One of the biggest challenges legacy automakers face is just how easy it can be for new car companies like Tesla, Rivian, and Lucid to sell vehicles without a dealership network. The direct-to-consumer model has allowed these automakers, where permitted by state law, to sell vehicles directly to the customer rather than have them purchase through an existing dealership.
So when Honda and Volkswagen both revealed that their two new sub-brands would operate independently of the existing dealership network, the industry got heated. So much so that the Automotive Trade Association Executives (ATAE) ran a full-page ad in Automotive News that is essentially an open letter threatening legal action if either brand goes through with skirting the dealership network.
Dealership Franchise Laws in the U.S.
In many states, manufacturers are required to sell vehicles to consumers using the existing dealership model. Startups without a dealer network have circumvented this requirement, and some, like Tesla, have even used workarounds like Tribal land to evade this requirement.
Specifically, the dealerships are upset over some specifics of how Volkswagen plans to revive the Scout brand and how the Sony Honda Mobility joint venture will sell vehicles under its Afeela nameplate.
Volkswagen made it clear to dealerships in mid-2022 that it planned to manage the Scout brand independently of the Volkswagen marque. That meant its existing dealer network lost its claim to products produced by Scout, including the trucks that Volkswagen dealers could use to gain new customers in the U.S. while VW’s actual sales figures are struggling to grow. Whether or not Volkswagen will die on that hill is still to be seen.
Afeela could go the same route, as it noted later that year that it may not necessarily utilize an existing dealership network to sell its cars—that’s not a firm answer but the possibility of not using existing dealers has the trade group proactively going on the offense.
Eventually, ATAE greenlit the ad in Automotive News calling out both brands, something which chairman John Devlin says is the first major action by the trade group. Below is the text from the ad:
Companies directly or indirectly affiliated with an established original equipment manufacturer are prohibited by state law from selling new motor vehicles without the use of franchised dealers across most of the country.
To avoid potential legal challenges across the nation and ensure full compliance with applicable laws and regulations, the surest path to sales success is through franchised dealers.
Dealers look forward to their role as the retailers of these new vehicles and to the mutual success of the brands, dealers and our customers.
To the ad’s point, dealerships believe they have a right to sell these vehicles since the spin-off brands are affiliated with pre-established automakers. This has led to nearly two years of back-and-forth between dealers and the brands, and Delvin says that if the OEMs will push forward without dealers, the industry is going to make the move as difficult as possible.
“After two years of asking and getting nothing, frustration is very high. If they want to sell the vehicles direct, it’s going to be an incredibly difficult battle,” said Delvin in a statement to Automotve News. He later continued: “We think this is going down the wrong road. I hope that there’s good news at the end of this, but we wanted to proactively get out ahead of it.”
Afeela plans to begin producing its software-centric sedan in 2025 and kick off sales in the U.S. the following year. Scout expects to produce its body-on-frame electric pickup truck and SUV starting in 2026. This tight production schedule means that both brands need to make a final decision soon, lest get caught up in a lengthy legal battle with dealers. And at the end of the day, it seems like the trade group won’t let this one go without kicking and screaming.
