Credit: Scout Motors

Plan To Sell Scout Vehicles Directly To The Public Has California Volkswagen Dealers Hopping Mad

December 28, 202415 hours ago Steve Hanley 0 Comments

Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!

Volkswagen is moving forward with plans to begin manufacturing a whole new class of vehicles under the Scout Motors brand. Scout was originally a sub-brand of International Harvester, with all the technological sophistication that name implies. The company started as a manufacturer of farming equipment and machinery, which means its products were tough and rugged but looked like they were created by people who designed tractors and combines for a living. That is not a knock on those original vehicles, whose market was not country club poseurs but farmers and people who needed vehicles that were as capable off road as on.

There was a movement in the early ’60s toward such off-road capable machines. Ford brought the first Bronco to market and it was a tough as nails backwoods basher. Chevy countered with the original Blazer. They all were designed to counter the popularity of the Jeep and the thing they all had in common was four-wheel drive and a transfer case that allowed the driver to select between high-range and low-range operation. In low-range, the fairly modest four-cylinder engines were capable of ripping tree stumps out of the ground on demand.

All of them were utilitarian in the extreme, with vinyl seats, rubber floor mats, and painted dashboards. After a hard day on the farm or out in the woods, you could wash the muck and mire out with a hose. They weren’t meant to be waxed, they were meant to work long hours with no complaints. That type of inherent ruggedness is what Volkswagen hopes to recapture with its new Scout-branded vehicles.

The original plan was to make two models, a pickup truck and an SUV, both of which would be powered by batteries. But recently the company has announced it will also offer range-extender engines to calm the fears of those who worry about running out of battery charge without an EV charger — or an electrical outlet — nearby. Another part of the plan was to sell the new Scout vehicles directly to customers online the way Tesla does. That second part does not sit well with Volkswagen dealers in the US.

California Dealers Challenge Direct Sales Model

In California, the dealers have hired legal counsel who have fired a warning shot across the bow of the parent company by sending a strongly worded cease and desist letter to the Volkswagen legal team. Cease and desist letters are how lawyers threaten each other’s clients without the expense and aggravation of actually filing suit. Autoblog reports that the California New Car Dealers Association claims the direct sales strategy violates a 2023 amendment to California’s State Vehicle Code which prevents automakers and their affiliates from bypassing their franchise dealerships. Here is the relevant part of that letter:

Under Vehicle Code section 11713.3(o), automobile manufacturers and their affiliates are forbidden from competing with their own vehicle franchisees. Scout is an affiliate of VW under California law. Vehicle Code section 11713.3(z) defines ‘affiliate’ as “a person who directly oindirectly through one or more intermediaries, controls, is controlled by, or is under commonb control with, another person.” Since as early as 2022, VW has been directly band substantively involved in Scout’s development and revitalization of its vehicles, including VW’s investment of billions of dollars into a Scout production plant in South Carolina.

The letter goes on to explain some of the background that preceded the passage of that section of the vehicle code by the California legislature:

As background, Vehicle Code section 11713.3(o) was amended in 2023 by Assembly Bill 473 to prohibit automakers like VW from establishing affiliate brands to compete with dealers by directly selling vehicles. Scout was active throughout the legislative process, and the legislature adopted amendments in response to some of Scout’s arguments. On April 24, 2023, the California Assembly Committee on Transportation wrote:

“Scout Motors is opposing [AB 473], arguing the anti-competition language in the bill ‘would serve to prohibit Scout Motors […] from using newly appointed [independent] dealers, using existing independent dealers, or selling direct to California [residents.]’ To address this concern the author amended the bill to permit competition so long as the vehicle is being sold using new or existing franchisees to sell and service those vehicles.

