The episode dives into a landmark lawsuit filed by Volkswagen dealers against Volkswagen's new Scout brand, which sells vehicles directly to consumers, bypassing traditional dealerships. Attorney Leonard Belavia explains how this challenge could reshape the franchise system and dealer relationships nationwide. The discussion also covers rising fraud risks in auto financing, supply chain issues with parts suppliers, and evolving trade policies affecting vehicle imports. The episode highlights the tension between direct-to-consumer sales models and the established dealer network, exploring potential impacts on service, sales, and industry structure.
Today's show features:
- Leonard Bellavia, Founding Partner of Bellavia Cohen P.C.
- Mike Van Ryn, Vice President of Talent Development at Zeigler Auto Group
- Terry Lange, Assistant General Manager at Suburban Ford of Ferndale
This episode is brought to you by:
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"...Volkswagen over its new Scout brand selling vehicles directly to consumers filed yesterday bypassing the existing dealer network entirely. Dealers claim Volkswagen created Scout as a workaround of franchise law and if they win, if Scout wins, if Volkswagen wins, it could open the door for every OEM to launch new brands and to sell direct."
Direct-to-consumer sales mean the car company sells cars straight to people, without going through car dealerships. This can change how people buy cars.
Direct-to-consumer sales refer to manufacturers selling vehicles directly to buyers without using traditional dealerships. This approach can disrupt existing franchise laws and dealer networks, affecting how cars are marketed and sold.
"Dealers claim Volkswagen created Scout as a workaround of franchise law and if they win, if Scout wins, if Volkswagen wins, it could open the door for every OEM to launch new brands and to sell direct."
Franchise laws are rules that say car companies usually have to sell their cars through special dealers, not directly to people. These rules help protect the dealers' businesses.
Franchise laws regulate the relationship between car manufacturers and their authorized dealerships, often restricting manufacturers from selling vehicles directly to consumers. These laws aim to protect dealer investments and maintain fair competition.
"brand and suddenly dealers are cut out of the transaction. No sales gross, no F&I, no trade ins, no service relationship. Well today we're talking to the attorney leading the charge against Volkswagen"
A trade-in is when you give your old car to the dealer to help pay for a new car. The dealer then sells your old car to someone else.
Trade-ins refer to the process where a customer exchanges their current vehicle as partial payment towards the purchase of a new vehicle. This is a common practice in dealership sales.
"brand and suddenly dealers are cut out of the transaction. No sales gross, no F&I, no trade ins, no service relationship. Well today we're talking to the attorney leading the charge against Volkswagen and we're talking and we're asking the real question dealers need to understand. ... And as a reminder to you, our daily dealer listening audience, we are streaming across all CDG social media platforms. Post your comments in, tell us what you think about this suit, tell us what you think about the things that we bring up today on today's show."
F&I means the part of a car dealership that helps you get a loan and sells extra protections for your car. This part helps the dealer make money beyond just selling the car.
F&I stands for Finance and Insurance, a department within car dealerships responsible for arranging financing, selling extended warranties, and other insurance products. It is a significant profit center for dealerships.
"Well today we're talking to the attorney leading the charge against Volkswagen and we're talking and we're asking the real question dealers need to understand. Is this the beginning of the end of the franchise system or is it the moment dealers push back?"
The franchise system means car companies let local dealers sell and fix their cars. These dealers do things like selling cars, helping with loans, taking old cars in trade, and fixing cars.
The franchise system is the traditional dealership model where manufacturers authorize independent dealers to sell and service their vehicles. This system involves dealers handling sales, financing, trade-ins, and service relationships with customers.
"At the heart of it, plaintiffs allege that Volkswagen has a contractual obligation to sell vehicles through its authorized dealer network and that Scouts direct to consumer model, well, it violates that agreement."
Authorized dealer network means the official car dealers that the car company trusts to sell and fix their cars.
An authorized dealer network is a group of dealerships officially approved by a car manufacturer to sell and service its vehicles.
"Scout has already collected an estimated $15 million in reservation fees from roughly 150,000 customers and they all bypass the dealer network entirely."
Reservation fees are money you pay to hold a spot to buy a car before it is ready.
Reservation fees are payments made by customers to secure a place in line for a vehicle before it is available for delivery or purchase.
"This comes as USMCA review talks heat up and US Canada trade tensions remain elevated. Still, for dealers, tighter import rules could mean more volatility and model mix..."
USMCA is a trade agreement between the US, Canada, and Mexico that sets rules for buying and selling cars and other goods between these countries.
