Owner of 3 VW dealerships sues carmaker over diesel scandal

Owner of 3 VW dealerships sues carmaker over diesel scandal

April 6th, 2016 by Associated Press in Business Around the Region

DETROIT -- An owner of three Volkswagen dealerships Wednesday filed a lawsuit against the carmaker over its rigged diesel vehicles, seeking compensation for lost sales suffered by its more than 600 U.S. dealers.

It is a rare affront to an automaker by its dealers, who tend to be wary of taking legal action for fear of tarnishing the brands on which their sales depend. That dealers are doing so reflects the extent of Volkswagen's deception and the falloff in car sales that followed.

Volkswagen last year revealed it had equipped almost 600,000 cars sold in the United States with "defeat device" software to cheat on tailpipe emissions tests, while spewing far more pollutants than allowed in real-world driving. Since the scandal erupted, Volkswagen has been forced to stop selling most of its' diesel models, leaving dealers with cars languishing on the lots.

The suit was filed in U.S. District Court for the Northern District of Illinois, with the intention of becoming a class-action case that could represent the interests of all of Volkswagen's American dealers.

A Volkswagen spokeswoman said the company was reviewing the complaint. The company "is committed to resolving the U.S. regulatory investigation into the diesel emissions matter as quickly as possible and to implementing a solution for affected vehicles, as we work to earn back the trust of our customers and dealers and the public," she said.

The case also threatened to upend a détente struck between Volkswagen and U.S. dealers at a big, annual dealer conference in Las Vegas last weekend. After meeting with Volkswagen executives, dealers named a committee of five franchise owners to work with the company to seek compensation for dealers.

Their plan was to wait until Volkswagen deals with lawsuits by consumers, and settles various actions by the U.S. government. The company is expected to be fined at some point by the Environmental Protection Agency, and it has been sued by the Federal Trade Commission for deceptive advertising related to its diesel models.

Volkswagen has not yet devised a fix for cars equipped with its emissions-cheating software. A federal judge has ordered the company to present a solution by April 21.

Alan Brown, who is a member of the committee and an owner of a Volkswagen dealership in Lewisville, Texas, said many dealers worry that a hard-line approach could hurt the manufacturer's prospects in the U.S. market, which would further diminish their businesses.

Volkswagen has been trying to repair its relationship with dealers, by offering various incentives. At the Las Vegas meeting, Volkswagen executives promised to provide dealers with more non-diesel cars to sell this year and to price its vehicles lower to sell in higher volumes than in the past.

"It is vital the dealer network settle this issue in a unified manner," Brown said. Most dealers "want a strong working relationship with our partner long after this issue is resolved."

The sales drop has been steep for Volkswagen-branded cars, as well as for Audi, Porsche and other brands owned by the Volkswagen Group. In the first three months of this year, Volkswagen-brand sales declined 12.5 percent to 69,314 cars and light trucks. The value of dealerships has also fallen precipitously.

"Dealers have lost a lot," said Steve W. Berman, the lawyer who filed the suit on behalf of the Napleton Automotive Group, a family-run chain of 56 dealerships that sell cars from Volkswagen and other marques.

The group owns VW stores in Orlando and Sanford, Florida, and bought a third, in Urbana, Illinois, just days before Volkswagen acknowledged the diesel-emissions cheating Sept. 18.

"They knew they had this problem on their hands," said Berman, a managing partner at Hagens Berman Sobol Shapiro in Chicago.

Volkswagen, the suit claims, acted deceptively by promoting plans to grow rapidly in the U.S. market, and luring dealers into investing millions of dollars in VW franchises, all the time knowing it was using a "defeat device" to meet emissions standards. The company, the suit said, also hyped the potential for its diesel technology and marketed it as "clean and green."

Berman estimated Napleton has suffered economic losses of "over $20 million."


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