Dealers the winners in new Federal franchise code

It will be harder for carmakers to terminate their agreements with dealers in Australia under new rules laid out by the Federal Government.

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Scott Collie
Scott Collie
Deputy Editor
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Carmakers and their franchise new car dealers will soon be bound by a tougher set of rules.

Changes to the code governing contracts between dealers and their franchisors “bring a degree of balance to the relationships”, said James Voortman, CEO of the Australian Automotive Dealer Association (AADA).

Carmakers can be fined up to $10 million by a court for breaching the new code, which was this morning announced by Prime Minister Scott Morrison and Federal Minister for Employment, Skills, Small and Family Business, Michaelia Cash.

“We expect big multinational companies to deal with Australian companies fairly, and to do the right thing,” Prime Minister Scott Morrison today told media.

The new rules make mandatory parts of the franchising code that were previously voluntary, and increases the maximum penalty for non-compliance from $66,000 per breach to $10 million.

It also explicitly references dealers acting as sales agents for carmakers which have transitioned to an agency sales model, such as Honda and Mercedes-Benz.

Carmakers which terminate franchise agreements or change contracts without properly consulting dealers face fines under the new code.

Previously, carmakers were able to end franchise agreements at short notice with little justification.

The AADA, which represents new car dealers in Australia, described the reforms as “sensible and fair”.

“Mandating the principles for new dealer agreements, ensuring agency agreements are captured by these regulations and setting appropriate fines for breaches of the franchising code are all very welcome measures,” Mr Voortman said.

“Only manufacturers who ride roughshod over Australian dealers will have anything to fear from what has been announced today.”

Mr Voortman pointed to the departure of Holden, and Honda’s decision to move from a dealer model to an agency sales model, as evidence for why the code is required.

“The industry is in a state of rapid change and all dealers ask is that major changes see manufacturers engage in a fair process and provide adequate compensation,” Mr Voortman said in a statement.

However, the peak body for carmakers in Australia said “over-regulation of any industry is not a solution to solving issues and forging strong, sustainable and profitable business relationships”.

“In Australia, we already have extensive competition and franchising regulations. They should be allowed to work without introducing new regulations that can stifle innovation which impacts consumers and the thousands of people working in the national dealer networks,” said Federal Chamber of Automotive Industries chief, Tony Weber.

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Scott Collie
Scott Collie
Scott Collie is the Deputy Editor at CarExpert.
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