Dealer lashes car manufacturer 'harm'

A confidential submission to a Senate inquiry has attacked the “power imbalance” between car manufacturers and dealers in Australia.

The submission is from a multi-franchise family-owned business selling more than six automotive brands, with more than 100 staff and a turnover beyond $100 million per annum.

The submission is to a Senate inquiry into the relationship between car manufacturers and dealers.

Conducted by the Education and Employment References Committee, the inquiry starts taking public and in-camera evidence from witnesses today.

The writer of this submission will give evidence to the committee in-camera, as will a number of other dealers. All up, the committee has received more than 20 confidential submissions that are not available to the public.

“I imagine that many of those confidential submissions have been made by dealers who feared commercial retribution by the manufacturer had the submission not been confidential,” the dealer principal wrote.

“That is unfortunately a sad indictment on the power imbalance and the current state of the commercial relationship between most manufacturers and dealers in Australia.

“I am convinced that the more the committee investigates, the more egregious conduct will be revealed. I am certain that it will also encourage many other dealers to bravely emerge and describe the harm caused to them by manufacturers paying little regard to their investments and businesses.”

One dealer that has made its feelings publicly known is Astoria Honda Brighton in Melbourne, which has revealed in its public submission it is taking Honda to court in an attempt to receive better compensation following the termination of its franchise agreement.

It is understood three other Honda dealers are joining Astoria in the action.

A small group of Holden dealers are also said to be preparing a class action against General Motors in the wake of the closure of that brand.

In the confidential submission, the multi-franchise dealer principal outlined a number of ways manufacturers control the relationship with dealers.

A key issue is the apparent lack of respect many brands show for the multi-million-dollar investment made by dealers in their brand.

“The level of capital assets invested by dealers amounts to millions of dollars,” the submission stated. “All dealership businesses, including my own, employ large numbers of staff. Once a dealer is invested in a franchise with a manufacturer, the manufacturer seeks control and exposes the dealer to the danger of opportunistic conduct and behaviour.”

Target setting for both sales and service performance was one way this control was achieved, the submission stated.

“In the past 20 years, bonus money linked to target/performance achievement has replaced the dealer sales margin. In many cases, including my own, failure to achieve targets can render the dealership unprofitable,” the submission stated.

The dealer stated the performance target pass mark including a rating of customer happiness was equivalent to nine out of 10, while 8/10 was a fail. The dealer said this was “grossly unfair”.

The dealer argued linking sales and customer satisfaction in a single rating was not appropriate because some buyers may regret their buying decision and financial commitment and blame it on the dealer.

The submission pointed out the service and repair rating could be impacted by vehicle faults at manufacture, something which is beyond a dealer’s control.

The dealer principal also complained about sales target-setting that can be upped at short notice without consultation. Failure to meet the target results in the loss of bonus money.

The dealer also revealed that three staff members had been diagnosed with depression in the past 12 months because of the pressure imposed by target setting.

The dealer principal wrote that staff training was another frustration. Manufacturers can punish dealers for not meeting training obligations, which they are charged for.

“In most instances, the training is of a repetitive nature and does not add value or skills to the dealership’s staff,” the submission said.

“The training is conducted by the same external trainers for different brands. It is the same training with a different brand logo.

“Manufacturers appear to use training as an additional profit centre of their business.”

The dealer also stated tenure of agreement was nowadays far less secure for dealers. While the dealer did not dispute a manufacturer’s right to end an agreement, it was argued it should be done in a less arbitrary fashion.

“Dealers are expected to invest millions of dollars in capital with as little as one or two years secure tenure,” the dealer said in the submission.

“The risk of receiving a termination or non-renewal letter is a matter of grave concern for dealers. There are many instances of dealers who have been terminated or non-renewed and lost their franchised businesses, once worth millions of dollars, which disappeared with the stroke of a pen on a termination or non-renewal notice.

“There are a minority of manufacturers in Australia that rarely have disputes with their dealers; significantly, those manufacturers all facilitate a sale of the dealership from an outgoing dealer to an incoming dealer in order to create a soft landing for the outgoing dealer.”

The submission also warned about the agency model Mercedes-Benz and Honda will both soon be adopting in Australia and other manufacturers are considering.

The multi-franchise dealer said compensation must be offered to dealers not wanting to become agents, including for customer information and database.

“To date, compensation has not been offered to dealers for this transfer in capital assets to the manufacturer,” the submission stated.