existing dealerships. However, state dealer associations and the National Automobile Dealers Association (NADA) are already fighting back and are looking for ways to block the hotly contested plan for the revived brand.

Although Tesla was a pioneer in direct-to-customer sales in the U.S., it has faced many legal hurdles as it tries to circumvent regulations designed to protect franchised companies. dealerships. Scout is different from Tesla in that it is not a real startup and is owned by the VW Group. Its connection to the German automaker could complicate its ability to sell cars without involving dealers, said Richard Sox, managing partner of law firm Bass Sox Mercer.

Read: VW dealers furious as Scout sells Terra and Traveler direct to consumers

“In the vast majority of states, OEMs are not allowed to sell directly or compete with their dealers,” Sox said. Auto News. “There are some exceptions to this, but these exceptions generally apply to non-legacy OEMs that do not and never have had a dealer network, i.e. Tesla. They are affiliated with Scout and have ownership. They potentially have some control. This certainly complicates Scout’s ability to make direct sales in those specific states that would otherwise allow a manufacturer completely separate from the legacy OEM to make direct sales.”

Scout strives to declare its independence from the moment of launch. The company plans to open dedicated retail outlets across the country to allow customers to place orders online. Scout will also manage all production and servicing of its vehicles.

Pohanka Automotive Group Chairman Jeffrey Pohanka rejected the claim that the Scout is independent from VW, telling Auto News that “it’s the same thing.” He added that “VW is working hard to rebuild its presence in the United States and they are very sincere about it. This goes against all the efforts they have made to revitalize the brand with new models.”

NADA Executive Director Mike Stanton said the association is ready to challenge Scout “in courthouses and government buildings across the country.” While it remains unclear what legal path NADA will take, Stanton noted that “everything is currently under discussion.” He predicts that Scout’s plans to manage all aspects of ownership through an app will “fail.”

Read: This is the new Scout Terra Truck and Traveler SUV

University of Michigan Law School professor Daniel Crane said dealer associations could first target the states where they have the strongest reputations before starting legal battles. Richard Sox added that his law firm has already begun working with the state’s 10 dealer associations and is looking for better ways to counter the direct-to-consumer sales strategy.