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War of words erupts between car brands and dealers, government enrages both

Australia's car manufacturer peak body accuses government of pandering to dealers. The dealer peak body retorts that the government's position is a kick in the guts to its members. What exactly is going on?

1 month ago
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Mike Costello
Comparisons Editor

The peak body for Australia’s new car dealers today pilloried the Federal Government for announcing a set of voluntary guidelines intended to make agreements between car manufacturers and their franchisees fairer.

The Australian Automotive Dealer Association (AADA) called the government’s voluntary ‘best practice principles for new car dealership agreements’, released late last week, “a do-nothing policy cynically released on a Friday afternoon”.

On the other hand, peak body for car manufacturers, the Federal Chamber of Automotive Industries (FCAI), has slammed the very same Federal Government-created principles for ‘pandering’ to car dealers and siding with them over car buyers.

Therefore, it seems the Federal Government has managed to irritate both sides in a pitched battle.

Let’s rewind for a second, to give some context. The Morrison Government put out a press release last Friday co-signed by Ministers Michaelia Cash and Michael Sukkar detailing “six principles, designed to help steer contract negotiations” between car brands and dealers.

Rather than have extra legislative teeth, these ‘principles’ are voluntary guidance billed as addenda to the amended franchise code announced in June this year, and enforced by the Australian Competition and Consumer Commission (ACCC).

Context

Running concurrently with this issue is a Senate Inquiry into the relationships between car manufacturers and dealers, which came about after the initial Inquiry into GM Holden’s conduct during its sales wind-up was deemed to lack breadth and scope.

It’s seeking to work out if more government protection is required for car dealers, many of which claim to have the balance of power stacked against them in relation to multinational car brands. Naturally this view is not shared by the car brands themselves.

Plans announced by Honda and Mercedes-Benz to shift to a new ‘agency’ distribution model that would change the role played by franchise dealers in the car buying process, were seen as partial catalysts for an examination of these industry relationships.

We recently spoke to Mercedes-Benz Australia boss Horst von Sanden to understand that company’s rationale.

Submissions have been made by car brands, the FCAI, AADA, and aggrieved dealers such as Astoria Honda, and findings will be reported on March 18, 2021. You can find a public list of all submissions in this database if you’re interested in going deeper.

War of words erupts between car brands and dealers, government enrages both

The principles

The government announced on Friday, December 11, six broad suggestions to facilitate fair and collegial agreements between car brands and independent dealers. They are:

  • “Franchisors (car manufacturers) should include provisions in new dealership agreements that provide for fair and reasonable compensation for franchisees (dealers) in the event of early termination resulting from withdrawal from the Australian market, rationalisation of their networks, [or] changes to their distribution models.
  • “Franchisors should not include provisions that exclude compensation in new dealership agreements.
  • “The ‘fair and reasonable compensation’ as referred to in Principle 1 should include appropriate allowances for… lost profit from direct and indirect revenue, unrecovered expenditure and unamortised capital expenditure where requested by the franchisor, loss of opportunity in selling established goodwill, [and] wind up costs.
  • “When an agreement is entered into it should provide franchisees a fair and reasonable time to secure a return on investments that have been required by franchisors as part of the agreement.
  • “Agreements should include reasonable provisions for franchisors to compensate or buy back new vehicle inventory, parts and special tools, in the event of non-renewal, withdrawal from the Australian market, rationalisation of their networks, or changes to their distribution models.
  • “Agreements should include provision for timely commercial settlement and dispute resolution.”
War of words erupts between car brands and dealers, government enrages both

Government

“The Morrison Government has worked to balance the need to better protect car dealers with an environment that is attractive to manufacturers to invest in our nation – as well as ensuring the best deal for everyday Australians buying vehicles,” said the statement published on the website of Minster for Industry, Science, and Technology Karen Andrews.

“The government acknowledges that this is a dynamic and changing industry and will review the relationship between car dealers and manufacturers in two years,” it added.

So, to the responses from chief lobby groups on both ‘sides’ of the issue.

AADA

“The Automotive Principles released by the Federal Government on Friday, are a kick in the guts to all of Australia’s new car dealers and their 60,000 employees,” said the AADA.

The AADA’s chief executive James Voortman, who we interviewed at length earlier this year, came out swinging.

“Just when dealers thought this year could not possibly get worse, Minster Karen Andrews has sided with multinational car manufacturers, some of which have treated Australian dealers and their customers with absolute disdain in 2020,” he said.

“… What we have to today is a do-nothing policy cynically released on a Friday afternoon.

War of words erupts between car brands and dealers, government enrages both

“The voluntary approach being announced by the government is doomed to fail and the potential damage that can be done before these principles are reviewed in two-years’ time is immense.

“One need only look at how GM reacted when asked by Minister Cash to engage in voluntary arbitration – they ignored and dismissed this request.

“The government has said that they want to create an environment ‘attractive to manufacturers’. If this means allowing foreign importers to walk all over Australian businesses, everyone should be concerned.

“… Make no mistake, this is a victory for multinational car manufacturers. Companies like GM who terminated dealers with inadequate compensation only to start a new business in Australia under a different name.

“… Claims by the Minister that these principles will protect dealers and benefit consumers are disingenuous and demonstrate an optimism borne of ignorance. They will achieve no meaningful result and completely fail to hold the manufacturers to account.

“… It is so disappointing that the government has sided with big multinational car manufacturers. It is dealers who employ 60,000 people. It is dealers who take on thousands of apprentices. It is dealers who pay their taxes here in Australia,” he said.

War of words erupts between car brands and dealers, government enrages both

FCAI

The FCAI referred to the principles as “unhelpful” given “the Australian commercial environment is already governed by a raft of regulatory checks and balances covering all parties, including dealerships”.

“Government intervention is needed where this is a clear market failure, not to halt progress,” contended FCAI chief executive Tony Weber.

“Steps by the government and dealers to deter change and innovation will come at the expense of consumers.

“Like every other part of the retail economy, the way customers wish to buy vehicles is changing. This change should be encouraged by government, not hindered to maintain a cosy relationship with car dealers.

“The government’s most recent regulatory reforms in this area were released on 1st June 2020. The real impact of these reforms in the marketplace has yet to work its way through the system.

“Continually adjusting the framework just leads to greater uncertainty,” he said.

MORE: ‘The ’70s are gone’: Car dealers must be prepared to evolve, says FCAI chief


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