Cars and Drivers

Dealers Sue Volkswagen Over Diesel Emissions Cheating

Paul Ausick

Published: April 8, 2016 12:15 pm

Last Updated: January 13, 2020 10:59 am

Volkswagen had hoped that its meeting with U.S. dealers last week would allow the company to sidestep reparations payments to dealers who lost sales following the diesel-emissions scandal that has embroiled the company since last fall. Those hopes were dashed Wednesday when three U.S. dealers filed a lawsuit, accusing the company of defrauding dealers, and seeking class action status.

The three VW dealers are owned by Napleton Automotive Group, an Illinois-based company that also owns two dealerships that filed a racketeering lawsuit against Fiat Chrysler Automobiles N.V. (NYSE: FCAU)  in January. The suit alleges that carmaker offered dealers money in exchange for reporting false sales figure.

According to Automotive News, in the suit against VW the Napleton-owned dealerships accuse the company of running a “criminal racketeering enterprise” and claim that VW violated federal and state laws that are designed to protect dealers.

A statement by the dealers’ law firm, Hagens Berman Sobol Shapiro, claims VW “intentionally defrauded dealers by installing so-called ‘defeat devices’ in its diesel cars and separately carried out a systematic, illegal pricing and allocation scheme that favored some dealers over others and illegally channeled financing business to VW affiliate, Volkswagen Credit, Inc.”

For VW dealers – many of which are small, family-owned franchises – Dieselgate amounts to a classic ‘pump and dump’ operation, in which VW exploited the CleanDiesel eco-friendly market that it helped create, boosting the price of entry and continuation in the market for VW franchises. All the while, VW withheld information about the impending Dieselgate fiasco, and left dealers to fend for themselves as the scandal unfolded.

Franchise owners are now left with lots full of CleanDiesel vehicles they are unable to sell, and these cars have suffered tremendous loss of value and take up inventory space and carrying costs. VW dealerships large and small have been at the mercy of an unethical corporation, much like the hundreds of thousands of owners across the country, and we believe it’s time to take a stand for their rights.

Fiat Chrysler has called the suit against it baseless and an attempt to smear the company. The carmaker has sought to have the suit dismissed.

At the dealers’ meeting with VW last week, a dealer council was appointed to negotiate with the company, and a spokesman for the council said that the lawsuit does not reflect the wishes of the “overwhelming majority” of Volkswagen dealers:

It is not unexpected that a few outlier dealers would file a lawsuit against VW. Some dealers view litigation as an end-game strategy and nothing more. Filing a lawsuit may provide a headline or two, but it is substantially longer, more contentious and a much more costly path towards a settlement.

A VW spokeswoman said the company is reviewing the complaint.