Car-makers slam franchising discussion paper

The Department of Treasury has officially called for feedback in a discussion paper focused on automotive retailing – and the body that represents auto brands in Australia is not happy about it.

In a press release issued yesterday, Federal Chamber of Automotive Industries chief executive Tony Weber said the discussion paper was unlikely to benefit Australian families.

“The ink is not yet dry [on] far reaching industry regulations introduced last month. Their impact needs to be seen before more regulations are contemplated,” said Weber.

“The government describes its franchising reforms as having already delivered ‘big wins’ to dealers, but where there’s a winner there’s also a loser – and in this case it’s the Australian consumer.

“Automotive franchising is a consumer issue, not an industry protection issue. It should focus on

providing consumer choice not dealer protection at the expense of all others.

“Regulation should encourage innovation and flexibility for business, not leave it anchored in the last century.”

Red tape appears to be at the heart of the FCAI’s concerns.

“Over-regulation will not protect the industry but what will is a choice of sales models, better service and competitive pricing,” Weber concluded.

The discussion paper calls for submissions from interested parties prior to August 30. At present, as the paper reveals, any disputes between franchisees (dealers, in the case of the automotive industry) and franchisors (vehicle importers/distributors) are handled through an existing franchising code with its own automotive-industry component added since June of last year.

This provides the dealers with the legal leverage to resolve disputes concerning capital expenditure – when the dealer is required to stump up a lot of cash, for instance, for new corporate livery to rebrand – or for ‘end of term’ arrangements – when the car company demands the dealer hand back the franchise, or ‘retires’ the brand, as was the case with Holden.

Dealers can also seek redress through Australian Consumer Law.

The further amendments to the franchising code of conduct in July of this year – Weber’s ‘far reaching industry regulations’ – could be labelled ‘the Holden clause’.

Car companies are now required to specify how much compensation the dealers will receive should the car company in question leave the local market, and the penalties are not to be sneezed at.

Some of the options canvassed by the discussion paper include:
- Appropriate protections for dealers from unfair contract terms with car companies
- Merits of a stand-alone automotive-specific franchise code of conduct
- Options for mandatory binding arbitration for auto franchisees

In this last option, a dispute between a franchisee and the franchisor is to be arbitrated by an independent third party, and the losing party is to comply with the arbitrator’s findings.

These changes could be implemented as part of new reforms to the existing franchising code, or underpin a stand-alone automotive franchising code yet to be devised.

That choice is another aspect where the government is seeking guidance through submissions from stakeholders.

A senate inquiry that handed down its report in March of this year “found that multi-national corporations that are car manufacturers can exploit new car dealers due to a power imbalance,” according to the discussion paper.

Among the problems leading to disputes, dealers felt they were not seeing a reasonable return on their capital investments, they weren’t being properly compensated for warranty and recall work, and they were subject to what was described in the discussion paper as “unfair contract terms” in the franchise agreements.

Finally, the dealers said they were being short-changed in the event of a franchise agreement being terminated or not renewed.

The FCAI has got out on the front foot, pre-empting submissions in response to the discussion paper, but the AADA (Australian Automotive Dealer Association) has also been lobbying hard on behalf of its members.

Unattributable sources have informed carsales that the most vocal dealers demanding change to the franchising code or development of a stand-alone code for the automotive industry are those who are franchisees of European brands.

Their grievances rest with the projected cost of future investment and the short-term nature of the agreements.

There are reportedly a large number of dealerships on the market currently, and that may be unlikely to change before the industry adopts a stand-alone franchising code of conduct.