Inside Automotive with Jim Fitzpatrick, powered by CBT News

Fred Emich IV on Why the Scout Motors Ruling Is a Wake-Up Call

• Jim Fitzpatrick • Season 1 • Episode 55

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Colorado’s approval of Scout Motors’ dealer license has raised new concerns about franchise protections and manufacturer-owned retail models. On this episode of Inside Automotive, Fred Emich IV, managing partner at Emich Automotive and chairman of the Volkswagen National Dealer Council, explains why the ruling is a wake-up call for dealers and OEMs nationwide. Emich breaks down how legal gray areas around affiliated entities and same-line manufacturing allowed the decision to move forward, and why similar interpretations could surface in other states. He also discusses the impact on Volkswagen dealers, the broader implications for the franchise system, and how dealer groups are responding through legislative and legal channels. Looking ahead, Emich shares perspective on market volatility, EV demand in Colorado, and the operational challenges dealers may face in 2026 as policy, pricing, and retail models continue to evolve.

Key discussion points include:

  • Why the Scout Motors ruling exposes franchise law loopholes
  • The implications for Volkswagen dealers and OEM–dealer trust
  • How ambiguous state statutes can reshape retail models
  • The role of dealer associations in legislative responses
  • Consumer perception challenges facing franchise dealers
  • What dealers should watch as similar cases emerge

Inside Automotive with Jim Fitzpatrick is powered by CBT News, your go-to source for the latest news, trends, and insights in retail automotive. Subscribe for more interviews with top industry leaders, dealership innovators, and experts shaping the future of automotive.

For more content, visit CBTNews.com and follow us on your favorite podcast platform.

Jim Fitzpatrick:

Welcome to Inside Automotive with Jim Fitzpatrick. Hey everyone, Jim Fitzpatrick. Welcome into this edition of Inside Automotive right here at cbtnews.com. So thank you so much, Fred, for joining us on the show. As you may already know, we've spoken to a number of people at NADA, of course, with Mike Stanton as being president, and then of course, Tim Jackson, former uh president of the association there, the current president Matthew, and uh we've also had on Mike Maroney, as you know, a fellow dealer there in Colorado as well. This is a very hot topic that dealers all over the country are concerned about, but especially Volkswagen dealers and especially those right there in Colorado. So thank you so much for joining us on the show to talk about this very important issue. Um you've got two Volkswagen stores yourself there in Colorado. What was your immediate reaction when you heard this?

SPEAKER_00:

Well, thanks for having me on, Jim. Uh immediately when I heard, well, I was actually on the Zoom call when they went through and and they they made this vote. Okay. I had um some in-depth discussions with uh several members that were on that were voting and they were on the dealer licensing board.

Jim Fitzpatrick:

Okay.

SPEAKER_00:

Um so really didn't know which direction this was gonna go. I I think part of it was the way that our um statute is written and how the law is written, and they were ruling on that. And it was hard for them to separate uh both that uh Scout Motors is a same line manufacturer as it reads in in Colorado law uh versus Volkswagen, uh as well as uh, and you know, there's some nuance to this, but I think at some point, uh I don't know if it was a lobbyist for Scout, but they had provided uh information regarding how California, I think it's Prop 241, I'm not sure exactly, but how they view EVs and uh plug-in hybrids are included in that definition. That's not necessarily how Colorado has defined EVs, but that's how this board took it.

Jim Fitzpatrick:

Okay.

SPEAKER_00:

Um and then they looked at eRevs as as obviously plug-in hybrids in that sense. So that gave us an uphill battle. Kind of knew going into it that they were probably gonna grant them a dealer's license, and obviously they did six to two.

Jim Fitzpatrick:

Yeah, yeah. And I understand the two are car dealers, right?

SPEAKER_00:

Uh two are franchise car dealers, but there's three franchise car dealers on this board. So so one voted to uh to grant them a license.

Jim Fitzpatrick:

That's interesting.

SPEAKER_00:

We and three independents did as well.

Jim Fitzpatrick:

Yeah, very, very interesting to hear that because this uh I think everyone in the industry agrees that this is a major threat to uh the franchise system and to dealers out there. Uh obviously Volkswagen is this is a wholly owned subsidiary of Volkswagen, and uh that that's a very you know it's a very gray area. I mean, you could have Toyota open up uh a division like this or a separate company, you could have Ford do it. I mean, every everyone's looking at this right now, aren't they?