USMCA stands for the United States-Mexico-Canada Agreement, a trade deal that replaced NAFTA. It governs trade rules between these countries, affecting automotive manufacturing, tariffs, and cross-border vehicle sales.
"... this news of your lawsuit. Let's start bulletly. Did Volkswagen intentionally try to bypass the dealer network w..."
The Volkswagen ID. Buzz is a new electric van that looks like the old VW bus. It runs on electricity instead of gas and is part of Volkswagen’s plan to make more electric cars.
The Volkswagen ID. Buzz is an all-electric van inspired by the classic VW Microbus, combining retro styling with modern electric vehicle technology. It's significant as part of Volkswagen's push into electric mobility and is often discussed in the context of dealer network strategies and EV market expansion.
"apparent that VW knows that the worldview Scout as a wholly owned subsidiary. I mean, when you look at... the operational control that both VW the parent and VW of America has over Scout,"
A wholly owned subsidiary is a company that is completely owned by another company. This means the bigger company controls everything the smaller one does.
A wholly owned subsidiary is a company whose entire stock is owned by another company, giving the parent company full control over its operations and decisions.
"I mean, keep in mind, this is not Tesla. It's not Rivian. It's not Lucid. You know, that's a totally different model because they don't have an existing network of dealers."
Tesla makes electric cars and sells them directly to customers without using regular car dealers.
Tesla is a leading electric vehicle manufacturer known for its direct-to-consumer sales model without traditional dealerships.
"I mean, keep in mind, this is not Tesla. It's not Rivian. It's not Lucid. You know, that's a totally different model because they don't have an existing network of dealers."
Rivian is a new company that makes electric trucks and sells them directly to customers, not through regular dealers.
Rivian is an electric vehicle startup focused on electric trucks and SUVs, also using a direct sales model without traditional dealerships.
"I mean, keep in mind, this is not Tesla. It's not Rivian. It's not Lucid. You know, that's a totally different model because they don't have an existing network of dealers."
Lucid is a company that makes fancy electric cars and sells them directly to buyers without using normal car dealers.
Lucid Motors is an electric vehicle manufacturer known for luxury electric sedans and a direct-to-consumer sales approach.
"Ford tried this in the past. In the 90s, Ford tried something called the auto collection. They bought up dealers and they tried to sell direct. It didn't succeed as my memory serves."
Ford Auto Collection was a plan by Ford in the 1990s to sell cars directly to people by owning the dealerships themselves. It didn't work out and was stopped.
The Ford Auto Collection was an initiative in the 1990s where Ford attempted to buy dealerships and sell cars directly to customers, bypassing the traditional dealer franchise system. The effort was short-lived and ultimately unsuccessful.
"...ago that all of the most of the existing VW dealers stuck by VW when they went through the diesel gate scandal. That was a real painful period of time, not just for VW, but for VW consumers who had vehicles that they really couldn't market..."
The diesel gate scandal was when Volkswagen cheated on pollution tests for their diesel cars, which caused a big problem for the company and people who bought those cars.
The diesel gate scandal refers to Volkswagen's 2015 emissions cheating controversy where the company installed software in diesel engines to manipulate emissions tests, leading to legal and financial consequences and loss of consumer trust.
"I mean, it's a class action lawsuit by all of your dealers is a big deal. It means your network is very unhappy with you."
A class action lawsuit is when many people team up to sue a company or person because they all have the same problem with them.
A class action lawsuit is a legal case where a group of people collectively bring a claim to court against a defendant, often used when many individuals are affected by the same issue.
"It's not just the lost profit on the initial sale. It's the FNI. It's the value of having a trade in 60% of the transactions involved"
FNI means the money a car dealer makes from helping you get a loan or selling you extra insurance when you buy a car.
FNI stands for Finance and Insurance, which refers to the profit a dealership makes from financing deals and selling insurance products during a vehicle sale.
"My co-counsel in this case is Hagen's Berman. Volkswagen knows them very well. Hagen's Berman has the record in this country of getting the highest class action recovery in the automotive industry ever."
Hagen's Berman is a law firm that helps people sue companies together. They have won big money in car-related cases.
Hagen's Berman is a prominent law firm specializing in class action lawsuits, including major cases in the automotive industry. They have a record of securing large settlements for plaintiffs.
"she's a Subaru rally co driver with Travis Pastrana. So our automotive listeners will love that, right?"
Rally is a type of car race where drivers race on different kinds of roads, like dirt or snow, not just regular streets, and they have to be really good at driving in tricky places.
