Direct Sales vs. Dealerships: The Case of Volkswagen’s Scout

By Hilary Holmes Rheaume

On October 24, 2024, Volkswagen unveiled its first two electric vehicles (EV) in the Scout brand. Although this might have been an exciting announcement for some that have long awaited the return of the Scout brand, it came with unsettling implications for Volkswagen dealers: Volkswagen intends to sell the Scout brand directly to consumers.

Those watching the automotive industry over the past few years might not be surprised: the automotive industry has been rapidly evolving with manufacturers attempting to employ direct-to-consumer sales models to bypass traditional dealership networks. However, Scout’s recent announcement raises significant questions about the legality of direct sales under state franchise laws.

State franchise laws, in part, seek to level the playing field between manufacturers and dealers. New Hampshire’s law (found at R.S.A. 357-C) is often referred to as the “Dealer Bill of Rights.” Notably, it prohibits manufacturers from directly competing with dealers.

A direct-to-consumer sales model impacts both dealers and consumers in several ways, including, but not limited to, the following:

• Volkswagen will be in direct competition with Volkswagen dealerships, which will likely reduce the investment that Volkswagen dealerships have made in the Volkswagen brand;
• Volkswagen may be able to retain control over distribution and pricing of the Scout brand, which may impact the options available to consumers;
• Volkswagen dealerships may be restricted from providing repairs and/or warranty service to consumers, especially if Volkswagen restricts the parts or proprietary technology necessary for servicing Scout models; and
• There is an open question as to how the direct-to-consumer sales model will allow consumers to trade in a vehicle at the time of purchase.

Importantly, there are risks for Volkswagen, too: the company could face legal challenges from local dealers and/or the State of New Hampshire. In the event Volkswagen is deemed to have violated the Dealer Bill of Rights, the consequences could be costly.

As Volkswagen moves forward with the Scout brand, it must navigate the complexities of the New Hampshire Dealer Bill of Rights—an established statutory framework that cannot be avoided. It remains crucial for Volkswagen to engage with its franchised dealers to ensure that Volkswagen continues to honor its obligations to its franchised dealer network and customers for years to come.