Volkswagen's push to sell directly to consumers through its new entity, Scout Motors, has sparked significant backlash from its dealer network. The episode dives into the complexities of direct-to-consumer sales in the automotive industry, highlighting the legal battles Volkswagen faces in various states and the historical reasons behind the franchise dealership model. The hosts discuss the implications for both consumers and dealers, as well as the potential for other manufacturers to follow suit. With insights on lobbying and market dynamics, this episode sheds light on a pivotal shift in automotive sales.
Today on CarEdge Live, Ray and Zach discuss the latest news on Volkswagen and their decisions with Scout Motors that are frustrating and scaring dealers. Tune in to learn more. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com
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"Hey, a friendly reminder, folks. Today's show is brought to you by caredge.com. If you're in the market to buy a car, you know someone who's in the market to buy a car, give them the resource that is caredge.com."
Caredge is a website that helps people find out how much cars really cost at dealerships. It also helps them negotiate a better price when they want to buy a car.
Caredge is a platform that assists car buyers in obtaining real prices from dealers and negotiating better deals. It aims to make the car buying process more transparent and less stressful.
"...VW Audi and Porsche dealers in Colorado, Sue State over Scout dealer license..."
Porsche is a luxury car brand that makes fast and stylish cars, like the famous 911 sports car. They are part of the Volkswagen family of brands.
Porsche is a high-performance sports car manufacturer, also part of the Volkswagen Group. Known for models like the 911 and Cayenne, Porsche has a strong presence in both luxury and motorsport segments.
"...calling out the direct sales model. Let's level said here,..."
The direct sales model means that car companies sell their cars straight to buyers instead of going through car dealerships. This can cause problems with the dealers who usually sell those cars.
The direct sales model refers to a method where manufacturers sell vehicles directly to consumers, bypassing traditional dealerships. This approach can disrupt the established dealership network and lead to conflicts.
"...they created an entity, a whole new company, Scout Motors, even though they own it, sort of kind of, and the money came from them..."
Scout Motors is a new car company that wants to sell cars directly to customers instead of using regular car dealerships. This is different from how most car companies usually operate.
Scout Motors is a new automotive company that has been created as a separate entity, although it is connected to larger automotive groups. They are focusing on a direct-to-consumer sales model, which is a shift from traditional dealership networks.
"...the Porsche Audi Volkswagen dealers are all screaming, well, no, you have a dealer network in place..."
Audi is another luxury car brand that makes high-quality vehicles. Their dealers are worried about new companies selling cars directly to people instead of through dealerships.
Audi is a luxury car brand that is part of the Volkswagen Group. The mention of Audi dealers along with Porsche and Volkswagen highlights the competitive landscape of the automotive market and the challenges posed by new sales models.
"...when Volkswagen decides, hey, we have a new brand, we want to sell it direct to consumer?"
Direct to consumer means that a company sells its products straight to customers instead of going through stores or dealers. This can help save money and make buying easier.
Direct to consumer refers to a sales model where manufacturers sell their products directly to the end user, bypassing traditional retail channels like dealerships. This approach can lead to lower prices and more control over the customer experience.
"...h is also a little bit when Ford came out and did Ford model, what was it, Ford blue?"
The Ford Model T is an old car that was made a long time ago, and it's important because it helped many people buy cars for the first time. It changed how cars were made, making them cheaper and easier to get for regular folks.
The Ford Model T, produced from 1908 to 1927, is one of the most significant cars in automotive history as it revolutionized mass production techniques and made automobiles affordable for the average American. It is often credited with putting America on wheels and is a symbol of early automotive innovation.
"And I'm even thinking, Dad, this is a brand not many people will know, Vinfast. Remember Vinfast was going to sell direct to consumers and then what did they end up doing?"
VinFast is a car company from Vietnam that makes electric cars. They started by trying to sell cars directly to people but then changed their plan to work with car dealerships instead.