Rally is a form of motorsport where drivers race on closed public or private roads in various conditions, often including gravel, dirt, and snow. It emphasizes car control and navigation.
"she's a Subaru rally co driver with Travis Pastrana. So our automotive listeners will love that, right?"
Subaru is a car company from Japan that makes cars that can drive well on all kinds of roads, especially in races on rough terrain called rally racing.
Subaru is a Japanese automaker known for its all-wheel-drive vehicles and success in rally racing, particularly with models like the Subaru Impreza WRX.
"and then achieved President's Club Award through Ford Motor Company. It was something that the store hadn't hit in a long time."
Ford is a big car company from America that makes many types of cars and trucks. They have been around for a long time and are very well known.
Ford Motor Company is a major American automaker known for producing a wide range of vehicles including trucks, SUVs, and passenger cars. It is one of the largest and oldest automotive manufacturers in the world.
"Was it with Lithia or was it with Suburban or was it with another auto group that they put you together to work together, father, son? Yeah, so it was actually under Lithia. So Lithia acquired two dealerships locally."
Lithia is a big company that owns many car dealerships where people buy and sell cars.
Lithia Motors is a large automotive retailer and dealership group in the United States, known for acquiring and operating multiple dealerships under various brand names.
"But the big thing that I changed was curb appeal, right? So, we walked in and our front row of cars were not facing the historic Woodward Avenue that we're located on."
Curb appeal means how nice and welcoming a place looks from the outside. For a car dealership, it means making sure the cars and the building look clean and inviting so people want to come in.
Curb appeal refers to the attractiveness of a property or business from the street, which can influence customer perception and foot traffic. In car dealerships, it includes how cars are displayed and the cleanliness of the lot and storefront.
"And then it took a look at our reconditioning process with used cars. What's our time to market? How fast are we getting these cars priced and photoed online?"
Reconditioning means fixing up a used car so it looks nice and works well before selling it. This can include cleaning and small repairs.
The reconditioning process refers to the steps taken to prepare a used car for sale, including cleaning, repairs, and inspections to ensure the vehicle is in good condition and appealing to buyers.
"42% of your total stock is commercial vehicles. That's 4% of the market. What are you guys doing in commercial vehicles? At this location, we don't do much commercial vehicles. Again, so we have those five Ford dealerships that are local in this tri-county area that we're in. Our Sterling Heights location does take on a lot of that commercial vehicle."
Commercial vehicles are cars or trucks used by businesses to carry stuff or people for work, not just for personal use.
Commercial vehicles are vehicles primarily used for business purposes, such as transporting goods or passengers, including trucks, vans, and work vehicles.
"...uch commercial vehicles. Again, so we have those five Ford dealerships that are local in this tri-county are..."
The Ford Five Hundred is a big car made to be comfortable and safe for families. It was made to replace an older popular car and give people a good, reliable ride.
The Ford Five Hundred was a full-size sedan produced in the mid-2000s, designed to offer a spacious and comfortable ride with a focus on safety and value. It was Ford's attempt to replace the Taurus and appeal to buyers seeking a practical family car.
"...t, right? Terry Lane, assistant general manager, suburban Ford of Ferndale. Thanks for joining the show. Be..."
The Chevrolet Suburban is a big car that can carry lots of people and stuff. It's popular with families and businesses because it’s very roomy and strong.
The Chevrolet Suburban is a full-size SUV known for its spacious interior, strong towing capabilities, and long-standing presence in the American automotive market. It's often discussed due to its popularity among large families and commercial users who need ample passenger and cargo space.
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Hey everybody, welcome back to yet another episode of The Daily Deal Alive.
I'm your host Sam Dark and thanks to you for choosing to be here on this Wednesday the 4th of March.
So today's show might be one of the most important conversations we've ever had on Daily Deal Alive
because in our industry the question isn't whether the auto industry is changing, it is. The question is
this, who in the future will have the relationship with the customer and will be able to connect with
the customer best? Right now there's a massive lawsuit against Volkswagen over its new Scout
brand selling vehicles directly to consumers filed yesterday bypassing the existing dealer
network entirely. We'll leave the news with this story in just a moment. Dealers claim Volkswagen
created Scout as a workaround of franchise law and if they win, if Scout wins, if Volkswagen wins,
it could open the door for every OEM to launch new brands and to sell direct. Think about that.
