Fourteen Volkswagen dealers in California last week filed protests to the state’s New Motor Vehicle Board, adding to arguments that the automaker’s efforts to sell Scout Motors vehicles directly to consumers violates existing state franchise laws.
Driving the news: The protests additionally allege that positioning Scout as a distinct brand also sidesteps state law, according to a release by the California New Car Dealers Association (CNCDA).
That’s because Volkswagen calls Scout an “independent” company, but it is owned by VW and the cars will be built in Volkswagen-owned factories, according to CNCDA.
If successful, Scout’s dealer license could be suspended and/or financial penalties could be imposed, CNCDA President Brian Maas told CDG News via email.
For context: The dealer group is exercising a right to protest under a 2023 law, Assembly Bill 473, which was enacted “to close the loophole Volkswagen is now attempting to exploit,” according to CNCDA, which sponsored the bill.
Among other provisions, the bill “explicitly prohibits manufacturers from competing with their franchised dealer partners.”
These are the first such protests filed under the bill’s authority, Maas said.
“It’s an administrative proceeding before the New Motor Vehicle Board under specific authority in the Vehicle Code,” Maas said. “The NMVB was created specifically to hear these kinds of disputes between manufacturers and dealers.”
What they’re saying: Miles Brandon, a VW Dealer Council member and president of Capistrano Volkswagen, said in the release that the dealers’ decision to file the protest was not taken lightly, but that the OEM left them no choice by “competing against the very dealers who built their business here.”
"As a member of the Volkswagen Dealer Council, I have spent years working with VW in good faith to grow this brand in California,” Brandon said in the release.
Rick Niello, president of The Niello Company and CNCDA board member, echoed that sentiment, noting the group’s 105-year presence in the region, including 70 selling Volkswagen.
“We invest in our people, our facilities, and our customers to ensure every experience reflects the quality Volkswagen represents,” Niello said in the release. “Our customers deserve access to the full range of vehicles Volkswagen offers, and Scout vehicles belong in our showroom. We expect the same integrity from our manufacturer that we deliver to our customers."
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Zooming out: The protest adds to the growing pile of legal action against Volkswagen and Scout. The CNCDA itself has a lawsuit against the OEM in federal court, where a judge issued a March 30 ruling that the case could proceed.
A group of Florida dealers also filed suit against the automaker in that state, and on March 3, two dealers filed suit against Volkswagen and Scout in Virginia, seeking class-action status.
If the case gets the class-action certification, every Volkswagen dealer in the country would be covered under the suit.
What’s next: A pre-hearing conference is set for May 18, at which a further timeline will be set up, Maas said.
“The protests will likely be consolidated at a formal hearing held before an Administrative Law Judge later this year,” Maas said. “After the ALJ issues his/her proposed ruling, the New Motor Vehicle Board will meet publicly to accept, reject or modify the ALJ’s decision.”
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