VinFast is a Vietnamese automotive manufacturer that focuses on electric vehicles (EVs). They initially aimed to sell directly to consumers but later decided to partner with dealerships for distribution.
"...those blue states that you see on the screen, those are states where only Tesla is allowed to sell direct to consumer..."
Tesla is a car company that makes electric cars. They sell their cars directly to people instead of using regular car dealerships.
Tesla is an American electric vehicle manufacturer known for its innovative approach to selling cars directly to consumers, bypassing traditional dealership models.
"...the franchise dealer body network out there of Volkswagen is upset."
A franchise dealer network is a group of car dealerships that sell cars from the same company. They work together with the car maker to sell and service vehicles.
A franchise dealer network consists of independently owned dealerships that sell vehicles from a specific manufacturer under a franchise agreement. These dealers are crucial for the manufacturer's sales and service operations.
"...Rivian sponsors direct to consumer EV sales ballot measure with $4.6 million..."
Rivian is a new car company from the United States that makes electric trucks and SUVs. They are trying to change how people think about electric vehicles and focus on outdoor activities.
Rivian is an American electric vehicle manufacturer that focuses on producing electric trucks and SUVs. They are known for their innovative designs and technology aimed at outdoor and adventure enthusiasts.
"...as a corporate entity, as an automaker, as an original equipment manufacturer and OEM. Here is the most"
An original equipment manufacturer (OEM) is a company that makes parts or products that are used in another company's products. In cars, it means the company that makes the car itself.
An original equipment manufacturer (OEM) refers to a company that produces parts and equipment that may be marketed by another manufacturer. In the automotive context, it typically refers to car manufacturers that produce vehicles and their components.
"...the ID4 is the slowest selling car in the United States of America for the past two months in a row."
The ID.4 is an electric SUV made by Volkswagen. It's designed to be environmentally friendly, but it's not selling very well in the United States right now.
The Volkswagen ID.4 is an all-electric compact SUV that is part of Volkswagen's ID family of electric vehicles. It aims to compete in the growing electric vehicle market but has faced slow sales in the U.S. market.
"...want more efficient sales in the auto industry, more transparency, etc...."
Transparency in auto sales means that car buyers can see all the prices and fees clearly, so they know exactly what they are paying for without any surprises.
Transparency in auto sales refers to the clarity and openness of pricing, fees, and dealership practices, allowing consumers to make informed decisions without hidden costs. This concept is increasingly important in the automotive industry as consumers demand fair practices.
"...We had Dieselgate. We had the fact that they are the slowest selling car in the United States right now..."
Dieselgate is a scandal where Volkswagen was caught cheating on tests that measured how much pollution their diesel cars produced. This caused a lot of trouble for the company.
Dieselgate refers to the emissions scandal involving Volkswagen, where the company was found to have installed software in diesel vehicles that manipulated emissions tests, leading to significant legal and financial repercussions.
"...I absolutely hate the entire car buying process. I thought the Costco route would be better because the prices are supposedly prearranged..."
The car buying process is how people go about buying a car, including looking for options, talking to salespeople, and figuring out how to pay for it. It can be stressful because of the pressure from salespeople.
The car buying process refers to the steps involved in purchasing a vehicle, which typically includes researching, negotiating prices, financing, and completing paperwork. Many people find this process stressful due to high-pressure sales tactics and complex pricing structures.
"...Thinking about haggling with a guy who wants to bounce numbers off his manager in the back makes me hyperventilate..."
Haggling is when people try to negotiate a better price when buying something. In car buying, it means talking to the salesperson to lower the price, which can be uncomfortable for many people.
Haggling is the negotiation process where buyers and sellers discuss and agree on a price for a product, often involving back-and-forth communication to reach a mutually acceptable price. In car buying, haggling is common and can be stressful for many buyers.
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It's noon here in Ventner City, New Jersey and our nation's capital, Washington, D.C.
