The California New Car Dealers Association (CNCDA) has fired the opening round in a broader legal assault on Scout Motors over the new Volkswagen subsidiary’s plan to adopt Tesla’s direct-sales strategy for its forthcoming Traveler SUV and Terra pickup. Representatives for the CA dealers sent a formal cease-and-desist letter to Scout last Friday demanding that the company stop taking deposits on both of its planned vehicles, citing an amended California law that makes it illegal for automakers to compete directly with their existing dealership franchises.
The key word there is “existing.” This is the exemption by which Tesla is allowed to sell vehicles directly to consumers in California; it had no established franchises with which its direct sales model could have possibly competed. But while Scout Motors may pitch itself as an independent startup, CNCDA is pointing to the conspicuously large figure lurking behind the curtain: Volkswagen.
Here’s how CNCDA put it in its cease-and-desist letter:
“Under Vehicle Code section 11713.3(o), automobile manufacturers and their affiliates are forbidden from competing with their own vehicle franchisees. Scout is an affiliate of VW under California law. Vehicle Code section 11713.3(z) defines ‘affiliate’ as ‘a person who directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, another person.’ [emphasis added by CNCDA]. Since as early as 2022, VW has been directly and substantively involved in Scout’s development and revitalization of its vehicles, including VW’s investment of billions of dollars into a Scout production plant in South Carolina.”
Put simply, CNCDA’s argument is that Scout is a VW Group brand like any other, no matter how the company chooses to spin it. As such, it’s subject to the same rules as anybody else: If you want to sell cars in California, you can’t run an end-around on your dealerships.
Scout was aware of the amendment before its passing, and even lobbied for language that would carve out room for it to establish its own dealership franchises (separate from other VW Group brands). By bypassing that entirely in favor of direct sales, CNCDA argues, Scout is engaging in misconduct. That’s about as gently as the dealer lobby phrases it anywhere in its letter, by the way. The rest of the takes are quite a bit spicier; the words “brazenly unlawful” appear down near the bottom.
We’ve reached out to Scout to request a comment on the situation, but we’re going to go out on a limb and say the lawyers over there probably saw this one coming. We’ll update this story if we hear back.
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