The entire Scout project is both exciting and mystifying to me. The idea of Volkswagen resurrecting the old International Harvester brand to make big hybrid and electric trucks is an exciting one, and the products look fantastic. At the same time, VW has continuously deprived its existing brands of competitive products.
In theory, Scout goes into production in 2028, though it remains to be seen if the number of trucks delivered in 2028 will be larger than the number of times I write about Scout in The Morning Dump. It’s been interesting to watch, in no small part due to the fact that Volkswagen’s own dealers really, really do not want it to happen the way it’s happening.
Volkswagen brands have been taking it on the chin lately, and I’m not trying to add in too many punches of my own, so here’s some good news: Porsche’s profits are on the rise again. The new CEO seems to be doing a good job, and it’s starting to show. His tactical retreat from China was smart. Mercedes is sort of in the opposite position, and it’s starting to weigh on its profits.
Are you in the UK? One of the best car shows is happening again and tickets are on sale.
VW Dealers In California Can Continue To Sue Volkswagen
The most important car market in the United States for most vehicles is California, which typically makes up more than 10% of the total new car sales in any year (followed by Texas and Florida). This is especially true for any sort of fancy EV, hybrid, or otherwise startup vehicle.
If you want a great comparison for Scout, just look at Rivian. The State of California is reportedly responsible for about a third of Rivian’s total sales volume. Given that Volkswagen is now the savior of Rivian, it makes sense that the Scout brand should follow the lessons and example of that EV carmaker.
This has included taking Rivian (and Tesla’s) direct-to-consumer model. Rather than go through Volkswagen or Audi dealers, Scout is planning to sell directly to consumers as well. It was a big part of their launch presentation, which David attended. As David wrote:
… Scout anticipates higher returns for its company (and also promises lower prices for the consumer, though I’d be surprised) by going direct-to-consumer; it says this setup allows for more nimbleness compared to a dealer model — the ability to scale back or crank up volume more quickly in certain markets.
What’s more, Scout says a model in which it is interacting directly with consumers — and not through dealers — lets the company more easily launch targeted incentive programs based on where vehicle sales are succeeding and where they are falling short. Plus, Scout says it can understand the vehicle weaknesses better in different markets, it no longer has to worry about vehicles being offered with options that consumers don’t want, and what’s more, Scout says it expects a reduction in warranty expenses. (I later asked about how this model could reduce warrant expenses, and the answer, as I understood it, is that it comes down to having more granular data; you can know things like the training level of techs in certain regions, you can make sure parts are located near where they’re most needed, etc.)
Sure. Maybe. I could see all of that happening.
One group of people who cannot see that happening, or at least don’t want to see that happening, is Volkswagen dealers. Those dealers view the whole Scout DTC model as an existential threat. Why? There’s the first layer, which is that Volkswagen dealers have had years of lost products. In the first part of the century, VW gave dealers an edge with a mix of affordable sedans (like the Passat) and ‘clean diesel’ technology. That’s all gone, and the intended replacements were a bunch of EVs that either didn’t sell well enough (ID.4), didn’t ever show up (ID.7), or showed up and were quickly pulled (ID.Buzz).
VW dealers are starving for more products, and the thing they probably would love most–especially in California–is a high margin, competitive SUV and truck pairing. Being deprived of that sucks. (I guess here I should disclose for those who have somehow missed it that our cofounder Beau has a VW dealership, though I can’t remember talking at any length about the Scout issue, and it doesn’t impact my views).
The even bigger issue, of course, is that if Scout is successful at cutting out dealers it doesn’t stop Volkswagen from doing this with other brands until it no longer needs dealers. For that reason, dealers in various key markets are suing.
How’s it going in California? Not well for Scout thus far. Volkswagen and Scout obviously don’t want to go to trial to fight the California New Car Dealers Association’s claims that the automaker is unfairly competing with its own franchised dealers, in violation of California law (which was amended in 2024 to prevent exactly this from happening).
VW and Scout tried to have the case dismissed earlier this year, but the dealers won. The companies tried again and, as Automotive News reports, they got the same result:
The ruling from Chief Judge Cynthia Bashant of the U.S. District Court for the Southern District of California is another legal setback for Scout and VW of America in the nation’s largest new-vehicle market.
Scout is preparing to launch U.S. sales straight to consumers, a practice vehemently opposed by franchised dealers.
VW and Scout argued the California New Car Dealers Association’s claims of unfair competition from the automaker and startup weren’t viable and don’t have legal standing, Bashant wrote in the October ruling.
Who knows what’s going to happen in discovery, if it continues, but it creates the opportunity for lawyers representing dealers to find out how Volkswagen talked about Scout. The company can’t really afford to not sell trucks in California, and the dealers can’t afford to cede their market to Volkswagen.
