The California New Car Dealers Association (CNCDA) has taken decisive action against Volkswagen (VW) and its electric vehicle subsidiary, Scout Motors, escalating concerns over direct-to-consumer sales models in the automotive industry. On December 20, 2024, CNCDA issued a cease-and-desist letter to VW and Scout, challenging their plan to sell Scout-branded vehicles directly to consumers in California. This move intensifies the debate around manufacturer-direct sales, particularly for new electric vehicle brands, and their potential impact on the traditional franchised dealership network.
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CNCDA, representing nearly 1,200 California dealerships, including over fifty VW franchises, is the largest state dealer trade association in the United States. Their core mission is to uphold the franchise system, protect consumer interests, and ensure ethical business practices within the automotive sector. The cease-and-desist letter alleges that VW and Scout are in violation of California Vehicle Code section 11713.3(o). This section of the law is designed to prevent vehicle manufacturers from unfairly competing with their franchised dealers by selling or servicing vehicles directly through affiliated entities. CNCDA argues that Scout, as a VW affiliate under California law, cannot legally bypass franchised dealerships to sell directly to the public.
The association contends that VW’s direct sales strategy through Scout poses a significant threat to the established network of California VW dealerships. This direct sales model could jeopardize the livelihoods of thousands of dealership employees and negatively affect state tax revenues generated through dealership sales. CNCDA emphasizes that California’s franchise laws are in place to protect consumer choice and maintain a competitive automotive market. By circumventing franchised dealers, VW’s Scout operations would undermine the safeguards that ensure accountability, transparent pricing, and consistent customer service for car buyers.
CNCDA President Brian Maas stated, “Volkswagen’s direct sales via its Scout brand represent a direct threat to the jobs, investments, and consumer protections California’s franchise laws are designed to safeguard.” He urged Volkswagen to respect California law and immediately cease offering Scout vehicles directly to consumers, advocating for collaboration with their existing dealership partners.
This legal challenge follows CNCDA’s proactive efforts to reinforce franchise protections. In the previous year, CNCDA sponsored Assembly Bill 473 (AB 473), aimed at strengthening the California Vehicle Code against manufacturer encroachment into direct sales. Despite Scout’s awareness and stated concerns during the legislative process about how AB 473 would impact their preferred distribution model, the bill was unanimously passed by the California legislature, signed into law by Governor Newsom, and took effect on January 1, 2024. CNCDA views VW’s intention to proceed with direct sales under the Scout brand as a clear defiance of this recently enacted law.
CNCDA remains resolute in its commitment to upholding California law and safeguarding the interests of franchised dealers. The association has indicated its readiness to pursue further legal action if Volkswagen and Scout do not comply with the cease-and-desist letter and discontinue their direct sales activities.
Consumers and industry stakeholders are closely watching this developing situation as it could set a significant precedent for how new automotive brands, particularly in the EV sector, enter the California market and interact with the established dealership model. The outcome of this legal challenge will likely have broader implications for the balance of power between manufacturers and dealers and the future of automotive retail.
