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Volkswagen Provokes Good Controversy for Ford and GM

Volkswagen's plans for Scout have U.S. dealers worried.
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Volkswagen  (VWAGY) - Get Volkswagen AG ADR Report has big plans for the revived Scout electric pick-up and SUV, but dealerships in the U.S. might be feeling a little left out.

The German automaker announced on May 12 that "The strong Iconic brand #Scout gets electrified."

'The New Group Steering Model'

After the announcement Arno Antlitz, CFO Volkswagen AG said "the company we will establish this year will be a separate unit and brand within the Volkswagen Group to be managed independently."

“This aligns with the new Group steering model - small units that act agilely and have access to our tech platforms to leverage synergies," Antlitz said.

This is something that has reportedly upset many of the more than 600 Volkswagen dealers in the U.S. who are concerned that the company may sell the Scout directly to consumers.

The company followed up with a statement on May 17 saying "we will inform about the distribution channel at the appropriate time."

Direct manufacturer auto sales are prohibited in several states by franchise laws requiring that new cars be sold only by dealers.

The bans are part of a broad array of state laws that bar manufacturer ownership of dealers and regulate entry and exit of dealers through territorial restrictions and provisions on dealer termination.

On the Books

Opponents say that eliminating state bans on direct manufacturer sales provide automakers with an opportunity to reduce inventories and distribution costs by better matching production with consumer preferences.

A number of states have amended existing dealer franchise laws to either explicitly prohibit or allow for direct-sales of motor vehicles within the state, according to the National Conference of State Legislatures.

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The conference said that most enacted state law authorizing limited direct-sales appears to be narrowly tailored to apply to Tesla  (TSLA) - Get Tesla Inc. Report "by requiring that a manufacturer either have no existing franchise agreements in a relevant market area and/or have an existing direct-sales operation."

"Recently introduced legislation has been trending toward providing for new manufacturers to engage in direct sales," the group said. "Most states that provide for the direct-sales model still require a manufacturer to obtain a dealer license or permit to be able to operate in the state."

Volkswagen recently unveiled a new sales model in Europe for its all-electric ID family that is similar to Tesla's set-up.

Customers order the vehicles online, while Volkswagen sets the price and takes over financing. Dealers deliver and service cars and offer test drives.

The Scout--Then and Now

The Scout was launched in late 1960 by International Harvester as a competitor for the two-door Jeep CJ 4x4.

Production of the Scout ended in 1980, International Harvester is now known as Navistar International Corp. and is a part of the Traton Group, a subsidiary of Volkswagen.

The first prototypes are to be unveiled next year, and production is scheduled to start in 2026.

Revenue in the large SUV market is projected to reach $148.60 billion this year. 

The main players in the American market for electric SUVs and pickups include Tesla with the Cybertruck and Model Y and Model X, Rivian  (RIVN) - Get Rivian Automotive Inc. Report with the R1T and R1S, Ford  (F) - Get Ford Motor Company Report with the F-150 Lightning and the Ford Mustang Mach-E and GM  (GM) - Get General Motors Company Report with the GMC EV Hummer and the Chevrolet Silverado pickup EV.

Volkswagen plans to initially invest more than $1 billion to ready the project and then seek additional financing from outside investors to enter production, the Wall Street Journal reported.

The company said it wants half of its vehicle sales to be electrified by 2030 and by 2040, Volkswagen said almost 100% of its new vehicles in major markets should be zero-emission vehicles.