Volkswagen dealers -- already seething over a product drought, sagging sales and an often cold shoulder from headquarters in Germany -- may now have cause to take their frustrations out on the company in court.
Dealers will be on the front lines of trying to repair the damage to the Volkswagen brand caused by the emissions test cheating scandal that erupted last week. But they are taking on increasing damage themselves, including wrath from customers who feel betrayed by the “clean diesel” sales pitch, stranded new-vehicle inventory subject to stop-sale orders, decreased dealership values in the buy-sell market, lower used-car values and lost marketing support.
“This is a class-action scenario,” said Eric Chase, partner at Bressler, Amery & Ross in Florham Park, N.J., who specializes in representing dealerships. “I wouldn’t be surprised to see one filed real soon.”
For their part, dealers are protected against consumer lawsuits by state franchise laws and clauses in the franchise sales agreement. But the legal avenues dealers can pursue against VW are vast, lawyers say.
“If I’m a VW dealer and they’ve made intentional decisions either in Germany or in Virginia, and those decisions damaged the brand, that hurts me as a dealer,” said Mike Charapp, a partner at Charapp & Weiss in McLean, Va., a McLean, Va., firm that represents dealers. “I’m going to be looking at some potential recourse unless VW steps up and helps me with my business.”
Consumers already have filed about 25 class-action against VW representing plaintiffs in all 50 U.S. states since Friday, according to Reuters' estimates.
Financial assistance
Volkswagen of America has rolled out a series of financial assistance programs to compensate its U.S. dealers for the lost sales of diesels. Dealers are still waiting for answers to shake out from VW’s German and U.S. headquarters to figure out how they will be affected.
A Volkswagen spokesman could not be reached for comment today.
“The customers who bought these vehicles are passionate about the environment and thought they were reducing their carbon footprint and now they feel betrayed when it turns out the car is actually harming the environment,” said Mike Jackson, CEO of AutoNation Inc., the largest U.S. auto dealer. “They’re very upset and concerned about what’s going to happen, and at the moment we don’t really have an answer for them other than assuring them that the car is safe to drive.
“We’re sort of in a limbo moment that can go on a little bit more and then we’re going to need comprehensive answers from VW,” Jackson added.
Chase said there is a provision in the standard VW franchise agreement that calls for arbitration when there is a dispute between dealers and the factory. But a 2002 federal law exempts dealers and the factory from that arbitration rule and permits legal action by either side.
“The only way you get to arbitration now, if it’s a dealer-factory dispute, is if the parties agree to arbitration after the controversy arises,” Chase said. “So yes, a dealer can file suit today.”
'Not a desirable position'
Attorney Norman Hoffman, who represents car dealers, said none of his clients have discussed legal recourse against Volkswagen, yet.
“That’s not a desirable position to be in because Volkswagen has a lot more funds available for litigation,” said Hoffman, who owns the Law Offices of Norman J. Hoffman in Encino, Calif.
But if VW doesn’t “step up to the plate,” Hoffman said dealers might be forced into class action suits.
“This will really have an adverse effect on the value of the franchises for the time being,” Hoffman said.
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