Porsche’s Retreat From China Is Working
I think I like the new Porsche CEO, Michael Leiters, who has done the hard work of listening to his employees, viewing the harsh world as it is, and forming a plan that makes sense. His plan, which is called Sportwagenschmiede 35, is focused on that awkward “medium-term” space. The idea is to become a little less of a volume automaker and a little more one that can be profitable with fewer vehicles.
One of the key parts of this, to me, is where the company said “The break-even point is to be reached at fewer than 200,000 vehicles sold. This is based on very conservative forecast for China.” Porsche became close to a full line automaker with products like the Panamera and Macan, then added on an even greater ambition with a sense that it would sell electric cars everywhere on the strength of its brand. That wasn’t going to happen–especially not in China–so the strategic retreat was necessary.
According to the company, it’s working out, as through the first nine months of the year the company has managed a margin of 6.9%. Not bad, considering for all of 2025 the return was 1.1%. Here’s Leiters in a note to shareholders:
We are implementing our strategic realignment consistently and at a rapid pace. Our focus is on our core business, a competitive cost structure and a sustainable increase in our profitability. With the measures already implemented, we are creating the conditions to position Porsche as a stronger, more focused and more profitable company in the long term.
Higher margins, more expensive vehicles, a little more Ferrari and a little less SEAT. It all makes sense to me.
Mercedes-Benz Sees A 2-3% Margin, Blames China
I’m not a huge fan of what Mercedes is doing right now, though the new S-Class is apparently great, and I’m looking forward to trying it at some point. The company is just one of many German brands reeling from the loss of cash from China, and is now downgrading its profit forecasts, again.
The luxury-car maker now sees an adjusted return on sales in its core cars division of between 2% and 3% for the year, it said Tuesday, compared with as high as 5% previously. The cut makes Mercedes the latest German automaker, after Volkswagen AG and BMW AG, to warn of worsening conditions in China.
Mercedes also pointed to higher fourth-quarter costs, partly driven by more expensive materials. The company now expects group earnings before interest and tax to be roughly flat from a year earlier, abandoning its previous forecast for a significant increase.
Maybe Porsche is right.
Festival Of The Unexceptional Tickets On Sale
One of Britain’s best car shows is the Festival of the Unexceptional. Don’t believe me? Just listen to our own resident goth Brit car designer:
It’s the equivalent to your Concours D’Lemons, but with more British self-deprecating humor and less Jason Torchinsky. A huge celebration of the most mediocre cars to ever soil the tarmac during the seventies, eighties and nineties, if Generation X-ers like me ever shed our apathy long enough to organize a car show, FOTU (to use its accepted internet-friendly abbreviation) would be it.
Tickets are on sale now. Who knows, maybe we’ll try to buy something truly terrible for Adrian to drive again.
What I’m Listening To While Writing TMD
It seems so unlikely that The Flaming Lips ever happened, and I’m so glad they did. Here’s the original breakout song, “She Don’t Use Jelly.”
The Big Question
Which German brand will be the most important German brand in 2035?
Top photo: Scout
2035 should be about the time that German automakers start consolidation. I suspect we will have a few less Japanese automakers by then too.
TBQ: Well, it won’t be Scout. That’ll still be mired in litigation.
My sympathy for the dealers is somewhere around zero. Below is the tale of how a Wisconsin dealer cost Ford a sale and made me realize what is important.
I had a business of my own that started doing well. After a very rotten week at work, I realized on Saturday morning that it wasn’t all bad, I could finally buy the business its own car – to be exclusively driven by me.
Wanting to achieve two automotive milestones – owning a Mustang and owning a convertible – I went to Ford’s website and priced a 6cyl manual shift. I’d driven a new Mustang 6, liked the way it drove, and less gas = more profit.
I went to the local Ford dealer. First he told me I wanted a V-8 if I wanted a manual. I told him the above. He told me I wanted an automatic – I pointed out it snowed in Wisconsin. (I didn’t need super capability, if government buildings were closed I had nowhere to go, but it would see slippery.) I like control in snow.
He went away and came back – no doubt after a cup of coffee – to tell me he couldn’t get the car I wanted. I said OK, that Ford dot com said I could order one if the dealer couldn’t find one. I had 33% to put down immediately, and good credit. I thought it would be a no brainer – and I could order my convertible just the way I wanted it.
Once again he tried to sell me on an automatic. He refused to take my order. I went to two other dealerships – one of which said I was “hung up on details.” I hardly think the drivetrain on a car is a “detail”. Seems rather central to me. No one would take my order.
I came home furious and grumpy. My wife said to me that she didn’t want to be a rich widow, and I was miserable all the time, True dat. We ran the numbers, discovered we could retire on a very limited budget, and I did so.