Ford launches a new EV brand, GM launches a new tech brand, Toyota launches a new software first
brand and suddenly dealers are cut out of the transaction. No sales gross, no F&I, no trade ins,
no service relationship. Well today we're talking to the attorney leading the charge against Volkswagen
and we're talking and we're asking the real question dealers need to understand. Is this the
beginning of the end of the franchise system or is it the moment dealers push back? Then also on
today's episode we'll talk culture leadership and one of the most interesting F&I strategies
increasing PVR right now. And as a reminder to you, our daily dealer listening audience,
we are streaming across all CDG social media platforms. Post your comments in, tell us what
you think about this suit, tell us what you think about the things that we bring up today on today's
show. Your comments will help guide today's show. Welcome to Daily Deal Alive. And first,
today's automotive industry headlines. I mentioned it in our opener, breaking news. We're starting
with a big legal development out of the auto retail world. Two Volkswagen dealers, one out of New
York and one out of Connecticut filed a class action lawsuit yesterday against Scout Motors.
Scout Motors sales LLC, Volkswagen Group of America and Volkswagen AG and Federal Court in
Virginia. At the heart of it, plaintiffs allege that Volkswagen has a contractual obligation
to sell vehicles through its authorized dealer network and that Scouts direct to consumer model,
well, it violates that agreement. For context, Scout has already collected an estimated $15
million in reservation fees from roughly 150,000 customers and they all bypass the dealer network
entirely. If you're a VW dealer out there, this case automatically covers you. So say the attorneys,
with the plaintiffs attorney saying damages could run into the billions. Safe to say other
manufacturers will be watching this one closely. Next up in news today, keeping with the legal
beat, a fraud ring bust out of Miami Dade County is putting a spotlight on a threat that dealers
may be underestimating. Authorities say a former dealership finance manager and a broker, by the
way, we're going to continue our broker conversation next Wednesday with the broker perspective on that
distribution model, back to the story. A broker recruited straw buyers to secure over a million
$5 in fraudulent auto loans across two Florida stores. The scheme is what is known as bust out
fraud, where bad actors build up credit profiles, load up on loans, then, well, they intentionally
default. One elderly buyer alone had nearly $436,000 in loans approved across six vehicles.
Fraud strategists say this type of activity jumped 16% last year, with the average dealer missing
most of it because these buyers often look picture perfect on paper. It's astounding to me as an
aside out of the news, how fraud is prevalent and how the bad folks, the bad actors are becoming
more creative in ways that they're perpetrating the fraud. And finally up or next up today in the
news, shifting now to the supply chain, bankrupt auto parts supplier first brands is closing on
a creditor settlement and Ford and GM are playing a key role in keeping things moving. The company,
which filed for bankruptcy last September with more than $9 billion in liabilities,
has been unable to find a single buyer for its operations, largely due to alleged fraud tied
to its founder. As a result, it's now pursuing separate sales of its four business lines,
with Ford currently sourcing parts from three of them, both Ford and General Motors have actually
prepaid for parts to keep production flowing during the process. But Ford's attorney said
it plainly in court every day these operations aren't more stable hands is a production
risk. And finally up today, some trade policy news out of Canada that's worth keeping an eye on.
Canadian finance minister, Francois Philippe Champagne is moving to tighten the country's
automotive remission framework. Essentially, the system that allows automakers to import a set
number of vehicles, tariff free in exchange for maintaining production and investment in Canada.
The government has already cut annual remission quotas for GM and Stellanus by significant margins
and is now inviting industry feedback on further changes through April 13th. This comes
as USMCA review talks heat up and US Canada trade tensions remain elevated. Still, for dealers,
tighter import rules could mean more volatility and model mix, tighter vehicle availability on
import heavy name plates, and potential pricing pressure on both sides of the border. One to
watch as negotiations develop. And that is a wrap on today's industry headlines.
Again, feel free to type into the comments, join the conversation today as we talk about this
Volkswagen suit. And as we talk about the different distribution models that are out there direct
to consumer franchise model, even broker, which we'll hit again next Wednesday. But let's dive
straight into our conversation today. First up, my guest Leonard Belavia, founding partner of
Belavia Cohen PC Leonard, Len, welcome to the show. Sam, great to be with you. Thanks for having
me on. Thanks for being here. And thanks for coming on the car dealership guy daily dealer
live to break this news of your lawsuit. Let's start bulletly. Did Volkswagen intentionally
try to bypass the dealer network with Scout collecting deposits and and seeking legally
to move forward at selling vehicles direct to consumer in the United States?
