Volkswagen’s Scout Motors has chosen a direct-sales model for its upcoming Scout electric trucks and SUVs, bypassing traditional dealerships. However, California’s franchised dealerships are pushing back, claiming this move violates state franchise laws. These dealerships have threatened legal action unless Scout halts reservations for its electric Terra pickup truck and Traveler SUV, expected in 2027.
The Legal Debate: Franchise Laws vs. Direct Sales
California law prohibits automakers from competing with their franchisees by selling vehicles directly through affiliates. The California New Car Dealers Association argues Scout’s direct-sales approach does just that, cutting out VW’s existing dealers from an opportunity to participate.
In a December 20 letter, the association stated, “Manufacturers may not compete with their own franchisees,” accusing VW and Scout of undermining state regulations.
A Decade of Tension Over Direct Sales
Dealers have long opposed direct-sales models, a practice popularized by Tesla over a decade ago. Tesla initially bypassed franchise dealerships, claiming traditional showrooms wouldn’t prioritize EVs over gas-powered vehicles. The resulting dealer backlash led to state-level lobbying to protect franchise laws.
Unlike Tesla, Rivian, and Lucid—brands that have always operated outside the franchise system—Scout’s ties to VW add complexity. Critics argue VW cannot mix franchise and direct-sales models, even if Scout is treated as a separate brand.
Lessons from Polestar and Volvo
Volvo’s approach with Polestar could serve as a middle ground. Polestar uses a direct-sales model but connects customers to Volvo dealerships for service and repairs. This hybrid strategy has been accepted by many states and could have helped VW avoid this controversy.
VW’s decision blindsided its U.S. dealerships, many of whom had long requested pickups in their lineups. The sudden announcement of Scout’s direct-sales plan only deepened frustrations.
Balancing Innovation and Compliance
As Scout moves forward, Volkswagen must navigate its strategy carefully to avoid prolonged conflict. This dispute underscores the tension between traditional franchise systems and modern EV business practices, raising questions about the future of auto retail in a rapidly evolving market.