And this is Car Edge Live for Monday, February 2nd, I do believe.
With your host, me, Ray here in Ventner City and Zach coming to you live from his apartment in D.C.
How are you today, Hanson?
Happy Monday, Pops. I'm doing fantastic. Welcome to the month of February.
If I'm not mistaken, it's my buddy Martin's birthday today, so happy birthday to Martin.
Yeah, so just give him a quick shout out.
Hey, a friendly reminder, folks. Today's show is brought to you by caredge.com.
If you're in the market to buy a car, you know someone who's in the market to buy a car,
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Dad, the big story this morning I wanted to talk about comes by way of Volkswagen,
an auto group that is struggling mightily here in the United States,
has decided to pick a hell of a battle. There are many, excuse me,
there are many dealer groups nationwide, statewide dealer groups that are suing
Volkswagen as a result of what they're doing with Scout Motors.
So this is the big story we want to talk about today.
VW Audi and Porsche dealers in Colorado,
Sue State over Scout dealer license. We also have dad folks in New Jersey,
the president of a bar dealer group calling out the direct sales model.
Let's level said here, Dad, what is Volkswagen doing in their quest to sell direct to consumer
and why is it pissing off so many dealers?
Well, what they're doing is they created an entity, a whole new company,
Scout Motors, even though they own it, sort of kind of, and the money came from them,
sort of kind of, and there's this connection, sort of kind of,
like they're all in the family, but they're claiming it's a new separate entity.
And because of that, the business model they want to utilize is direct to consumer sales.
And the Porsche Audi Volkswagen dealers are all screaming,
well, no, you have a dealer network in place and you are trying to circumvent that dealer
network and these dealers are feeling threatened by it.
And we know that they were granted a dealer license in Colorado.
What people didn't realize is they had been granted a dealer's license in California
before they even got that dealer's license in Colorado.
Let's go one step higher here. Let's take it a level up.
Why the heck do we buy cars from car dealers and not directly from manufacturers?
In other countries, you can buy a car directly from a manufacturer.
And why is it such hubbub here when we do have, for example, Scout Motors,
which is an entity that is funded by, spun out of Volkswagen of America,
which is a legacy automaker, one that is actually struggling mightily right now,
which we'll talk about on today's show.
Why is it such hubbub when Volkswagen decides, hey, we have a new brand,
we want to sell it direct to consumer?
Why are we in this predicament to begin with that?
Well, because manufacturers decided when they started that they would rather
license franchise dealerships to sell their products.
They weren't in a position monetarily to build their facilities to actually manufacture the
vehicles plus handle any servicing in sales.
So because they didn't have the funds, it seemed to them that the best business model
was to sell franchises and enter into franchise agreements.
And well, last time I checked, there's 50 states plus some territories.
And each state and territory has their own laws and regulations regarding
dealer franchise agreements and how they have to be honored.
So it's not like a simple thing where you say, okay, we want to change from one to the other.
You have to do battle in 50 plus states in order to try and make that happen.
So, you know, the why is they didn't have the money and they wanted to utilize other people's
money, go figure, and now that they've utilized other people's money, they want all the money.
So let's see what happens.
Now, it's interesting.
I will pull up the Wikipedia page for direct to consumer auto sales and we'll zoom in on this
map over here because to your point that it is different in every single state.
You can see here, green states are states where direct auto sales are allowed for manufacturers
without franchise agreements.
Colorado, Maryland, and Utah additionally specify EV only manufacturers.
This is where things get so interesting because Volkswagen is the group that is pushing scalp
motors.
And in every state, I would imagine there's a Volkswagen dealership.
Even if we just focused for a second on, I don't know, California or Colorado or New Jersey or any
of those like they have car dealerships and the state law protects those dealerships that we've
talked about on the show before.
Dealer lobbies are incredibly powerful yet you can see here if you don't have prior franchise
agreements, you can sell direct to consumer.