SPEAKER_00:

Well, I'll I'll tell you as a VW dealer right now, uh the VW collective dealer body in the U.S. is struggling. Actually, in November, collectively, they lost money as a whole. Yeah. Okay. Uh their return on sales was was a negative number. Uh, you take October and November combined, they haven't made any money. And it just boils the blood of all the dealers to see the investment that they're putting towards Scout, to see our former CEO at Volkswagen of America, Scott Keog, on TV talking about how the dealer model is not the model and that's not the route we're going. And uh just to continue to push and push and add investment into Scout. There was even a Monday night football game for Scout, which will not launch for at least two years.

Jim Fitzpatrick:

Yeah. Wow. Wow. That's that's crazy. And um uh that that also we should talk about this license, I understand, is only granted through October, right? So there's there's some concern, not concern, but there's there's individuals that say, well, Scout's probably not even gonna be able to get their act together to sell vehicles by October. Is that kind of the conventional wisdom right now?

SPEAKER_00:

Sure. It it is allowing them to continue to take deposits, which they already had been illegally. Uh so it's allowing them to continue to take deposits on on future vehicles. But yes, every year they they've got to apply for a new dealer license. Um, you know, as a uh the CADA, so Colorado Automobile Dealers Association, you know, we're looking at trying to strengthen that legislation. We looked at it last year, but to define what uh, you know, same line manufacturer, but to define what an affiliate is. So this it's not like a loophole where manufacturers who have franchise agreements can spin off a company and then just bring that company in and compete against their dealer body.

Jim Fitzpatrick:

Right, right. What are you? I mean, I I guess it's obvious. I can probably tell you what you're hearing, but what are you hearing from your fellow dealers there, not just in in you know, in Colorado, but a around the country?

SPEAKER_00:

Um I I'm getting a lot of contact, particularly when you know Scott Keogh goes on Bloomberg and in different areas and sometimes says negative things about dealerships, or there's wow, there's there's news, news articles about the you know, whether it's the Charlotte headquarters and the hundreds of millions of dollars there, the billions and dollars invested in the factory, and it's just more the the dollars and the investment. And Volkswagen can tell us the dealers whatever they want, but we're following the money, and obviously the the money is is flowing to Scout more than it is to Volkswagen of America.

Jim Fitzpatrick:

Oh, sure. Yeah, I could, I could, I could see that. And uh as you pointed out, Volkswagen dealers and Audi dealers are not lighting the world on fire right now and would love to have a vehicle like this in their lineup, right?

SPEAKER_00:

Yeah, I mean we've we've asked for a truck for forever.

Jim Fitzpatrick:

Yeah.

SPEAKER_00:

Um, particularly something rugged, off-road, um, exactly what they're gonna deliver here. So it's really just a punch in the face.

Jim Fitzpatrick:

Yeah, it's almost like they used your data and your, you know, your uh influence and and feedback and what have you, and said, great idea, we're gonna go build that and then compete against you, right?

SPEAKER_00:

Yeah.

Jim Fitzpatrick:

I I know I've asked this of everyone that's been uh that I've interviewed associated with this particular topic, but why do you think that a company like VW um wants to go down the road of picking up that last mile to a consumer, bringing on the expense of the actual dealerships, the manpower, the service center, the marketing, all that goes into running dealerships, as you know, as you well know, as a you know, fourth-generation car dealer, there's a lot of money. There's millions and millions of dollars that goes into this. Why do they want to take that on rather than just the conventional way to sell their thousands of vehicles to entrepreneurs that go, we'll take it from here and take good care of the customer?

SPEAKER_00:

Well, I I think Tesla's paved that way. So, you know, if you would ask me 10 years ago if Tesla would have made it, I would have said probably not because they're not going the franchise, you know, way. Yeah. Um, but arguably they have the number one entrepreneur in the world uh at the helm of that company. They have technology unlike anything in the automobile industry. And quite frankly, Volkswagen, you know, fails to hit the product on the mark, to deliver on time, to have you know a product that you know has uh you know issues that need service repairs. You know, the still the over the air updates for our cars are not you know working, they gotta come into the dealership. So unless they have this car so buttoned down that they're not gonna need the service throughput that they currently need with their Volkswagen, Audi, and Porsche products, right? It's gonna be a major failure. Yeah. Because they just simply don't have uh the support on the outside to support a product like they they currently produce.

Jim Fitzpatrick:

Right, right. And I would imagine that they are um you know going down the road state by state, and you know, we're we're uh I would imagine we're gonna hear that another state has fallen to this, right? I mean that they're not gonna stop at Colorado.

SPEAKER_00:

No, certainly not. I mean, it's the ununited ununited states of America, so they've got to go through every single state.

