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NSW Senator says Mercedes-Benz misled Senate over agency switch

Labor Senator Deborah O’Neill accuses luxury car brand of lying to the Senate and hurting dealers, something the company strongly contests.

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Mike Costello
Mike Costello
News Editor
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ALP Senator for New South Wales, Deborah O’Neill, has essentially accused Mercedes-Benz of lying to the Senate when explaining its new ‘agency’ business model, and the expected impacts on dealers.

Speaking in the Upper House in late March this year, Senator O’Neill accused Mercedes-Benz’s local management of misleading a Senate Committee hearing looking at the relationship between car manufacturers and car dealers, in Australia, during November of 2020.

The agency model, which Mercedes-Benz Australia shifted to at the start of 2022 and Honda in 2021, means the car company now controls its nationwide new stock and sets prices, rather than wholesaling vehicles into dealers who then negotiate prices with customers.

The luxury car brand has long said its customers want transparent pricing, equal access to vehicles regardless of where they reside, and a simpler buying process. It also says dealers (or agents) would have reduced business risk by avoiding the need to finance their inventories.

MORE: Q&A on why Mercedes-Benz is changing its dealer model

“The Mercedes-Benz agency model only relates to new vehicle sales. Based on industry data, the majority of a dealer’s profit is derived from other parts of their business such as vehicle servicing, part sales, pre-owned vehicle sales and financing,” Mercedes-Benz claimed in its Senate Submission.

“With the Mercedes-Benz agency model, agents will be better placed to focus on the core business of delivering an optimal customer experience during the purchase of their vehicle.”

As reported late in 2021, Mercedes-Benz is also switching to this agency sales model in Europe, having reached an agreement with the European Association of Mercedes-Benz Dealers.

While Mercedes-Benz’s 50+ Australian dealer operators all signed up to the revised agreements (after existing dealer agreements lapsed by design at the same time) they claimed last year to have done so under duress.

They launched a $650 million compensation case in Federal Court citing good-faith aspects of franchise law being breached, which is ongoing. Mercedes-Benz Australia claims to have consulted widely with its dealers throughout the move, which it calls “a lengthy and inclusive process”.

At the issue’s heart, the dealers say they deserve compensation for signing up to a business model that will make them less money after investing millions into building Mercedes Benz’s public-facing brand. It’s less about banning the agency model than it is compensating dealers who feel they’re being strong-armed into adopting it.

“Far from delivering benefits to consumers, the switch proposed by Mercedes-Benz is driven by a desire to appropriate more than $650 million in the value of businesses built up by dealers without a cent of compensation,” added James Voortman, ​​CEO of the Australian Automotive Dealer Association (AADA).

In her four-minute presentation, ALP Senator O’Neill said “the growing power and arrogance by large multinationals in Australia have found fertile soil in the government’s stuttering actions to introduce fairness into our franchising sector”.

This refers to news from March 2021, detailing changes to the code governing contracts between dealers and their franchisors – an issue that hit the public eye when Holden exited the market and was later accused of shabby treatment of its dealers. A subsequent Senate Enquiry was expanded into a more general look at the industry.

The Australian Electoral Commission Transparency Register shows the ALP received $83,200 from the AADA in 2020-21.

“Seven key assertions were made by then senior executives of Mercedes-Benz in statements to the Senate Education and Employment References Committee on the 23th of November 2020,” said Senator O’Neill.

“Mercedes-Benz asserted that the dealers were happy with the proposed changes,” Ms O’Neill added.

“That they had consulted widely with the dealers regarding the changes, that the agency model would be a win for dealers, that the reason Mercedes-Benz was shifting to the agency model was driven by consumer benefits, that dealer profits would not be impacted, that Mercedes-Benz was committed to the dealers for the long term, and that Mercedes-Benz would not profit from the shift to the agency model.

“I assert under the weight of current evidence that Mercedes-Benz appear [sic] to have mis-lead the Senate Committee. The dealers detailed statement of claim from the Mercedes-Benz dealers in their current court action instead pours water on those seven claims.

“The dealers were not happy with the proposed changes, and in multiple meetings – multiple meetings – voted overwhelmingly not to proceed with the agency model. Mercedes-Benz did not consult widely with dealers, in fact when dealers tried to negotiate some of the terms of the model, Mercedes-Benz issued a dispute notice under the franchising code.”

The Senator then claimed it was “merely… about ensuring greater profits in Stuttgart, instead of main streets in suburban and regional Australia”.

“This is an extremely serious matter and begs the question: if Mercedes-Benz are willing to perpetuate untruths to the members of the Australian Senate, who else are they willing to lie to? These untruths must be called out in the public interest, in the interest of Australian business and Australian dealer networks.

“The Australian Senate must not be treated with contempt by large multinationals who are only concerned with extracting profit and shipping it offshore.

“I will be watching developments and, given the seriousness of my concerns, I intend to take this matter to the Senate Education and Employment References Committee to request that it be raised with the President of the Senate as a matter of privilege.”

Speaking in response, a Mercedes-Benz Australia spokesman replied with the following statement – limited in scope due to the ongoing court case which CarExpert will be monitoring.

“Mercedes-Benz Cars Australia has long flagged a move towards modernising the purchasing experience for our customers,” the company said.

“Notwithstanding the fact that all of our dealers have signed on to the new agency model after a lengthy and inclusive process, unfortunately some of our network have elected to commence legal proceedings.

“It would be inappropriate to make any comment, until such time as the legal proceedings have been concluded. We ask that the court process be respected at this time.”

More stories on this often confusing topic can be found here.

MORE: ACCC ends Holden investigation, but lambasts its conduct
MORE: Dealers the winners in new Federal franchise code
MORE: Mercedes sticks to its guns, dealers seek compensation over agency switch
MORE: Australian dealer association savages Mercedes-Benz, FCAI over ‘fake news’
MORE: Mercedes-Benz convinces European dealers to adopt agency model

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Mike Costello
Mike Costello
Mike Costello is the News Editor at CarExpert.
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