Yeah, I think Sam, the best way to put it is that Volkswagen brazenly did an end run around
the franchise laws in every state in the country to one degree or another. I mean,
there are some states that outright prohibit direct to consumer sales. Other states are a little
murky, but we don't even have to go there because the dealer agreement between Volkswagen and its
franchise dealers expressly states that authorized vehicles and we can get into why Scout is an
authorized vehicle will be sold directly to dealers. So, you know, my view, I've been doing this for
39 years representing dealers in disputes with manufacturers, manufacturers bank on the reality
that most dealers do not want to engage their OEM and illegal battle. So typically that's reserved
for termination, defending termination cases or ad points, things like that. So I guess the general
rule in my experience is only when the OEM crosses that red line will a dealer or group of dealers
say enough is enough and bring legal action. And that's what happened here because it's rather
apparent that VW knows that the worldview Scout as a wholly owned subsidiary. I mean, when you look at
I'm sure you read the lawsuit, you'll see all of the indicia of, you know, the financial control,
the operational control that both VW the parent and VW of America has over Scout,
even transferring key executives from VW to Scout. So we call it a thinly veiled shell game. So,
you know, there's enough here where dealers can say, hey, look, I don't want to take on the factory
if I'm not going to hit them between the eyes. But this is a case really where
the VW is going to have a very difficult time defending its actions.
So the two dealers in particular came to you and said, hey, we want to file this suit.
And there's this word putative, which as I understand, it brings all dealers across the
United States. Before we talk about what if Volkswagen wins? What does that mean for the
network? Let's first cover how are you covering all dealers across the US if they want to be
covered? And how are you the right voice to be making this case in courts on behalf of these
two dealers and potentially all Volkswagen dealers across the US? Sure. So one of the
obstacles of, you know, dealership attorneys is not advising them on the illegal rights. You can
tell a dealer, you know, up and down that they have a right to fight against the manufacturer.
99 out of 100 will not do that for a lot of reasons, political reasons, operational reasons,
and litigation costs are very high. The class action litigation model is the answer to that
because there are no legal fees that dealers have to pay if we prevail in the case and the court
will direct the defendant to pay what they consider to be a reasonable attorney's fee
based on all these different factors. So why would a dealer take on the manufacturer in a case
like this when they really feel the threat that their empire potentially could crumble? And,
you know, I've said that this is not really purely a VW case. It's really a case that should be
important to dealers of all brands because if VW gets away with this, you could rest assured.
I mean, we already know that Honda has formed a new venture with Sony. So that's probably a year
or two behind this. But if companies like Volkswagen, you know, the largest automotive
manufacturer in the world or up there anyway, and Honda are thinking of doing this and we've
seen other attempts to do this. I mean, keep in mind, this is not Tesla. It's not Rivian.
It's not Lucid. You know, that's a totally different model because they don't have an existing
network of dealers. Right. Yeah. Yeah. Volkswagen, you're saying initially had a distribution network.
Now they're seeking to go around it. What do you say to the industry folks that say, look,
Ford tried this in the past. In the 90s, Ford tried something called the auto collection.
They bought up dealers and they tried to sell direct. It didn't succeed as my memory serves.
What would you say to the folks that say, hey, let the free market win. If the dealer distribution
network is better, it'll win in the free market. If direct to consumers better, it'll win. Let's
let free market dictate. Well, I guess there's several answers to that. One is 125 years of
doing this doesn't mean it's wrong. If anything, it means it's been refined and protected over the
years. You and I I'm sure have listened to all the reasons why consumers don't like to interact
with dealers in the purchase process. You know, I don't get too upset when I read comments from
consumers because I appreciate what they're saying. I just don't think that they are immersed in the
industry enough to realize that the dealer franchise model is better for them. You know,
sometimes I feel like I'm preaching to the choir when I'm speaking to consumer groups.
We all know the pain point of going in and buying a car. However, that's only one small aspect of
the relationship. You know, your viewers, I'm sure know all the bullet points about why the
franchise system is better. It provides for competition. It creates convenience for service.
You don't have to deal with some central location where it takes 45 minutes to find out the status
of your car while it's in for service. You don't have to be without your car for days at a time.
