The California New Car Dealers Association (CNCDA) issued a cease-and-desist letter to Volkswagen (VW) and its affiliate, Scout, on December 20, 2024. The letter alleges that VW’s plans to sell Scout-branded vehicles directly to California consumers violate state franchise laws. This action Demands A Car Of New distribution methods, sparking a legal battle with significant implications for the automotive industry.
California Vehicle Code section 11713.3(o) prohibits manufacturers from competing with their franchised dealers by using affiliates for direct sales or service. VW’s proposed direct-to-consumer model for Scout vehicles directly contradicts this law, potentially jeopardizing the livelihoods of thousands of VW dealership employees and impacting state tax revenue. CNCDA, representing nearly 1,200 California dealerships, including over fifty VW dealerships, argues that this strategy undermines consumer protection, fair pricing, and consistent service, all of which are ensured by the existing franchise system.
alt text: Breaking News Image related to the cease and desist letter issued by CNCDA
This conflict underscores the tension between established automotive sales models and emerging market trends. VW’s pursuit of direct sales reflects a broader industry shift towards greater manufacturer control over distribution, potentially offering advantages in pricing and customer experience. However, this approach challenges the traditional role of franchised dealerships, raising concerns about job security and local economic impact. The outcome of this legal dispute could significantly influence how cars are sold in California and potentially set a precedent for other states.
The CNCDA emphasizes that VW’s actions disregard the legal framework designed to protect consumer choice and competition within the California automotive market. By circumventing franchised dealers, VW avoids its legal obligations regarding accountability and customer service. CNCDA President Brian Maas urged VW to comply with California law and cease direct sales of Scout vehicles without involving franchised dealers.
This dispute follows the recent passage of Assembly Bill 473 (AB 473), sponsored by CNCDA, which further strengthened the state’s franchise laws to prevent exactly this type of direct sales model. Scout actively participated in the legislative process for AB 473 and publicly acknowledged that its chosen distribution model would be untenable if the bill became law. Despite this, VW is proceeding with its direct sales plans, leading to the current legal confrontation. This bold move indicates VW’s determination to reshape its sales strategy, even if it means challenging established legal norms. The outcome will likely depend on the interpretation of existing laws and the relative weight given to competing interests: manufacturer autonomy versus the established franchise system.
The CNCDA remains committed to upholding California law and protecting franchised dealers. The association is prepared to escalate its actions if VW and Scout do not immediately halt direct sales. This firm stance signals a protracted legal battle, with the potential for significant financial and operational consequences for both sides. The case highlights the complexities of adapting to evolving market dynamics within the confines of existing legal frameworks. This legal challenge demands a car of new precedents and potentially a redefined relationship between manufacturers and dealers in the California automotive market.