Jim Fitzpatrick:

Yeah.

SPEAKER_00:

Um I was even talking to uh a Volkswagen colleague, and you know, sometimes he was telling me ideas that come out of Germany, they don't realize that you know the United States is like 50 different countries.

Jim Fitzpatrick:

Right.

SPEAKER_00:

And they've got to go through this in every single state.

Jim Fitzpatrick:

That's right.

SPEAKER_00:

Um so yeah, they're they're obviously gonna have to cross this bridge in every state that they want to sell these cars in. Um, you know, I I think they got lucky in Colorado because we have a governor that is just pro-EV at any cost. Wow. Uh he wants to get as many EVs on the road, and I know he was pushing this agenda hard.

Jim Fitzpatrick:

Oh boy. Oh boy. Okay, that's that's that's interesting. Um in in terms of uh from a federal standpoint, what what could be done, if anything, at the federal level to help your efforts?

SPEAKER_00:

You know, I from a federal standpoint, you know, I I think because we're all governed by state franchise laws, yeah, it's gonna be a state-by-state basis. Right, right. Um, unless there's some some sort of federal law that that supersedes that. But um, you know, I'm not that that uh in tune with federal versus state law at this point. What I understand, it needs to be fought at the state level.

Jim Fitzpatrick:

Right. Now on on the uh the side of the the dealers that um that in terms of a lawsuit that I would imagine is gonna probably come up here on this particular thing, um, is this is it the it would be the associations or would it be the the Volkswagen dealers banding together or and does the association have standing in a situation like this to put them in a situation where they can sue VW? Talk to me about that.

SPEAKER_00:

Um at this point, I think we're looking towards the Volkswagen and Audi dealers here in Colorado uh filing suit.

Jim Fitzpatrick:

Okay, okay. And as you know, that can be a very expensive proposition, right? And in a long drawn-out uh court case, right?

SPEAKER_00:

Yeah, and certainly hoping to have you know backing from our state association and ADA.

Jim Fitzpatrick:

Yeah, yeah, that'd be great. That'd be great. I think every dealer, obviously, that this is something that that uh is a wake-up call for all dealers. Um you let VW do this with a side company like this, and as I said earlier, who knows what happens with these other legacy companies out there that are watching this, maybe closer than even the the dealers are watching it, right? To see, well, let's see how this, let's see how this plays out, right?

SPEAKER_00:

Yeah, it gives it precedence, and and then you know, further manufacturers can do the same thing. That's right.

Jim Fitzpatrick:

That's right. And this is an area, too, that if I can say that it it doesn't have the support, you know, the franchise dealers really don't have the support of the consumers out there on this particular topic. They should, because if they knew the whole story and they knew that the dealers are are supporting, you know, those, those, all the all of that warranty work and all of the safety recalls and everything else that goes into it, and also the the competitiveness, the competition that is put in by dealers, that they're getting a lower price for products and they're served better by a franchise system than an OEM. Um, but whenever we run a story on this, you'll have uh consumers that will chime in and say, Yeah, well, it's about time. What's your take on that? I mean, just the fact that you really don't have the consumers support on on defending the dealer franchise system out there. This is a this is a dealer issue, right?

SPEAKER_00:

Yep. I and I think this goes back years, you know, dealers are doing a much better job than they have in the past.

Jim Fitzpatrick:

Oh, yeah. Yeah.

SPEAKER_00:

Um so I I I think it's it's on some some previous experiences and and dealers also they they need to do better collectively as a whole. There are some dealers that do an exceptional job, but there's still some lagger dealers that quite frankly need to do better and and they give dealerships uh you know a bad name. So you know, I I think as as we do better, um I've also seen a lot of statistics that say like 98% of people want to go into a dealership and buy a car.

Jim Fitzpatrick:

Yeah, that's right.

SPEAKER_00:

So during COVID, you know, people wanted to actually physically come in here and go through the experience and then buy the car online like the manufacturer thought. Yeah. Uh you know, and there's only a subset of people that can buy a car online. Right. That don't need to go through you, you know, um, you know, they they they don't have the credit to go in and just buy a car online, like that there needs to be some intervention there and and we need to match them with a car and everything like that. It's not the majority of the public that can just go online and write a check.

Jim Fitzpatrick:

That's right. And most people, to your point, you know, when they're surveyed, they want to come into the dealership. You know, even whether they have challenge credit or whether they have great credit, um, at the at the end of the day, as as you mentioned, after COVID, they're like, you know what, we actually like to go into the dealership and meet the people and and look at a number of cars and sit in these multi-million dollar showrooms that the OEMs required us to build in the industry, right? Yeah, yeah, for sure.