Thanks Ford dealers. If it weren’t for your arrogant incompetence I’d still be miserable at work.
In 2035 the most important German brand will be Pizza Hut after the franchise wars; unless you’re in America where it will be Taco Bell.
Because most dealers are so incredibly scummy I don’t particularly feel sorry for them if the manufacturer wants to kick them to the curb. If Scout is a new nameplate and they have to go through a dealer, VW should charge them through the nose to license a Scout dealership with a rock adventure trail for product demonstrations. Scout should absolutely be distinct from VW.
Car makers are primarily selling loans with a car thrown in. One possible, though unlikely, upside to DTC is the lack of dealer markup/bonus on captured financing. I’m not getting my hopes up.
This. I came into a dealer with cash in hand and they still tried to get me to finance for one month for reasons beyond my comprehension.
I had to ask them if they actually want to sell the car to me or not to speed up the negotiation.
Absolutely, they don’t want your cash and would rather you leave. And don’t let the door hit you, Mr. Big Bucks!
TBQ: Mercedes-Benz, whose name still carries enough cachet worldwide to survive the forthcoming Chinese carpocalypse. Porsche will survive too, but M-B just sells more cars.
F majority of dealers so sick of the markups and bullshit addons they throw on at the last second. But I doubt direct to customer will really lead to any lower prices it will just be supply and demand and if the manufacturer seeing things are selling like hot cakes they will just jack up the MSRP.
When I was looking to buy a PHEV Prius earlier this year, I was looking at a 1 year old used model. The dealer claimed they couldn’t really move them in middle Mississippi. The price seemed reasonable so I was ready to do the deal. They pulled out a sheet with an additional $2,000 in dealer add-ons including a Temu Lojack. They refused to budge and I walked. It was surprising they never followed-up; I guess that $2k really was non-negotiable from their view-point.
Kraftwerk or scorpions…oh, wait German BRAND
Hasselhoff!
Damn, I’ve always wanted to attend the Festival of the Unexceptional and I will be in England on July 17, but my purpose of being there is to attend a wedding that day 🙁
But as a consolation prize, the Goodwood Festival of Speed is going on at the same time and the wedding is only about 45 mins away, so I’m doing my best to get tickets to attend on one of the days before the wedding.
It should not surprise me anymore how many people are willing to pay (significantly!) more for a vehicle in order to avoid negotiating, whether that is through direct sales, Carmax, no haggle dealers, or whatever.
I’m not even that confrontational of a guy, and it just doesn’t bother me to say no and walk away if the deal isn’t right.
I’ve never bought anything in super high demand where another buyer is lined up right behind me, and all of my negotiating efforts are typically focused on getting rid of add-ons and miscellaneous fees, but it’s incredible how quickly a “thanks but no thanks” can make a “mandatory” fee disappear.
Yeah, usually you don’t actually have to physically leave, just make it credible.
Even if something is in high demand, there are hundreds or thousands of dealers across the country selling the identical product. It’s to my advantage to play them against each other, which is something I can’t do if I need to buy direct from the manufacturer.
But it also saves the margin the middleman needs to cover his costs plus a bit of profit for him. Now, is the ability to negotiate worth more than the the dealers make? The dealers certainly don’t think so, or they wouldn’t be fighting tooth and nail to keep the current system legally protected.
That of course assumes the OEM would be benevolent (or pressured by the market) enough to pass on the savings to the consumer.
In most cases consumer advocates decry consolidation in markets. If there’s 1 place to buy a Scout vs 1000, I’m taking my chances on the latter, even if there’s a nominal middleman involved.
I don’t think you realize how lucky you are to have the spare time to be able to do that multiple times over to get dealers to compete. Some people don’t have the time to sink an hour or two at each dealer to try and get a fair deal. Even if you can get legit pricing over the phone or by email (that then doesn’t change when you walk in) it’s still a big time sink and total pain in the ass.
My wife and I both work full time and we have multiple small children.
My free time is a lot more limited than many others, but when it comes time once every few years to save thousands of dollars, I’m willing to devote a few hours to the cause if that’s necessary.
Usually it isn’t, because the negotiation takes place over email, and if something changes at the dealer (it never has), I would leave.
I think you’re also giving too much credit to the OEMs not pulling similar shenanigans if we went to an all-direct model.
Are you really that surprised still?
I just bought a new car 3~4 months ago, and it sucked ass. Mostly because it was a Hyundai and Hyundai dealer suck, but whatever. It’s their literal job to get you to pay the most they think you’ll pay.
I ended up buying from a dealer 3 hours away to get a good deal. If at any point of time one of the half a dozen Hyundai dealers within ~45 minutes of my home had agreed to a price $500 or maybe even $1,000 more than the one 3 hours away did, I would have gladly have taken that to save 6 hours of my time driving there and back (with my spouse, because, you know, we have to get the car we took there back home too), plus the week it took talking to various dealers.
