The California New Car Dealers Association filed a lawsuit against Volkswagen and its affiliate, Scout Motors, for allegedly violating California’s franchise laws.

The CNCDA lawsuit, filed in in San Diego County Superior Court, asserts that Volkswagen is illegally competing with its dealer partners through Scout Motors.

The lawsuit alleges unfair competition and false advertising, and CNCDA is seeking to immediately stop Scout Motors’ illegal direct sales, as well as civil penalties that could exceed $35 million.

According to the suit, Volkswagen and Scout Motors are operating in violation of California Assembly Bill 473, a 2023 law that prohibits automakers from using affiliated brands to compete with their own franchised dealers.

CNCDA alleges that Despite admitting to legislative leaders that AB 473 would cut off its ability to sell directly to consumers, Volkswagen, via Scout Motors, has taken deposits and is marketing Scout-branded vehicles to California consumers.

The CNCDA claims that Scout Motors’ advertisements are false and misleading because they do not disclose that the direct-to-consumer sales model is illegal under California law.

The CNCDA argues that the defendants’ actions deprive California dealers of the opportunity to sell Scout Motors vehicles, resulting in financial losses, job losses, and lost investment in dealerships.

CNCDA represents 45 Volkswagen dealerships in California.

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