SPEAKER_00:

They're construction at a Kia building right now, and uh, it's like the nicest bathroom I've ever seen. So hopefully someone's gonna enjoy it.

Jim Fitzpatrick:

That's exactly right. Yeah, no, no question, no question about it. So that was uh actually, I'm glad that you mentioned that because that was my next uh question here. Um uh, you know, departing from this particular topic, and and I just want to ask you, how was 2025 for Emic Automotive Group?

SPEAKER_00:

Uh it is was a banner year, but it was ups and downs. Okay. Roller coaster ride, and and it was a banner year because in Q3 we sold an incredible amount of EVs.

Jim Fitzpatrick:

Okay. Okay.

SPEAKER_00:

Actually, our our Denver VW store for the first time ever was the number one volume store for Volkswagen in the month of September. Our Kia store was the number one EV dealer in the month of September as well, which is huge compared to the volumes that they sell out of Colorado. Um, and even our our Boulder VW store had such a big run there on the EVs that if we would have shut the store down September 30th, we still would have had a banner year. So it was really good, but it was a tough Q2 and a and it's been a tough Q4 as well. But Q3.

Jim Fitzpatrick:

Yeah, yeah. That uh that tax incentive and uh was was really uh something. And and and I I was impressed with the fact that there were that many EV buyers out there that stepped up and said, Yeah, I'm gonna take advantage of this$7,500 and get an EV because you know, really up until then, we were like, well, the consumers really want it, and you know what, what's the deal? You know, do they really want these? But man, in September, we learned that, yeah, there's actually a pretty big market for them out there, right? I know it moved a lot of business ahead that normally would have been in October and November or December, but uh but it was pretty impressive.

SPEAKER_00:

Yeah, it was great to see. I mean, we sold nearly everyone we had. So yeah, I bet. I bet.

Jim Fitzpatrick:

What's your take on the year ahead for 2026? Good year?

SPEAKER_00:

I think 2026 is gonna have some headwinds for sure. Um, particularly, you know, we have three out of our four stores or are import stores and affected by tariffs. And okay, you know, the those impacts are certain to kind of percolate through uh with price increases and and the the OEM's kind of you know posturing that that they're feeling the pain. Um you know, and we also here in Colorado, it is a major EV market, so we we need to get that EV business to kind of stabilize again, find out where that that price point is that you know consumers were were meeting demand there. Sure. Um, and I think that's probably gonna take until maybe half of the year. Yeah. Um, you know, I I expect our EV business is probably gonna be down 50%, which is a major part of our business. So I think it's gonna be tough for us.

Jim Fitzpatrick:

Okay, okay. People keeping their vehicles longer, uh, I would imagine your fixed ops departments are are just packed.

SPEAKER_00:

Yep. Yep. Fixed ops is has been great. And yeah, I think you hear it's 12 years or something like that.

Jim Fitzpatrick:

Yeah.

SPEAKER_00:

Average age on the road. And you know, we're also trying to look at you know new ways we're we're servicing these older cars that that typically hasn't been, you know, the customer that we went after.

Jim Fitzpatrick:

Yeah, exactly. Exactly. It's amazing how now when you go to a dealership, you'll see vehicles that are on the front line of the uh the dealership that's got 80,000 miles on the car. And of course, as you know, being a fourth generation dealer, uh that car, boom, that went to the auction years ago. Now it's no longer, right? We're selling it.

SPEAKER_00:

It could be 200,000 miles.

Jim Fitzpatrick:

It's gonna be 200,000, right? That's interesting. Well, Fred Emick the fourth, managing partner at Emick Automotive Group and uh chairman of the VW National Dealer Council. For you uh VW dealers out there, this is your leader, and maybe you want to reach out to him and share your thoughts on this whole situation if you haven't already. Uh maybe you don't, maybe you don't want to do that, but but I'm sure that Fred uh appreciates it.

SPEAKER_00:

Please do. I get enough of it, but please do.

Jim Fitzpatrick:

Okay, okay, good, good. There you go. There's your invitation. He needs to hear it from everybody. But uh I wish you the best of luck in this situation. We will be covering it uh diligently here at CBT News. We think that it's a very, very important issue for not just VW dealers, but dealers all over the country. So we appreciate um you being here with us today to share your thoughts and love to do a follow-up with you as this issue moves along.

SPEAKER_00:

Great. Thanks for having me on.

Jim Fitzpatrick:

Thanks so much.