This is the rigmarole here, which is also a little bit when Ford came out and did Ford model,
what was it, Ford blue?
Yeah.
Which was their like spun out business unit, supposed to be that never really materialized.
They kind of set the stage potentially for them to do something similar because they also told
dealers that you can't change the pricing on our EVs, etc.
So we've seen some manufacturers try this before.
And I'm even thinking, Dad, this is a brand not many people will know, Vinfast.
Remember Vinfast was going to sell direct to consumers and then what did they end up doing?
They ended up actually getting car dealerships to buy in.
We couldn't sell them through dealerships either, but that's neither here nor there.
It didn't take Vinfast long to understand that the best way to develop a dealer network is to
utilize other people's investment, not theirs.
And you mentioned that state automobile dealerships, they're great at lobbying.
Well, they're well funded.
That's why they're great at lobbying.
Dealerships, for the most part, make a lot of money and dealerships donate a lot of money
to politicians either via lobbying efforts or direct from dealerships to the politicians.
We've discussed this any number of times, but we have in this country some of the best politicians
money you can buy and that is the political business model.
We're here to get elected and then to enrich ourselves.
In my opinion, it seems to play out pretty well because there's been any number of people that
have gotten into politics that didn't have a lot of money when they first got in,
but when they left, they were terribly wealthy.
I guess it's safe to say just follow the damn money.
And so long as it's profitable for car dealerships to operate the way that they do,
you will see pushback on things like this.
Just again, to frame how fragmented this is, those blue states that you see on the screen,
those are states where only Tesla is allowed to sell direct to consumer,
which is a weird carve out when you think about it.
No one can sell direct to consumer except for one company because they lobbied hard enough
in those states.
The orange dots that you see are Indian reservations and so on those reservation
lands, the rules are up to the native people that live there, so Tesla can sell direct to
consumer there on all the gray states.
Those are states where there is absolutely no allowance for direct to consumer car sales.
And again, the big story this morning that we're covering is the fact that we have a brand
new lawsuit out of the state of Colorado against Volkswagen because Volkswagen is ultimately
the one who is bringing scout motors to market, scout motors selling direct attempting to
sell direct to consumer and causing a lot of stir.
Well, it appears as if since they've been granted dealer licenses in both California
and Colorado that at least in two states they're going to sell direct.
And I get why the franchise dealer body network out there of Volkswagen is upset.
Volkswagen sales haven't been great for a year or so.
There's a new product that eventually will be coming out that they hope there's enough buzz
around that it will create interest and more sales.
And they would like to be able to participate in that and make a profit off of that because,
well, it's their efforts that are allowing Volkswagen to find the money to put into create
scout. So I get why the franchise dealers want it.
I get why scout doesn't want to do it that way.
And I get why many consumers would prefer to be able to buy direct from the manufacturer.
You know, everybody raves about how easy it is to buy a Tesla.
You can go online and you can do it in 10 minutes.
You know, you try and buy any other car in America and it takes a little bit longer than
that even if you go online. You know, I believe Rivian's probably the same way.
Lucid is the same way. So for ease of doing business, consumers seem to prefer the buy
direct from the manufacturer. The dealers don't.
And ultimately, I don't think ultimately the manufacturers really want to be in the direct
to consumer business if it doesn't pan out as well as they're hoping it does.
I mean, because then you have to build facilities and you have to create service centers and things
like that. And you know, it's it's a lot easier to use other people's money to do that.
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Possibly dad, possibly. I do want to pull up though on this same thread and then we're talking
about Volkswagen a little bit more before we switch gears here. This is out of the state of
Washington that Rivian sponsors direct to consumer EV sales ballot measure with $4.6 million.
