VW Dealers Sue Carmaker For Fraud Over Emissions-Cheating Diesels

Image courtesy of (Sandro Menzel)

A week after the Federal Trade Commission sued Volkswagen for deceptively advertising “clean diesel” cars equipped with “defeat device” software to cheat on emissions tests, the carmaker finds itself on the receiving end of another big lawsuit — this time from its own dealers, who accuse VW of intentionally defrauding them.

The class-action seeking lawsuit, filed Wednesday by three family-owned dealers in Illinois and Florida, is the first levied against VW by a franchise dealer over the diesel-cheating debacle.

According to the lawsuit [PDF], VW knew of the pending emission scandal in 2014, but continued to withhold the information from current and prospective dealers.

The dealers claim that the defeat devices, which VW admitted are present in more than 500,000 U.S.-based vehicles, have “caused great harm to franchise dealers whose profits have been erased and whose dealerships have plummeted in value due to the inability to sell tens of thousands of affected vehicles.”

“As a direct result of [VW’s] willful and wanton violations of applicable law, the.. value of all of Plaintiffs has been devalued and gross profits have plummeted,” the complaint states.

The dealers claim they will continue to suffer expense resulting from VW’s actions and the cost to “finance their existing inventory of Clean Diesel vehicles which re ineligible for sale by virtue of the Defeat Device and Volkswagen’s apparent inability to construct a viable ‘fix.’”

The dealers filing the suit accuse Volkswagen of putting its own greed above the success of its dealers by failing to disclose the upcoming scandal even when new franchises were preparing to open.

For example, the dealer claims that “two weeks after VW admitted to regulators that it had installed illegal defeat devices in hundreds of thousands of US cars, and three days before those admissions were made public, VW pushed through [the family’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,” according to the complaint.

The suit also accuses VW of forcing dealers into a “floorplan-financing discount system” shortly before the scandal began.

Under the plan, Volkswagen Credit, Inc. – a company wholly owned by VW – offered to provide two years’ worth of free floorplan financing – valued at $330,000.

The program was designed to get dealers to build new showrooms and purchased new facilities, while heavily stocking lots with CleanDiesel vehicles, based on VW’s false marketing.

VW also “purposely and fraudulently induced its dealers to continue to invest in their dealership facilities and to otherwise benefit VW,” the suit states. “But accepting that offer may have eliminated Plaintiffs ability to seek redress for any of Volkswagen’s abusive and fraudulent behavior.”

The suit accuses VW of engaging in a criminal racketeering enterprise with respect to the Dieselgate scandal and violating federal law designed to protect car dealers from unfair practices by vehicle manufacturers. It also accuses VW of breaching state franchisee protection laws, breaching its franchise dealer agreements and defrauding its franchise dealers.

“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,” Steve Berman, managing partner of Hagens Berman, the firm representing the dealers, said in a statement. “All the while, VW withheld information about the impending Dieselgate fiasco, and left dealers to fend for themselves as the scandal unfolded.”

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