Volkswagen and Audi Dealers Are Suing Scout Motors in Florida

A group of Volkswagen and Audi dealerships in Florida have filed a lawsuit against Scout Motors over its direct-to-consumer sales model. The lawsuit alleges that Scout shouldn’t be viewed as separate from other VW Group brands. It likewise proposes that the automaker isn’t technically licensed to sell in Florida.

Volkswagen Group purchased the Scout name from Navistar International in 2021 and the brand has since gone on to develop the all-electric Terra truck and Traveler SUV. The move positioned VW to offer rugged-looking utility vehicles while also keeping in line with its efforts to further electrify its portfolio.

John Forehand, one of the lawyers representing the dealers in the lawsuit, told Automotive News that Volkswagen owns more than 30 percent of Scout Motors. He believes that this is sufficient to settle the matter in court because Florida law states that as the threshold for viewing a business being legally viewed as a common entity.

Dealers are arguing that Scout taking deposits are effectively the same as sales, equating them to down payments.

Mike Stanton, CEO of the National Automobile Dealers Association (NADA), had already criticized Scout Motors’ sales plans late last year. He even went so far as to say it would face legal challenges if Volkswagen didn’t change course. But Volkswagen Group has maintained that Scout is organized as an independent entity and should be treated as such by U.S. law.

The above is important because the court’s interpretation of the above will presumably determine the outcome of the lawsuit.

Numerous states have laws prohibiting automakers from selling outside the dealer model. For example, my home state of Michigan has a statute stipulating that manufacturers cannot “sell any new motor vehicle directly to a retail customer other than through its franchised dealers.”

Meanwhile, manufacturers have long been able to sell directly to commercial or government fleets. But things have changed in recent years. Despite some of the most recent state-based legislation prohibiting direct-to-consumer sales having sprung into existence specifically to combat Tesla, the automaker has managed to skirt these rules without actually breaking the law.

Using Michigan as another example, Tesla can legally sell directly to state residents if it can verify that the sale took place elsewhere. This is relatively easy to do over the internet and the automaker now has service centers that exist in a gray area. Technically, Tesla isn’t legally allowed to own branded dealerships or service centers. But it can get around that by tying them to a state-based subsidiary that creates just enough degrees of separation not to violate the law.

These are likewise strategies that can be taken advantage of by Scout. It’ll be walking a fine line made even finer by the fact that Tesla or Rivian don’t have franchised dealers who have something to lose. This is the main reason VW and Audi dealerships are annoyed — they see Scout as competition since they won’t be the ones selling them.

We know that it’s possible to do direct-to-consumer sales in a semi-indirect manner. But, with rival entities prepping legal actions, the courts will still care. The public may not, however. While haggling below MSRP was the norm for decades, the last several years has seen some of the most aggressive dealer markups in living memory. Public sentiment may not be on the side of dealerships based, regardless of whether there were showrooms behaving in a more ethical manner. Although, it ultimately matters what the court decides.

[Images: fotokaleinar/Shutterstock; Scout Motors]

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