“[AB 473] would still prohibit Scout Motors or any new vehicle line from a manufacturer with a dealership network in California from being sold directly to bconsumers. Volkswagen, the parent company of Scout Motors, could sell Scout vehicles in the state if they sell them at any of their other vehicle line company’s bdealerships like Volkswagen, Audi, Porsche, Bentley or Lamborghini. Volkswagen Group could also create a new franchise network for Scout Motors if they want tonkeep a separate brand distinct from their other models. This provision would not affect Tesla, which does not have a dealership network to directly compete against.

After the AB 473’s language was finalized, Mr. Sitron (Scout’s General Counsel) acknowledged that the law would prohibit Scout from selling Scout vehicles directly to California consumers: “AB 473, as amended, could effectively prohibit Scout Motors (or any other new to-the market manufacturer seeking to introduce new EV line-makes) from entering the California market. Under this language, a new-to-the-market manufacturer with new and innovative EVs would be statutorily banned from deciding its distribution model in California, potentially killing off any reasonable opportunity to operate in the state.”

Scout Says It Is Independent

Scout Motors has argued that it operates independently from Volkswagen, a claim it says is central to its direct sales plan. The CNCDA disputes this, citing Volkswagen’s financial and operational involvement, including funding Scout’s new production facility in South Carolina. These connections, the association contends, make Scout an affiliate of Volkswagen rather than an independent startup like Tesla. A crucial difference may be that Tesla is grandfathered in the 2023 amendment to the California law whereas Scout Motors is not. In addition, Tesla had no existing vehicle manufacturing operation when it began selling electric cars.

The piety of the new car dealers is questioned by Carscoops, which reports one Volkswagen dealer in the Golden State has slapped a $35,000 “market adjustment” on a Volkswagen ID. Buzz it has in stock. It’s hard to be sanctimonious when you are acting like a jerk in public. One of the reasons why Volkswagen wants to sell Scout vehicles directly to customers is because many people would prefer a root canal to arm wrestling with a dealer. That antipathy to the traditional dealer experience is why Hyundai has elected to begin selling its cars in selected markets through Amazon. Hyundai dealers are still part of the sales process, but the pricing is done online. That way, the usual haggling is eliminated, which will please many people but not those who think they can walk into a dealership every two or three years and do a better job of negotiating than those who do it for a living every day.

Putting the legal shenanigans aside, we here at CleanTechnica intergalactic headquarters have to wonder how distinct the Scout vehicles will be. Are they being built on a new platform or on a version of the existing MEB platform or upcoming SSP platform? Will they use batteries that are materially different from what Volkswagen Group uses in its other electric models? And will they use different software than other cars from the group? If the answer to those questions is “no,” it is hard to see how Volkswagen can support its claim that Scout Motors is a “new to the market” manufacturer. There have already been hints that the new software partnership with Rivian could influence the design of the software package that will be incorporated into Scout vehicles. We don’t normally have good things to say about dealers, but it seems they have a legitimate complaint, at least in California.

Dealers in other states are preparing to join the battle as well. Mike Stanton, the CEO of the National Automobile Dealers Association (NADA), has said his association is ready to challenge Scout “in courthouses and statehouses across the country.” He predicts that Scout’s plans to manage every aspect of the ownership experience through its app “will fail.” Daniel Crane, a professor at the University of Michigan Law School thinks dealer associations will pick states where they are the strongest to push back against the direct-to-consumer sales strategy.

Scout vehicles will not even be for sale for several years. The factory is under construction and testing of prototypes has barely begun. Challenges to dealer franchise laws have been going on since Tesla first began selling the Model S online in 2012. Even Tesla has yet to win the right to sell directly to consumers in several states, including its home state of Texas. What Volkswagen is doing is a thumb in the eye to its US dealers, who have been clamoring for more models to sell — especially a pickup truck — for years. It has been thin times for Volkswagen dealers in America for several years, and right when the company has some exciting new models in the pipeline, it wants to cut its long-suffering dealers out of the loop.

Is pushing for direct sales the right path for Scout Motors and Volkswagen or a poorly thought out strategy that is doomed to fail? We would love to hear what our readers have to say on that question.