Scout Motors’ plan to ditch dealerships is exactly what customers want

Less than 12 hours after Scout Motors unveiled two electrified vehicles last week, car dealers began threatening lawsuits.

Scout, which is backed by Volkswagen, believes dealerships are a thing of the past. It prefers to sell its electric vehicles directly to consumers, following in the footsteps of Tesla, Rivian and Polestar in completely rethinking the car sales industry. But unlike these brands, it does so while benefiting from the financial support of a historic car manufacturer: VW.

But if the company is reluctant to question a century-old economic model, it doesn’t show it.

“Scout is a 100% separate brand, a separate entity, a separate structure, everything is separate,” Scout CEO Scott Keogh said last week, noting that the Scout shopping experience will be “seamless, ultra quick and super simple.

To achieve this, Scout Motors relies heavily on a digital platform it builds in-house. “Scout Motors has no existing devices,” said Cody Thacker, Scout’s vice president of growth. “We kept asking ourselves, if an OEM could start from scratch, what would they do differently?

This new approach attempts to reshape car buying, one of Americans’ most hated financial transactions. According to a study by Scout, the car buying experience takes an average of 13 hours and 31 minutes per buyer. Only 8 percent of consumers have high or very high trust in dealerships, resulting in more than 180,000 dealership-related complaints to the Federal Trade Commission each year. And almost 70% of customers prefer independent service shops over dealership services due to issues such as overcharging and delays.

Add to that the fact that, nationally, 49% of dealers are “not at all enthusiastic” about selling electric vehicles, and Scout sees the reason why the experience needs to be streamlined. The company also wants to control customer data more closely, which will allow it to target sales in certain areas, control vehicle supply and adjust incentives to keep the company profitable.

“A big point of frustration for consumers is that they want transparency in pricing and are unhappy with all the hidden fees and markups. Only through a direct-to-consumer model can we tackle these issues head-on and solve them,” Thacker said.

Scout envisions its sales platform as a place where customers can do everything they normally would at a dealership, like purchase accessories, schedule service appointments, and get details on over-the-air updates . But instead of chatting with a human dealer, they can meet an AI-powered chatbot. (AI chatbots are a mixed bag for many industries, but the automotive sector, in particular, has struggled to make them work.)

Scout says it will launch 25 physical “Scout Workshops” and “Scout Studios” across the country over the next five years, where consumers can test drive and experience Scout vehicles. Certainly, automakers have been in knots, trying to rebrand and rebrand dealerships and service centers in different ways to avoid the negative connotation they have for consumers and get around the much-hated system.

Scout’s renderings of the workshops are sleek and airy, with open work bays in full view of the consumption areas, where vehicle owners can sit and sip coffee while overseeing the work being done on their vehicles. In addition to physical locations, Scout will also offer consumers who live outside of a 45-minute radius of a Scout workshop the ability to book mobile service through Scout-certified partners. Scout will also offer Scout Studios, which will act as marketing and sales locations, much like Tesla stores located in malls across the country.

The decades-old dealership model evolved in the early 1900s, when companies like Ford and GM sold directly to consumers. As the automobile industry took off, concerns about monopolistic practices increased and state franchise laws emerged.

Today, dealerships have an iron grip on car sales, although some companies like Tesla, Rivian and Polestar have found workarounds. Hyundai is testing direct-to-consumer sales through Amazon (albeit with dealers involved), and Honda is selling its Acura EV exclusively online. Dealers have made direct-to-consumer sales as difficult as possible, filing lawsuits and lobbying heavily through their trade group, the National Automobile Dealers Association (NADA).

True to form, as soon as Scout announced its plans to become “Scout-to-Consumer” on Thursday, dealers started rattling their sabers. NADA announced that it would “challenge this and all attempts at direct sales in courthouses and statehouses across the country.”

Part of the problem that makes this battle a little different is that Scout has close ties to Volkswagen, and VW dealers have long wanted the company to launch a truck in North America because they see it as a cash cow . Indeed, Scout claims that at least two-thirds of reservations made since launch were for the Scout Traveler SUV and a third were for the Scout Terra truck.

Of course, these are also the same dealers who claimed that “Americans are not ready for electric vehicles” in an open letter to the Biden administration less than a year ago, claiming that electric vehicles were simply installed on their lots (although another study by Sierra Club showed that 66 percent of dealerships do not have electric vehicles on their lots). NADA has been waging a long-running battle with Tesla over its direct-to-consumer sales model for many years.

Ultimately, at the heart of the conflict is data and the question of who controls it. “Only through a direct sales model can Scout Motors get a complete 360-degree view of the customer,” Thacker said. “This means we can completely influence the customer journey. We can benefit from unprecedented access to customer data, allowing us to gain deep customer insights, which can then drive insights across the business. Dealers currently manage most customer data and relationships, including financing, in the current model.

Scout doesn’t seem perturbed by the dealers’ threats. In a statement, Scout spokesperson Lindsay Bago said: “Just as using franchised dealers may be appropriate for some brands and their customers, using a direct sales model best supports our customers and our customer-focused strategic vision as we launch a new vehicle platform. a new production center and a new retail network.

While Scout Motors has opened online reservations for its new Terra and Traveler vehicles that debuted last week, the company has not yet specified details of a financial partner for the purchase or lease. The company could tap VW’s massive financial arm to handle the financing, although Thacker said that part of the equation still needs to be resolved. “I think what we can say today is we want this to be a seamless experience,” Thacker said.

Keogh, CEO of Scout, is confident that the model will work and support the consumer in the right way. “Scout wants to be old school,” he said The edge last week, “We want a brand where you can have the trust of data and the trust of customers, because I think it’s finally in a place that people are apprehensive and rightfully so,” he said. continued. “We can control customer data, secure the customer and not harass our customers. So that’s what we’re looking to do, what this will do.