A recent lawsuit aims to prevent an automaker from bypassing its dealer network.
Scout Motors intends to sell its pickup trucks and SUVs directly to consumers, circumventing the traditional dealership model. When German automaker Volkswagen AG announced the creation of a new brand, Scout Motors, to produce a line of American-style rugged electric and hybrid trucks and SUVs, Volkswagen dealer Fred Ippolito began making plans.
As a Volkswagen dealer, he purchased a vacant lot next to his dealership in West Islip, New York, believing it was an ideal location for a Scout showroom. These vehicles, designed for the American market and built domestically, were precisely the products Volkswagen dealers had been requesting for years.
Four years later, Ippolito's lot remains empty. Now, he and other dealers are suing Volkswagen AG and Scout.
Following the example of Tesla, Scout plans to sell its vehicles entirely through a direct-to-consumer model. Although other electric vehicle startups like Rivian and Lucid use the same approach, dealers argue that because Scout is part of the Volkswagen Group, it must sell its vehicles through independent franchised dealers.
"Volkswagen's success was built on the back of its dealer network, and now they are stabbing them in the back—these are the dealers who helped them grow in the U.S. since the 1950s," Ippolito said.
Scout has not retreated from its position. The company's CEO, Scott Keogh, stated they are convinced the direct sales model will provide greater customer insights in the age of artificial intelligence and deliver a superior experience for consumers.
"You can achieve significant optimization in the production efficiency and distribution of every single vehicle," the former CEO of Volkswagen of America said at an event in the Detroit suburbs. "Yes, we want to squeeze out every bit of efficiency. The current system is inefficient; there's no doubt about that."
Scout's direct sales plan has already prompted multiple lawsuits. A recent lawsuit filed by Ippolito and another Volkswagen dealer in a Virginia federal court is seeking class-action status. This aims to avoid fighting state-by-state legal battles and would represent the interests of approximately 600 Volkswagen dealers across the United States. The dealers hope to force the company to reconsider its sales strategy before the first Scout model enters production in early 2028.
At the heart of this legal battle is a fundamental question: Who has the right to sell new cars in the United States?
While other countries often allow automakers to sell directly to consumers, state laws in the U.S. generally mandate that only independent dealers, not the automakers themselves, can sell vehicles to the public.
For instance, even though Scout plans to build a new factory in South Carolina and hire 4,000 employees, the company would still be unable to obtain a license to sell vehicles in that state.
Dealers, who have established their legally protected role in the car-buying process through extensive lobbying and wield significant political influence, argue that the current system protects consumers. They point out that dealers set their own prices and compete against each other, rather than having prices fixed by the manufacturer. They also claim dealers are better than factories at handling vehicle service and can offer the best prices for customers' used cars.
"Selling a car is easy," Ippolito said. "The hard part is servicing the customer, maintaining the vehicle, and solving problems over the next 10 years—things automakers simply aren't equipped to do."
Scout executives, however, say they want the opportunity to prove Ippolito wrong. Scout's Vice President of Commercial Operations, Cody Sacks, stated that many American consumers dislike the traditional car-buying experience. The company plans to open around 100 company-owned showrooms and service centers in the U.S. and Canada, creating a service network comparable to that of traditional dealers.
Sacks said Scout will be staffed with an adequate number of repair technicians to ensure customers' vehicles are well maintained.
"We keep hearing one phrase: 'Give me another option'," he said. "Consumer trust in car dealerships is currently very low."
The traditional dealership model began to fracture in the 2010s when Tesla started selling electric vehicles directly. Elon Musk's company argued that direct ownership allows for better control of the customer experience. Tesla also contended that EVs, with fewer moving parts and lower maintenance needs than gasoline cars, offered less incentive for dealers to sell them, as service operations like oil changes are a key profit source for dealerships.
Tesla fought and won numerous legal battles to establish hundreds of its own stores across the U.S. Tesla, Rivian, Lucid, and other new entrants still face legal hurdles and regulatory restrictions in some states.
What truly alarms established dealers, however, is Scout's connection to Volkswagen AG. If a legacy automaker can launch a new brand completely unbound from its dealer network, will Ford, General Motors, and Toyota follow suit?
"The fact that a giant like Volkswagen is endorsing the direct-sales concept, upending a model that has been in place for decades, is what's causing the uproar," said Dave Cantin, head of an automotive merger firm, calling it an act of extreme self-interest.
Volkswagen AG is not the only legacy automaker attempting to bypass the dealer model. Honda dealers in California are also contesting the direct-sales plan for the premium Afeela EV, developed in partnership with Sony.
For now, Ippolito continues to hold onto the vacant lot next to his dealership, imagining it as a future Scout showroom. "We will ultimately win this lawsuit, and I hope to secure the Scout franchise," he said.
Comments