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Quick heads up — two of the article links in this morning’s newsletter didn’t work. That’s on us. But they’re fixed now.
For anyone who tried to click through, here are the three stories again:
More dealers have joined the fight against Volkswagen and Scout, and this time, every Volkswagen dealer could be covered.
On March 3, a lawsuit seeking class-action designation was filed on behalf of two dealerships, and subsequently, every VW dealer in the U.S., against Volkswagen of America, Volkswagen AG, Scout Motors, and Scout Sales.
The main legal claim: VW is violating its dealer agreements by excluding its own dealers from selling Scout vehicles.
The class-action lawsuit, filed in U.S. District Court in Virginia’s Eastern District, is at least the third now on the books against Volkswagen and/or Scout.
Here are three things to understand about why Volkswagen dealers took the rare step of filing a class-action lawsuit, what it reveals about rising OEM–dealer tensions, and what it could mean for the future of the franchise system.
Lawsuits pitting dealers against manufacturers, especially a class-action suit, almost never happen.
While it’s not unheard of for a dealer to sue a manufacturer, it’s not common.
Generally, disputes that rise to legal action include a single dealer and a dispute over something such as warranty work.
And often, those disputes get settled within a state’s motor-vehicle commission or a similar body, not in court.
Rare waters: Brian Maas, president of the California New Car Dealers Association, is well-versed in such matters. The association filed a lawsuit against Volkswagen and Scout in that state in April 2024. Maas explained the rarity of a class-action lawsuit, and the one the association filed, too.
"A class-action lawsuit against a manufacturer of the type that happened this week, that's very rare," Maas said. "And associations suing manufacturers, like we're doing? Also very rare."
Brian Maas
Cost is one reason these suits are uncommon. But when they do happen, Maas says, it's because the stakes are existential.
"It tends to be something that the plaintiffs, at least, believe is a potential existential threat to the franchise model," he said. "And that's how we feel about the VW-Scout lawsuit."
"The idea is, if you have a franchise, you have access to every vehicle that that manufacturer sells," Maas said. "The manufacturer doesn't get to pick and choose."
NADA echoed that position, calling VW and Honda's direct-sales moves "outrageous and misguided" and pledging full commitment to protecting the franchise system.
In a statement to CDG, a NADA spokesperson wrote in part: “Attempts by VW and Honda to sell their vehicles directly to consumers and compete with their U.S. dealer partners are outrageous and misguided.
Any direct-sales model would undermine any automaker’s relationship with its franchised dealers, all of whom have made significant investments in their current brands and any future products.”
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VW dealers didn't wake up disgruntled overnight.
A fair question has come up in the comments following our initial coverage of the lawsuit: If consumers want to buy directly from an OEM, why not let them?
But as Maas and others pointed out, the Teslas and Rivians of the world do not, and never did, have franchised dealers.
And this battle is more about Volkswagen and its contractual obligations to dealers – dealers who have remained faithful to the brand, as one industry expert shared with CDG News.
Alan Haig, president of buy-sell advisory firm Haig Partners, explained to me that the difference here is history.
Haig said Volkswagen dealers feel frustrated for staying loyal to a brand that hasn’t always done the same. For context, measuring dealer sentiment about such OEM relationships is part of Haig’s expertise.
And his read on VW dealers is this: Frustrated, but not surprised.
"Volkswagen dealers have been disappointed for years with the products that Volkswagen has provided to them to sell," Haig said. "They haven't been very competitive compared to their Japanese or Korean competitors."
Alan Haig
Adding to his point: "They still don't have any heavy trucks or even a light truck," Haig said.
Meanwhile, dealers have poured money into expensive facilities, often for low sales volume and thin margins per location.
So when VW announced Scout Motors, a new division with a pickup truck, reportedly funded with billions, and said dealers wouldn't be able to sell it, the frustration boiled over. (Naturally…)
"You can see why they'd be upset," Haig said. Even so, he noted that this doesn't have to be a fight.
"You just put this in the hands of Volkswagen dealers… and it's a win for the consumer, it's a win for the dealer, and it'll be a win for Volkswagen."
Win or lose, just about every OEM is watching.
Attorney Leonard Bellavia, founding partner of Bellavia Cohen PC, is one of the lead lawyers for the plaintiffs on the class-action lawsuit.
He expects the defendants to file a motion to dismiss next, a motion they expect to win.
A quick breakdown of how the class-action process works:
All VW dealers in the U.S. are included in the initial filing, and will remain so once a judge certifies that the class meets the requirements.
Assuming successful certification, dealers can opt out if they wish.
Otherwise, no initial action is needed. If the plaintiffs win, dealers would receive notice and instructions on the next steps.
Bellavia is co-litigating with Hagens Berman, a firm that specializes in high-profile class-action suits against automakers. The firm has won big cases against multiple OEMs, including VW itself.
In that case, over emissions cheating, the firm secured a nearly $15 billion consumer settlement.
Of course, in the latest case, the dealers are now the clients.
The main plaintiffs: On behalf of their dealerships, Chris Curran and Fred Ippolito are serving as class representatives for the freshly filed suit against the manufacturer.
"I would never participate in a lawsuit against my OEM unless it was flagrantly violating my rights," Ippolito said in a statement. "Depriving its own dealers of products is indefensible, especially after building a new facility and sticking with them through thick and thin."
Although a jury trial was requested, Bellavia said the hope is for a negotiated settlement. If not, this could play out in court for years.
Worth noting: Three legal actions are now active — in California, Florida, and Virginia. They differ on specifics, but Maas says the core argument is similar.
“The substance at the 30,000-foot level is basically the same,” he said. “VW is illegally marketing Scout vehicles… whether it violates the dealer agreement or violates the anti-competition statute in California, they’re still violating the law.”
His ask is this: "We just want Scout to use franchise dealers..."
Bellavia said the case could have implications far beyond Volkswagen, saying that if VW succeeds, other automakers may follow a similar path.
“This case is really important to every franchise dealer in the country of all makes, not just Volkswagen,” Bellavia said. “If they see that Volkswagen gets away with this and dealers don’t stand up and fight, they will probably follow suit.”
What do you think about this case? Are there implications we didn’t include that your store(s) are watching closely? Hit Reply to email and let us know.