You can navigate through recalls. Most consumers, 60% of consumers have trade ins. How does direct
to consumer deal with those consumers who have trade in? There really is no magic answer to
that right now. And not every consumer has an 800 credit score. So dealers do a fabulous job at
trying to get consumers bought, so to speak. So I could spend hours in on talking about why the
direct to consumer model is not consumer friendly. But putting that aside, there's a reason that all
50 states have, we're not talking about one unified political party. There's Democratic
states, there's Republican states, and they've all figured out that the franchise model of selling
and leasing cars is best for consumers. Yeah, of course it protects dealers, but it's best for
consumers. So yeah, the free market may sort it out. But I speak to a lot of consumers, speak to
dealers and consumers. I know a lot of friends of mine that have Teslas and they say, yeah, I mean,
the buzz is kind of worn thin and their next vehicle will be from a dealer. So I think we'll
sort itself out, but it kind of has done that already. So we had on the show several weeks
ago, we had Alan Haig. He works in the M&A marketplace. He deals with Bicell. And he made
a great point about Volkswagen and Scout. He said he hopes calmer heads prevail and Volkswagen
pulls back this model. He says, look, in the United States, Volkswagen, and this is my recollection
of what he said, Volkswagen created value in that ban through its dealer network. It asked
dealers to build beautiful facilities, invest in those facilities, those technicians. And they've
built this network and this distribution, selling the brand Volkswagen, which has value because
of that network. And he said, it's not right to have an entity come in like Scout and piggyback on
that existing brand and try to distribute direct piggybacking off of that brand. And I'm using my
own recollection of what he said. How do you, as you think about going after damages with Volkswagen,
if they're successful with this, how do you calculate the value of that network that U.S.
auto dealers have created through the franchise network as you seek to protect that?
Well, to add salt to that wound that was just pointed out is the fact that it wasn't that long
ago that all of the most of the existing VW dealers stuck by VW when they went through the
diesel gate scandal. That was a real painful period of time, not just for VW, but for VW
consumers who had vehicles that they really couldn't market for what they thought they couldn't
sell them at what the fair market value was before the scandal arose. And then you have
dealers who continue to stick with the franchise, continue to do the things that Volkswagen wanted
them to do like modernizing their facilities and all of the other things that provide for the
infrastructure. So isn't it the ultimate stick in the eye that after they recovered that they
decided, you know, it reminds me of the person that stays with the medical student all throughout
medical school and the day of graduation, they dump the person and go with someone else. It's
very analogous. So dealers have a lot to be annoyed about not just based on the business model and
and the legal prohibition, but it's also kind of gut-wrenching that Volkswagen is doing this at
a point in time where dealers really showed their loyalty over the years. So what do you make of
that as you put together the suit and ultimately file that you're pursuing this? What do you make
of Volkswagen taking this action to your point on the tail of diesel gate and some of the other
challenges they've had as an OEM, you would think they'd be the least likely in the least position
from a strength standpoint to pursue something like this. Why do this now if you're Volkswagen?
Well, you know, I'm sure they're looking at dealers as middlemen. Dealers are not middlemen per se,
but to the extent that the margins can be improved by dealing direct and not having to worry about
competition and mandating prices and all the reasons that this is not a good thing for consumers.
You know, there's always been friction between manufacturers and dealers. There's never been
a period where it was a total love fest. There's always give and take and push back and it generally
gets worked out. You know, in this particular case, and I'm sure ATAEs all over the country will tell
you, they have attempted to sit down at a table with the president and CEO of Scout and didn't
even get a return phone call or a responsive letter. So it's almost like Scout has been inviting this
type of a response. I mean, it's a class action lawsuit by all of your dealers is a big deal.
It means your network is very unhappy with you. And granted, no, not every dealer raised their
hand and called me. However, you know, based on the litigation model, they will be part of the case
once the court certifies this as a bona fide class action. And, you know, getting to your point,
Sam, about the damages and how to quantify the damages. It's not just the lost profit on the
initial sale. It's the FNI. It's the value of having a trade in 60% of the transactions involved
trade in. It's warranty, parks and labor. It's customer pay labor. There's empirical data to
support, you know, repeat business, not only from that customer, but from family and friends of
that customer. So the damages model, you know, for 600 dealers across the country goes into
the many billions of dollars. So Volkswagen really needs to take a time out and pause and say, is
this worth the fight? A, we might lose. And B, we're going to severely diminish the quote unquote
going concern or blue sky value of our dealer network. And it hurts dealers because now they
have to worry about, you know, the ability when they want to retire or exit the industry to sell
their dealership for fair market value. So this really has implications across the board from
consumers to local municipalities to state agencies and governments and local churches and
little leagues. And, you know, this is a real disruption, an attempted bad faith disruption.
