Volkswagen Sued by Its Franchise Dealers: A Channel Conflict!


So let me tell you the story. On April 2016, three Volkswagen franchise dealers in the U.S. blamed Volkswagen for installing pollution-control cheating device to their diesel cars. The problem is getting worse because the German car manufacturer failed to fix the problem.

The first suit was in Chicago. The lawsuit was filed by franchise dealers in Florida and Illinois. They attempt to be the representative of all franchise dealers in the U.S.

The fraud scandal negatively impacts to the franchise dealers. The profits have been lost and the dealerships have dropped because they were unable to sell tens of thousands problematic cars to consumers.

Well, Volkswagen itself admitted that last year it had installed engines on proximately 11 million vehicles worldwide. The engines control cars’ emission only during testing session. Then, the emission controls switched off when the car was on the road. In effect, not only the fuel efficiency and performance effectivity increased, but also the emission of nitrogen oxide pollution.

(Source: IndustryWeek 2016)

(Source: IndustryWeek 2016)

If you are interested to more information about this hot scandal, here is the link:

So many aspects we can learn from this issue

You can learn this scandal from many perspectives. There are so many issues related to the scandal. For example, it is about environmental issue. The production of nitrogen oxide excessed the U.S. legal standard.

But this scandal also negatively impacts on the relationships between Volkswagen and its many stakeholders in the U.S., including consumers, government and also franchise dealers and rival franchise dealers.

And related to the relationship with the franchise dealers, you can learn this scandal as an example of a channel conflict in marketing perspective.

So what is channel conflict?

Chang and Gotcher (2010, p. 287) defined channel conflict as a situation when one channel member feels that another channel member conducted a behaviour that is preventing it from achieving its objection.

We can differentiate channel conflict into two types: external conflict and internal conflict. The external conflict is the channel conflict between entities in supply chain, while the internal conflict occurred on the functional groups within the company.

Poor products from manufacturer to retailer, like in this 2016 Volkswagen case, is one example of channel conflict scenario. This scenario makes U.S. Volkswagen franchise dealers to get upset not only because they are unable to sell the vehicles, but also because it creates more inventory space to store the failed products as well the carrying costs.

(Source: Fisk 2016)

(Source: Fisk 2016)

What can we do to prevent channel conflict?

To reduce channel conflict, Cunningham (2013, p. 82) highlighted some resolution strategies. They are including better communication, better business planning process, clear goals and expectations, clear roles and responsibilities and understanding the performance metrics and criteria. Trust and confidence are also essential keys to develop better channel relationship.

Now what can we learn about the channel conflict in Volkswagen?

The U.S. Volkswagen franchise dealers want to maximize profit by selling cars from the manufacturer in an established channel relationship. But the problem is, the relationship between the franchise dealers and the manufacturer is poor on the communication. The dealers felt that Volkswagen had betrayed them by installing illegal devices. The relationship lacks of trust and confidence.

Now I know what you are thinking about channel conflict. We are all agree that no one wish for a conflict, right? But channel conflict is not always a bad thing. It actually encourages efficiency and innovation. However, if you are not careful, of course it can be harmful and destructive to channel relationship (Cunningham 2013, p. 79).

So let us just hope that we are all can learn from our conflicts


Written By: Fanaldi Fadillah Fedrizal (Student ID: 215335291)



Chang, K-H and Gotcher, DF 2010, ‘Conflict-coordination learning in marketing channel relationships: The distributor view’, Industrial Marketing Management, vol. 39, pp. 287-297

Cunningham, MK 2013, ‘Reducing Channel Conflict’, Journal of Marketing Development and Competitiveness, vol. 7, no. 1, pp. 78-83.

Fisk, MC 2016, VW Sued by U.S. Franchise Dealers for Diesel-Scandal Losses’, Bloomberg, retrieved 13 May 2016, <;.

IndustryWeek 2016, Dealers Sue VW for Diesel-Scandal Losses, IndustryWeek, retrieved 13 May 2016, <;.



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