Paying for ease/convenience/saved time is nothing new.
Certainly agree with this, but the ratio is where I find myself mystified by others’ behavior.
The same person who drives across town because gas is 10 cents cheaper ($2 total saved at best) will pay $3000 more than me for the same car because they won’t email a few places?
Agreed and I would suspect that it is perception being more important than reality. It is the same people who would rather eff up something DIY and waste hours/days than paying a professional to do it right and quickly because they value their personal labor at $0/hour.
I just went through buying a decent used car, within 10 years old, and Carmax was competitive with dealer listings. Like within a couple hundred bucks. I’m sure some of the cars on the lot have better margins than others, but Carmax is still competing with used car dealers. I figure make their money off of sub-tier-1 loans and not inflated price tags.
“Festival Of The Unexceptional Tickets On Sale”
Anybody else see this and think they were celebrating traffic citations for the most inconsequential traffic offenses? Just me? Probably just me.
Wow I wish that the direct to customer model would actually mean lower prices and not just higher profits.
I get that cars that do not cost a lot are seen as junk so the pressure is to make them more expensive so customers think they are better cars.
I would love to see Scouts as less expensive than the competition.
Ooof I think in 2035 it may only be Porsche that is doing OK by then.
I’m a firm believer that a DTC model won’t lead to much change in overall prices. I’d expect maybe a small overall drop as there is one less rent seeking middleman in the process and that current middleman is making BANK; but largely that automakers would then expect to largely maintain the existing price floor and absorb additional margin. However, I do think it would lead to significantly less painful buying process and I’m here for it. I am in sales and love cars, but even I hate buying cars. Too many games. Too much dishonesty. Too little transparency. Too many gotchas. Too many middlemen that don’t know anything about the product they are selling standing in your way. Too many middlemen that appear to have no authority and need to go to someone else for approval. Too much localized market consolidation and therefore too little competition. If an automaker can eliminate that (and it looks like they can, see Rivian, Tesla, Lucid, etc), I’ll happily let them keep that extra cash. Plus, it’s not like they would really have substnatially less local employees. They still need people to navigate the overall process, work the shop, sell parts, etc.
Respect, I tried sales and ran. I was told not to listen to the first six “No’s” when I was in sales. I failed as I would take the first “No” for an answer.
I have bought some new cars about 1/2-1 doz years ago and it was better than the past where even picking up a new car that you already spent 1/2 a work day or longer at the dealership buying, still took 2 hrs.
Yes as long as I can get local support and really give the car a look over/fit and test drive. I want the process easy and painless.
I hope a general switch to a DTC model brings back a colorful (literally colorful) car market. Less of this “buy what’ we’ve got stocked on the lot” and more of a “pick it out exactly the way you want it” type deal.
Yes, I know you can order a car from most companies. But that family buying a Model Y likely got exactly the color the wanted compared to if they had just gone with whatever Mach E was available on the lot because I doubt most Mach E buyers ever consider ordering.
I have special ordered and not special ordered a few new cars and would love to do it again. I am surprised that more people don’t get what they want vs whatever greyscale blob that is on the lot. I also do not get why people are fine with some used POS vs ordering what they really want.
You gotta fight for your right to….
Is VIN etching part of the protection package?
I could see Scout being tacked on to the side of VW dealers like BMW -> Mini.
I empathize with dealers because there are jobs at stake, but those same dealers have left a bad taste in a lot of peoples mouths. Something has to give, offering better products is a start.
“here’s some good news: Porsche’s profits are on the rise again. The new CEO seems to be doing a good job, and it’s starting to show.”
Good news for the executive bonus pool and shareholders perhaps, less good news for the customers.
Profit by definition is after all the surplus money paid for something after all the costs to manufacture that thing are subtracted. So higher profits are hardly good news for customers unless they enjoy overpaying for things.
TBQ Bosch. Their products are in pretty much everything and they are, according to Wikipedia, the biggest automotive supplier in the world:
https://en.wikipedia.org/wiki/List_of_the_largest_automotive_suppliers
Those profits also go toward keeping the company in business, developing new products and improving existing products.
A not-for-profit business still has to charge more than costs or it will fail.
A guaranteed 10 year treasury pays 5%. A company that has the risk of loss or complete failure has to make more than a bond otherwise nobody is going to invest. No investment – no company.
What do you expect to make on your investments?
Most important German brand in 2035? I’m going with Opel or MAN.
I’m planning a trip to the UK next year, and keep toying with the idea of buying a car over there to drive for the 10ish day trip and then shipping it home. It would be hilarious to pick something from this show!