So that's why I think dealers have said enough is enough. And the other dealers that I speak to
that I represent from other brands are saying, you know, kudos to these two dealers, these two
dealers that have stood up in the New York dealer and the New Jersey dealer really deserve a round
of applause from all of the dealers across the country who said, who spearheaded this initiative.
I think I predict that, you know, Honda dealers will be next and anyone else that seeks to cross
the line, because there's often an awful lot of sacrifice that dealers have made across the
country to get where they are now. So before we talk next steps, let's go to the comments,
several comments online. Paul Salisman says, companies conveniently forget the past
when new leadership is installed. So the inference there being mean, meaning a rotation
in leadership there at Volkswagen law cocktail comes in says, I was a VW Audi dealer through
dieselgate. Every day it felt like they fought us on selling cars night and day difference between
our other OEM brands in the group, then Dancy comes in, I hear all the arguments
here, but it really gets down to how the consumers treated in the buying process. Can Will
direct sales from the manufacturers improve the process is the real question. So what is the steps
now? The suit is filed, you've got two dealers on board with it, you say everyone could be a party
to it nationwide. What are the next steps? What are the deadlines and how soon do you project
this getting resolved? Sure. So the next steps really are to speak to other VW dealers. We expect
other VW dealers will want to be front and center and be named in the caption. We don't need any
more, but I'd like to get maybe three or four more just to cover the geographic. We have East
Coast dealers. I'd like to get a couple of West Coast or Midwestern dealers. The next steps will
be Volkswagen will, like in any lawsuit, make a motion and scout will make a motion to seek to
dismiss the case. They'll argue that, well, reservations are not sales. Well, then why do
you take $100 if it's not a sale? Why not just take a reservation in the true sense of the word,
like when you make a reservation at a restaurant, they don't ask for their $100 deposit. So it's
a disguise. It's part of their defensive preemptive measure to say they're not violating the law by
calling it a reservation. So that was tactical, but when the customer forks over $100, that's a
business transaction, and it falls within the definition of a sale, which is what is prohibited
under most state statutes. So they'll make their motion to dismiss. Presumably it will get denied.
The case will continue through the discovery stage. There'll be depositions. We'll get all the
records. I mean, we have enough data out there because, you know, in these big OEM companies,
they kind of like the left hand doesn't know what the right hand is doing. So, well, the CEO
level, the C-suite level is saying, no, we don't even know who the scout is. The marketing level
is out there saying consumers buy this product. It's not a startup. So I don't think they all
said at the same table when they were putting out these, you know, disparate messages. So that
will certainly help the case. They pretty much established the case of liability on our behalf
by making those wildly inculpatory statements. So then we'll go through discovery. Ultimately,
it could take a couple of years to get to the point where we're getting closer and closer to trial.
There'll be a motion for summary judgment, but both parties will say we don't even need a trial.
Our respective cases, our case and the defense, is clear cut. The judge should either find in our
favor or in Volkswagen's motion, they'll say it should be dismissed altogether. And depending on
the outcome of that, you know, the case will proceed to trial if the plaintiffs prevail.
And then, you know, keep in mind most cases settle. My co-counsel in this case is Hagen's
Berman. Volkswagen knows them very well. Hagen's Berman has the record in this country of getting
the highest class action recovery in the automotive industry ever. It was $15 billion
against who? Well, Volkswagen, the same party. So Volkswagen is going to take this case very
seriously. Ultimately, hopefully they relent and realize they should sit down with dealer counsel
and the attorneys involved and try and get back to square one and recognize the value of the dealer
network. Or if they remain steadfast, then they're going to have to write an awfully big check, in
my opinion, when this case is concluded. So most cases settle, though. So we're hopeful that we
can show them that they're going to lose. And therefore, we don't want, we don't want dealers
to litigate. We don't want our clients to spend, you know, hours and days and months in court.
We want to, we want a resolution that's consistent with the law. I just think that Volkswagen never
had really any anyone aiming at them. They felt this way with impunity. I mean, there's a case,
a smaller case in Florida, but it's not a class action. There's another case in California,
brought by the California Dealer Association, that's not seeking money damages. So this is really the
one that has them in the crosshairs. And I think they'll pay close attention to. So we'll see what
happens. So speaking of those other cases and kind of the general frustration in the dealer
environment, what's the biggest misconception about state franchise law? Why can't state
franchise law in Florida or Colorado or Utah or Michigan, why can't it address this on its own?
There's an agreement between an OEM and a dealer to distribute. Why is state franchise law insufficient
by itself to remedy or address this issue? I think there's about, I'm going to say, roughly 30
states that outright expressly prohibit direct to consumer sales as long as there is a dealer network.