To your point, follow the money. So Rivian is now funding up to almost $5 million to lobby the
state of Washington to ultimately allow them to sell directly to consumers. I think we're going
to see more and more of this operating in a bit of a gray area. The reason I can say that is because
that map that we saw of all 50 states, there is no federal law here that dictates how things need
to operate. It is very gray and maybe in some states it's pretty black and white, but you've
got to imagine that these companies that are well funded and want to change how things operate,
they will continue to push up against that wall and try and change how things operate in the
auto industry. Scout motors, Volkswagen, Rivian, all examples of that. Yeah, it's interesting to see
that Rivian, the company that's losing billions of dollars can find $4.6 million to invest in a
campaign to convince the good folks in Washington that it's in their best interest
to vote for a ballot measure that would allow the direct to consumer sales. So
yes, it's always follow the money. It's pretty simple. We think we have a lot of choices.
The choices are dictated by those who, you know, there's that old saying, you know,
the golden rule. He who has the gold rules. And so that seems to be the case for politicians.
It seems to be the case for companies out there. It is to flex your financial muscles to get what
it is that you think is beneficial for you or your company. Dealers are very concerned about
this. However, and I would say you said it in the past and I'll say it right now, the people who
win in this the most, not the consumers, not the dealers, the lawyers, the lawyer bills on this
are going to be massive illegal fees for both sides. This and it's going to go on for a long time
and it's going to be different in every single state. So this will be something that we're
keeping tabs on for a long time coming down. The thing that I'm interested in that to your point,
let's say money is the thing that dictates all of this. Let's just take a peek at Volkswagen as a
corporate entity, as an automaker, as an original equipment manufacturer and OEM. Here is the most
recent Kelly Blue Book yearly consideration for brands. Where does Volkswagen fall on this list?
They are the fourth lowest in terms of actual consideration as an automaker at the same exact
time that Volkswagen shows up on our chart of days supply of inventory at the highest level,
143 days supply. And we know domestically for Volkswagen back in Germany, they are shutting
down plants for the first time ever and they're running out of money. Makes me wonder a little
bit if Volkswagen actually is well-heeled enough to fight the fight for scout motors to sell direct
to consumer. You look at some of their core businesses struggling. The ID4 is the slowest
selling car in the United States of America for the past two months in a row. Can Volkswagen even
fund this fight? Because that's what it's going to be. It's going to be a fight and it's going to get
ugly and I think it's going to be very expensive. Well, and whether or not they're well-heeled
enough would probably go back to dieselgate. Yeah. You know, how many billions of dollars
were they fined for that? Was it 15 billion, 20 billion? Whatever it is, whatever that amount
of money was, is the amount of money that they don't have to throw towards this. So everything
has consequences and the consequence of cheating for them has ultimately ended up putting them
in a position where they might not necessarily have the capital to do what it is that they're
trying to do. Now, that doesn't mean that they're not going to fight and it doesn't mean that they're
not going to try and find enough capital to win in enough states so that it, you know, it makes sense.
The real question is how popular is scout motors going to be and how quickly? You know, I mean,
there was a big thing for when Rivian was first coming out. Well, that doesn't sell anywhere
near in the volumes that they had hoped by now and my suspicion, my guess would be that whatever
the business plan indicates for sales for scout when they first start won't be anywhere near the
reality of what sales are going to be. Be careful, dad. They should have to pay you as a consultant,
hundreds of thousands of dollars to give them that rigorous assessment that you just said.
You've got to be careful here. I don't, you know, I give them this information for free
and because they've paid so little for it, they pay no attention to it. But the truth is, you
know, because it didn't come with a high price tag, it can't be accurate. What will be accurate,
I can assure you, having spent 43 years in retail automotive, having listened to every manufacturer
every time they came out with a new car and who it was going to appeal to and who was going to buy
it and how many of them they were going to sell and realizing that they never got any of that right
and they've spent millions in cases, billions of dollars to do some of this. So I can just assure
Scout whatever their business plan says, it won't be, the reality won't be anywhere near that.
