Last week, Colorado's Motor Vehicle Dealer Board granted Scout Motors a dealership license to operate in the state, effectively allowing the Volkswagen-owned EV startup to sell its vehicles directly to consumers.
For context: After reviving Scout Motors in 2021, Volkswagen relaunched the brand in October 2024 as an independent American automotive company that would produce an electric SUV, the Traveler, and an electric pickup truck, the Terra.
Since then, Scout Motors has expanded its lineup to include extended range electric vehicles (EREVs).
However, the brand is still committed to distributing vehicles without Volkswagen’s U.S. franchise dealer network, despite running head-first into legal and political obstacles.
Currently, Scout Motors is being sued in California and Florida on the grounds that its intended distribution model violates state franchise laws.
In a nutshell: Because Volkswagen has a roughly 75-year franchise dealer presence (unlike Tesla and Rivian), dealers are arguing that they have distribution rights to Scout products. Otherwise, they would be in direct competition with their own manufacturer.
However, Colorado has established a new precedent. And even though the ruling will likely be challenged in court, it has rattled the hornet’s nest.
What they’re saying: On a recent episode of Daily Dealer Live, Don Hall, president and CEO of the Virginia Automobile Dealers Association (a non-profit trade group that advocates for and educates dealers), warned that this ruling affects every franchise car dealer in the country, whether they carry the Volkswagen brand or not.
“[Automakers] want to criticize our systems, our way of life, and our competitiveness that we provide to consumers, be it through sales, service, or any other mechanism. And they want to do that by doing it directly,” said Hall. “This is a huge step. We've got to prevail in Colorado and stop Scout because it will be other states they will come to soon enough.”
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Between the lines: Dealership mergers and acquisitions expert Alan Haig, president of Haig Partners, sees it as another crushing blow to U.S. VW dealers who have been struggling “for about 30 years.”
According to Alan, VW probably had its heyday in the late '60s and early '70s. Since then, it's been an uphill battle.
“Eight years ago, almost every product was a slightly different sedan that didn't sell well. So, they made another slightly different sedan that didn't sell well,” Haig explained.
But now, Scout Motors has an opportunity to grab market share in the pickup truck and rugged SUV segments that are popular with American consumers.
"Volkswagen dealers, I'm sure, were praying like, ‘please create a pickup truck or rugged SUV that we could sell in our showrooms and bring in some of those red-blooded American customers,’" Haig noted. "And to see them go the other direction and then see the state of Colorado allow that potentially; it's got to be yet another depressing moment for Volkswagen dealers."
Yes but, Haig concedes there is some logic to the decision.
Despite being a very new brand, the development of Scout likely began almost a decade ago, when Tesla began massively disrupting the market.
Tesla’s $TSLA ( ▲ 0.27% ) market cap has since reached unprecedented levels.
But even before the company added its robotics arm (Optimus), legacy automakers started scrambling to catch up.
“You can see how that would have been a boardroom conversation eight years ago, six years ago, four years ago. But now, for an electric pickup truck. Nobody wants that product, at least, in very small numbers,” said Haig.
However, Haig thinks Scout will struggle without the franchise system, especially when it comes to service, repair, and parts. Even Tesla is already contracting vehicle service out to franchise dealers who are better equipped to manage scheduling and offer loaner vehicles.
The bottom line: Hall advises the younger generation of dealers to become more politically active and treat this situation more thoughtfully and urgently. But beyond that, he encourages every dealer to prioritize the development of their employees and ensure that each car buying experience exceeds expectations.
“Take away the manufacturers’ arguments that they can do it better,” Hall said.
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