Some even say Tesla and Rivian can't sell direct to consumers. So there's different
levels of prohibition. Some states don't say anything. The problem with that is that the
tapestry of 50 states requires, if you want to take this state by state, is that one dealer in
each state, I should say all dealers in each state bring 50 different lawsuits. It's just too
cumbersome. It's a long process. It produces inconsistent results. It's thankless. And that's
why the class action model is a litigation model whose time has come because it unifies. We're
proceeding on a breach of the general contract that VW has with all its dealers in all 50 states.
So we're not really stepping into this maze of statutory prohibitions. We're saying,
this is what your contract says, your dealer agreement, you violated it. And by the way,
it happens to violate the industry custom and practice, which prohibits these type of direct
to consumer practices. All right. Going back into the comments, a longtime listener, Dan C comes in
and he says, hey, if this goes to trial, will it be a judge or a jury that makes the final decision
on this? Sure. We're requesting a jury trial. That's the plaintiff's rights. The difference is,
you know, the judge will decide what law applies and will instruct the jury. The jury decides on
the facts. The jury will hear the facts and decide, for example, is Scout the alter ego
of Volkswagen. So they'll see all the documents in the corporate minutes and everything that we
think is going to be probative of whether Scout and Volkswagen are one and the same,
and that'll be up to the jury. And if the jury does find that, then the judge will instruct the jury.
So, you know, each party, the judge and the jury has their own distinct legal responsibility.
So that's why jury trials are preferred, because generally speaking, you know,
lead people understand things with a fresh point of view. They're not wanting to deal
so much into the facts as they do reading the law. And I'm just curious, what state
will that jury trial eventually end up in if it were to go that far? We filed a case in Virginia,
because that is where the offices of both the defendant, Scout and Volkswagen coincidence,
they happen to be in the same state, right? But they don't know each other. So the case will be
litigated in the state of Virginia. So last two questions. Your opinion, actually two opinion
questions. You mentioned state franchise law, you mentioned the franchise system in the United
States. It's 100 plus years of case law and history contract law. Is the is the franchise
system stronger today? Or is it more vulnerable today because of attempts like this by Volkswagen
and other OEMs to go direct? I think it's vulnerable because there's consumer sentiment
that's expressed, you know, to legislators that they somehow feel that, you know,
dealers are in the way of a happy, seamless transaction. It takes a lot of work for the
ATAEs and they all do a very, very good job. I take my hats off to them. Explaining to lawmakers
why the franchise system with all its problems is better for consumers and it's better, you know,
for local government, for all the reasons we discussed earlier. So it's a difficult process
and sometimes you feel like, you know, you're not making your points, but by and large state
legislators understand the value of the franchise model. It takes a long time to get there. So I
think though that, you know, everyone wants to come in and fix something. You know, you get, you
get, you know, these newer executives and they want to make their mark. So here, you know, you have
the VW executives, including their president, who thinks that all the other manufacturers
for 125 years have gotten it wrong. You know, I usually make the analogy, there was one,
one airline out there that didn't have reserve seats for their customers. You just went in like
cattle. Yeah, yeah, yeah. I wonder who that is. Yeah, we all know who that is. And finally,
they titulated like last week, I think, recently, he said, you know what, maybe if our system was so
great, maybe one other airline would copycat us. And after years and years and years of realizing,
you know, maybe we didn't build a better mousetrap. So, so I think that's what's happening here with
Volkswagen. And they think they finally arrived at the answer. And now they're realizing, you know,
the jig is up. The dealers aren't buying it. Consumers aren't buying it. Lawmakers aren't
buying it. And, you know, this whole tapestry of trying to make it look like scout is some third
party that just kind of came up from the ashes. And who are they? You know, that's worn thin too.
So, so, you know, Volkswagen is really at an inflection point. And they have to decide whether
the dealers are a friend or foe. And if they make the wrong decision, I think it's a precarious
circumstance for them. Because ultimately, when they're when no one's looking, they will make
the concession that dealers are their biggest asset. Maybe it's a weak moment that they tell
you the truth. But we have it. I mean, we've done a lot of investigation. And we know that
they value the dealers. But if they can get away with something and enhance their bottom line,
they'll try it until they get caught. So my hope is that we're at the point now where they got
they got caught. And now they have some serious decision making to do.
Well, Leonard Bolivia, we would absolutely love to have you back on the show for some updates as
this case progresses through the court system. Wish you the best of luck in defending this
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