And so we'll see. I mean, look at Lucid. Oh, I mean, my God, you know, every year they say,
oh, we're going to sell more vehicles. We're going to sell more. And every year they
sell a handful more and lose billions of dollars. Riviant losing billions of dollars. It is a
capital intensive venture to be a startup automobile manufacturer.
Well, it does make me wonder, dad, Volkswagen wants to sell direct to consumer. That is dead
clear. Like it's clear as day. Dealers are going to fight it tooth and nail. Is Volkswagen going
to be successful enough to actually bring change here or will the dealers win? As I observe the
market right now, I'm thinking the dealers are going to win here. They're more well funded. They
have a more focused business, which to be clear, I'm kind of indifferent about the outcome. I just
want more efficient sales in the auto industry, more transparency, etc. But dad, I don't think
Volkswagen or Scout will ever end up making enough money to actually fund this to a place where they
can be like Tesla get carved out specifically for them. I think car dealers stick around for a long
time because ultimately they're so well healed. They can fund it. And whether they're well healed
or not, they've got so many state laws behind them. I mean, we're talking about 50 entities when it
comes to states. And then a couple territories, however many territories there are, and they
have their rules and regulations. So it's difficult at best to be able to do what it is that Volkswagen
is trying to do with Scout. And even if Volkswagen ultimately is thinking to themselves,
well, we'd like to direct the consumers for VW and Porsche and Audi and every one of our brands.
That's not going to happen. I mean, the fight would be too big in too many arenas
for them to be able to win that. So we'll see what happens.
This is why I'm so surprised they're the brand that are doing this. Again, we talked about a moment
ago, yeah, VW closing plans for the first time ever in Germany as a result of their strategic debacle.
We had Dieselgate. We had the fact that they are the slowest selling car in the United States right
now. They have the highest level of new car inventory, one of the lowest levels of brand
consideration. And they're the ones going to battle saying, actually, we need to fund
this direct to consumer sales push. It would make more sense. I'm not saying Toyota is doing
anything in this realm. I have no information that would suggest that. But it would make more
sense for Toyota to come out and do that. They could actually do it. But to be clear here,
their dealers love Toyota. Toyota loves their dealers. There's no incentive there. So really
fascinating here to see what's going on in the market. Dad, there was a post on X on social media
that I wanted to share on today's show and get your take on. This is from a gentleman named Jody
Genesee. You ready for this? I have an intense negative visceral reaction to auto dealerships
and car salesmen. So today has been unpleasant. After going to the Costco Auto Program webpage
earlier today, thinking I'd be able to view prices without being bothered, I've received six texts
and two phone calls from one dealership, even though I purposefully avoided hitting submit on
a pricing page that I knew would trigger sales calls. I absolutely hate the entire car buying
process. I thought the Costco route would be better because the prices are supposedly prearranged.
Thinking about haggling with a guy who wants to bounce numbers off his manager in the back
makes me hyperventilate. I want to continue driving my 14-year-old truck with 200,000 miles on it
until the wheels fall off. Again, a couple things about this, Dad, especially in the context of a
direct to consumers show that we're having today. This is the type of stuff that drives people nuts
trying to buy a car. And then this is the type of stuff that drives me nuts because Costco,
what are you doing with your auto buying program? You train people to be Costco salespeople. I
test this stuff all the time, and it is miserable to try and use these types of programs still.
I thought this was crazy. Well, the idea behind it is to make it a little bit better,
but it doesn't make it a lot better. And so that's the issue. How do we make it a lot better?
How do we drag retail automotive into the 21st century kicking me through and doing it in such a
way that dealers can be okay and the customers can actually be excited about buying something?
So it'll take a while. Can we call the show today? I have some things I need to take care of.
All right. Sounds like Dad needs to go to the bathroom. We're going to do that. We're back
tomorrow, folks, with more Car Edge Live. Appreciate everyone tuning in. And Dad,
I won't make this any more long-winded than it needs to be. Bye, everyone. Bye.
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