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Latest Volkswagen Suit: 'Illegal' Dealership Pricing Scheme

Jan Lee headshotWords by Jan Lee
Leadership & Transparency
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Class-action suits against Volkswagen seem to be anything but news these days. With more than 400 litigations now in court, coming up with a new reason to sue the embattled car manufacturer may be difficult. But a family-owned dealership has a new twist to its complaint, which was launched in Illinois on Wednesday.

Ed Napleton, who owns three dealerships in Illinois and Florida, alleges that VW, through its U.S.-based subsidiary, Volkswagen Group of America (VWG), not only defrauded the car dealership when it installed its "emissions cheating" software, but also operated an illegal pricing scheme that intentionally put some dealerships at a financial disadvantage.

According to the litigation, which was filed in the U.S. District Court for the Northern District of Illinois, VWG shows preference to those dealers who arrange financing through Volkswagen Credit (a subsidiary of Volkswagen, the suit alleges) putting those that don't at a business disadvantage.

"Multiple-tiered pricing has also been created through the use of 'dealer reserve coupons' ('Coupons') from VCI which are to be submitted along with VCI contracts for Consumer Financing and result in a Consumer Finance Discount to the dealer with every Coupon submitted," the plaintiffs allege. Those dealerships that don't arrange financing through Volkswagen Credit reportedly lose valuable discounts. The program further encourages dealers that do agree to finance with Volkswagen Credit, to "'buy deeper' into the consumer market making it easier for them to finance less credit worthy customers and to write a greater number of deals."

The suit also suggests that VWG artificially inflated its sales goals, to the disadvantage of car dealerships. "[Volkswagen Group of America] has continued to tout artificially inflated sales goals which, even before the CleanDeisel scandal, would have required Volkswagen to increase its sales by 100,000 each year for the next four years, a monumental task in the hypercompetitive U.S. Market,” the suit alleges, citing an article in Automotive News from last year that suggested that VW erred on its sales goals, just before the scandal hit.

Napleton's real complaint with VWG, however, is that it sold an Illinois-based dealership to him last year without disclosing that a scandal -- which would render its floor stock almost unsellable -- was about to hit.

"VW pushed through Ed Napleton’s purchase of a Volkswagen franchise in Urbana, Illinois, at top dollar, as if the Dieselgate scandal was not about to toss the Volkswagen brand value of a proverbial cliff,” the suit alleges.

As to why Napleton is suing VW: It isn't just his own loss. Napleton, who owns 56 franchises across five states, says he believes that he has a responsibility to speak up for "dealerships large and small. Individual dealers and small dealer groups are often at the mercy of the immense vehicle manufacturers with  respect to critical pricing terms and vehicle allocations.  These smaller firms are often unwilling for fear of reprisal, or unable financially, to hold vehicle manufacturers to the legally required standards of fair play and non-discrimination."

And this isn't the first time that Napleton has sued a car manufacturer. In January, Napleton's Chicago-based dealership joined another firm to sue Fiat Chrysler Automobiles for what they say amounted to racketeering for paying dealers to falsify sales statistics.

One question that stands out in this David and Goliath story against Volkswagen, is, well, timing. Why now? Why launch a class-action alleging preferential treatment to dealers that play ball with an in-house credit source, if automotive corporations have been including incentives to buyers to use their credit companies for years? As a consumer, I automatically assume that a sale that benefits the corporation's credit services is good for the dealer as well as the corporation. Is this to say that dealers are never supposed to receive remuneration for filling out those credit applications and spending added time with potential credit customers?

But Napleton's litigation brings up another point: the hard sell to customers who may not be in the best of financial health to buy a car. It's a refrain we have seen previously in the crash of the housing market in 2008, as well. The question that was central to the issue at the time revolved not around real estate firms, but banks who became the middlemen to successful but ultimately disastrous transactions. In this case, what responsibility do dealers have to ensure that a consumer's wellbeing is kept in mind? According to this class-action litigation, a great deal.

As with the housing market, the outcome of litigation like this one could say a lot about not only how manufacturers sell cars, but also how dealerships succeed in executing those deals. It's a Pandora's box of risk that some may not want opened so quickly.

Image credit: Flickr/Dave Humphreys

Jan Lee headshotJan Lee

Jan Lee is a former news editor and award-winning editorial writer whose non-fiction and fiction have been published in the U.S., Canada, Mexico, the U.K. and Australia. Her articles and posts can be found on TriplePundit, JustMeans, and her blog, The Multicultural Jew, as well as other publications. She currently splits her residence between the city of Vancouver, British Columbia and the rural farmlands of Idaho.

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