Volkswagen Dealers Revolt Over Plan to Sell a New Brand of SUV Directly to Consumers
Latest of several lawsuits seeks to stop carmaker from bypassing dealerships
- Scout Motors plans to sell its trucks and SUVs directly to customers, bypassing dealers.
- The plan has drawn lawsuits including a legal challenge seeking class-action status.
- A Scout executive said many U.S. consumers hate the traditional car-shopping experience.
When the German automaker Volkswagen VOW3 -3.04%decrease; red down pointing triangle revealed it would create a brand called Scout Motors—with a lineup of rugged, all-American electric and hybrid trucks and SUVs—Fred Ippolito started making plans.
Ippolito, a Volkswagen dealer, bought a vacant retail lot next door to his dealership in West Islip, N.Y. The perfect place for a Scout store, he thought. The trucks, designed and built in the U.S. for American buyers, are exactly what Volkswagen dealers have spent years clamoring for.
Four years later, Ippolito’s property is still vacant. And he and other dealers are taking Volkswagen and Scout to court.
Taking a cue from Tesla, Scout plans to sell its trucks and SUVs directly to customers, bypassing dealers entirely. While other electric newcomers such as Rivian Automotive and Lucid Motors have taken the same approach, dealers said that because Scout is a Volkswagen Group company, it must sell cars through independent, franchised dealerships.
“Volkswagen built their success on the backs of the dealer network, and now they’re putting knives in the backs of the same dealers that helped them grow in this country since the 1950s,” Ippolito said.
Scout remains undeterred, convinced that selling directly gives the company more insights in the artificial-intelligence age, while creating a better experience for its customers, Chief Executive Officer Scott Keogh said.
“You can be dramatically more efficient with every single car that you make and exactly where that car goes,” Keogh, the former CEO of Volkswagen of America, said at an event in suburban Detroit this past week. “And yes, we want to squeeze out every last bit of opportunity there. I think there’s no debate that the system now is inefficient.”
Scout’s plan has drawn several lawsuits. The latest legal challenge, filed recently by Ippolito and another Volkswagen dealer in federal court in Virginia, is seeking class-action status. It aims to skip a gantlet of state-by-state fights and act on behalf of all the roughly 600 dealers in Volkswagen’s U.S. network. Dealers hope to force Scout to rethink its sales model before a single truck or SUV rolls off the line in early 2028.
The question at the heart of this legal battle: Who has the right to sell you a new car in the U.S.?
While other countries often permit cars to be sold directly from car manufacturers, U.S. state laws broadly guarantee that only independent dealers—not manufacturers—can sell vehicles to consumers.
Scout Motors, even as it plans to hire 4,000 people to staff its new plant in South Carolina, is unable to get a license to sell cars in that state, for example.
Dealers—who lobbied for laws that cement their role in the car-buying process, and have considerable political clout—argue that the system protects consumers. Instead of manufacturers setting a nationwide price, dealers decide what to charge, often undercutting each other. They said they are better equipped than the factory to service vehicles and give customers the best value for their trade-in cars.
“Selling the car is the easy part,” Ippolito said. “It’s maintaining the customer for the next 10 years and servicing them and taking care of them—that’s where the difficulty comes in, and the manufacturer is just not equipped to do that.”
Scout executives said they want the freedom to try to prove Ippolito wrong.
Cody Thacker, Scout’s vice president of commercial operations, said many U.S. consumers hate the traditional car-shopping experience. Scout is planning 100 company-owned showrooms and service centers in the U.S. and Canada to replicate the dealer footprint.
Scout plans to employ enough service technicians, Thacker said, that its customers will never face trouble having their cars looked at.
“We have heard over and over again, ‘Please give me an alternative,’” Thacker said. “You see that there is very little trust in auto dealers today.”
The dealership model began to crack in the 2010s when Tesla started selling its electric cars directly. Elon Musk’s company said it could better control the car-buying experience with Tesla-owned stores. Tesla also contended that, since electric vehicles require fewer parts and less routine maintenance than gasoline cars, dealerships wouldn’t be as interested in selling them. Oil changes and other service visits are often where dealers earn their profits.
To establish its network of hundreds of Tesla stores in the U.S., the automaker fought and won several legal battles. Tesla and other new EV players—including Rivian and Lucid—still face hurdles and extra red tape in some states.
What makes Scout alarming to dealers is the company’s connection to Volkswagen. If one of the world’s oldest automakers can create a new brand with no dealer ties, what is to stop Ford Motor, General Motors or Toyota Motor from doing the same?
“To have a wholesaler like VW support and back this direct-to-sale philosophy—changing the way that it’s operated for generations—is what’s creating this uproar,” said Dave Cantin, who runs an automotive M&A firm. He called it a cutthroat move.
Volkswagen isn’t alone in trying to break from the dealership paradigm. Honda Motor dealers in California have challenged the direct-sales plan for a new high-end EV developed with Sony called the Afeela 1.
For now, Ippolito is keeping the retail property near his dealership—including a vacant building where he imagines a Scout showroom.
“Eventually we’re going to win this case, and I’m hoping to wind up with Scout,” he said.
