- Scout, a startup automotive brand owned by Volkswagen, wants to sell its trucks and SUVs directly to consumers rather than working with dealerships. That requires permission from some states.
- A Tennessee regulatory board has turned the company down.
While brands like Tesla and Rivian have built businesses centered on direct-to-consumer vehicle sales, the vast majority of new car sales in the U.S. take place at franchised dealerships. That model is causing headaches for Scout Motors in Tennessee. The state has blocked the automaker’s request for a dealer license because its parent company, Volkswagen, already operates stores there.
In case the name isn’t familiar to you, Scout Motors is a new automotive brand that functions like a startup, but is owned by global giant Volkswagen. Volkswagen owns the rights to the old International Harvester brand, and has launched the project based on the International Harvester Scout SUV, a once-beloved off-roader. The company plans two models, the Terra truck and Traveler SUV. They’ll be built in South Carolina, and Scout would like to sell them directly to buyers rather than working through dealerships.
State laws govern whether and how that can happen.
According to industry publication Automotive News, a government commission decided against giving Scout a dealer license, citing Volkswagen’s presence in the state. Tennessee law prohibits auto manufacturers from competing with dealers from the same “line-make,” according to the automaker’s director of government affairs, Sym Singh.
“There are no Scout dealers in Tennessee. Not one. Scout is a distinct automotive brand,” Singh said, according to Automotive News. “Volkswagen dealerships don’t sell Scout vehicles. Audi dealerships don’t sell Scout vehicles. And corporate affiliation does not somehow transform those dealerships into Scout dealerships.”
Scout Motors’ general counsel, Sara Ash, said, “The Tennessee General Assembly prohibits manufacturer direct sales only when the manufacturer would be competing with a dealer of the same line-make. There is no prohibition on a manufacturer competing with an affiliate’s line-make. There is no prohibition on a manufacturer having the same ultimate parent as a separate line-make and selling direct. The language is simply not in the statute.”
Fourteen of the 16 members voted to deny the license, and Automotive News notes that many of the panel members come from franchised dealerships, either as owners or employees.
Scout has faced an uphill battle since announcing its plan to sell direct. The company, along with VW and VW Group of America, has faced several lawsuits from dealerships and trade groups attempting to block the sales model. However, Scout said it remains committed to selling direct.
Dealer representatives worry that opening the door to Scout would trigger a wave of other automakers doing the same. The groups feel that manufacturers would cut dealers out of the picture, but litigation is still ongoing, so the final decision could be quite a while in the making.
